In the fall of 2018, dexFreight made headlines when it completed a blockchain-based shipment using smart contracts. The company teamed up with a seafood wholesaler, carrier and smart contracts platform provider to ship 5,320 pounds of frozen food from Medley, Florida to Sunrise, Florida.
Moving frozen foods from Point A to Point B certainly isn’t newsworthy, but the process behind the transaction was. Funds for the transaction were held in escrow by the smart contract integrated platform and were automatically released to the carrier upon delivery.
All of this became possible through dexFreight’s blockchain-based verified identity and objective reputation system created from smart contract data and key performance indicators (KPIs), such as on-time pickup and delivery, on-time payments, loading and unloading times, freight claims, etc.
Upon the transaction’s completion, Rjat Rajbhandari, CEO and co-founder of dexFreight, reported in a press release, “This is a huge milestone toward an imminent transformation of the logistics industry through the adoption of blockchain technology.”
News headlines proclaim blockchain will revolutionize, transform, disrupt and change trucking and logistics as its momentum builds. Early adopters, such as Walmart Inc., which began requiring its leafy green suppliers to track their produce from farm to store on its blockchain platform, are propelling its use forward. In fact, experts predict that blockchain use in trucking and logistics will become commonplace within three to seven years.
Among the uses for blockchain in trucking are smart contracts, carrier performance history, vehicle maintenance, compliance, payments and pricing, cold chain validation, damage verification and detailed driver information.
But what exactly is blockchain?
Imagine a chain necklace and how each link in the chain attaches to the one before and after it. A blockchain is a little like that. All information added to the blockchain is housed in what is known as a block and all these blocks link together to form a chain.
All the blocks put together can tell you a story about the data in the database (when it was updated and by whom) because each block holds a data record containing a unique identifying number (or hash) as well as information from the block before it.
In addition, blockchain is a database that does not have a central point; data in this database is housed on many different computers in many different locations. When someone changes a record in this decentralized database, all the computers in the blockchain receive the updated information. This is possible because every participant in a blockchain system occupies what is known as a node, which gives them access to the entire database record or data story.
These combined features form an independent, transparent and permanent database, coexisting on multiple servers in multiple locations, and shared by a community. This database can be trusted for three primary reasons:
- Data added to a blockchain undergoes a vetting process to reach critical consensus,
- Data added to a blockchain can be trusted because it goes in with digital signatures, and
- There are multiple copies of the information meaning it cannot be changed without others in the database knowing of the change. If a user independently changes a copy, it becomes inconsistent with the rest of the data.
Therefore, what goes into a blockchain remains unchanged and unaltered, which is why it can be used to store information relevant to business transactions and why it offers a host of uses in the trucking industry. Every transaction that takes place on the blockchain is visible to everyone else on the network, and nothing can be removed. This transparency removes the points where fraud occurs and eliminates double brokering.
Sometimes blockchain is confused with cryptocurrency. But the two are not one in the same. Blockchain started as the underlying technology layer to allow the exchange of cryptocurrencies (digital or virtual currency) between parties. Essentially, in its original form, blockchain allowed Party A and Party B to transact with each other without an intermediary and share information across an entire network.
Blockchain has since evolved. It’s not just a public network that allows sharing of information in a decentralized manner. Now there is a group-based blockchain (called consortium-based), which allows restrictive access that is not open to the public; it’s private. Permissions can be used to allow third parties and intermediaries to be part of the process and provide value within the transaction’s journey.
Of the three existing types of blockchain – public, private and consortium – most believe that trucking and logistics will rely on consortium, which allows access only to specific members of the consortium or group. In contrast, a public blockchain is open to anyone, while a private blockchain requires permission to access.
However, trucking and logistics may end up using all types, depending on the circumstances of the situation. For example, payment transactions might be a consortium or private, while sharing geo-locations of shipments might be public. Privacy is also a determining factor of what is shared.
How can blockchain be used?
One of the most basic implementations of blockchain can be found in streamlining the payment system.
Currently, much of the industry relies on a paper-based model to process payments. On average it takes 45 days to get a payment executed and settled. By digitizing routes and putting smart contracts into the blockchain, a transfer of funds can occur as soon as a delivery is completed. Basically, the contract executes itself, as the dexFreight example showed. This digitized process eliminates the need to file paperwork requesting payment, sends money electronically and drives efficiency by decreasing the number of days it takes to execute, settle and pay on transportation-related transactions.
This capability can reduce or even eliminate disputes. Blockchain would automate proof of delivery, expediting payments and settlements. Today, if a company decides not to pay a transportation bill, a trucking company may have to submit and resubmit paperwork many times before the issue is resolved. But with smart contracts and blockchain, the company is paid immediately.
Another area where blockchain would be useful is maintenance. Trucking companies could employ blockchain to maintain indisputable maintenance records on their vehicles. The blockchain would maintain an item-by-item record of vehicle repairs for every truck in a fleet. Companies could buy, sell and repair vehicles with verifiably accurate records in hand.
Blockchain could also be paired with Internet of Things (IoT) sensors to share geo-location information, which enables businesses and/or consumers to know at a glance where their goods are. Customers can see their goods in transport, estimate their delivery and know in real-time when there is a delay. This use in food logistics would enable distributors to quickly trace contaminated food back to its source, reducing the tracking process to minutes instead of days. IoT sensors placed inside the truck can monitor temperature, and if the temperature rises above what is considered safe, the driver could be notified automatically and the truck rerouted to a closer location before the food spoils.
Digitization will be able to give companies and consumers peace of mind, allowing them to know where their products are, when they are going to arrive and the environmental conditions that were faced along the way.
In addition, blockchain introduces transparency, which can help all involved see when and where capacity opens. With this information, trucking load-matching apps can identify excess capacity across a distribution network and coordinate load distribution and transportation.
What are the barriers to implementation?
As with every new technology, blockchain must overcome a few hurdles before its use is widespread.
First, the industry needs to leave its analog days behind.
“The industry has to have more digitization of the paper-based environment surrounding invoicing in order to start using blockchain, and to harness its actual value,” said Arlen Stark, chief of staff for the Blockchain in Transport Alliance (BiTA). “Several technologies are readily available to convert that paper invoice to a digital invoice, whether it’s through the use of EDI, API or by driver’s taking a photograph and sending it out electronically. There are several ways to do it, but to harness the potential value of blockchain, the analog environment has to be digitized in some way.”
Once that happens, Stark explains it will be possible to look at what needs to be done to have an executable and potentially enforceable smart contract tied to a blockchain transaction. Then, instead of going back and forth over email, phone, or digital contract execution platforms like DocuSign to execute a contract, a smart contract is in place and once certain conditions are met, the contract will execute, and payment will be triggered.
Additionally, privacy concerns will need to be sorted out as all participants hold and can view the data in the blockchain, except for data that is marked as private. Stark said, “The early adopters are going to find ways to use the technology irrespective of privacy. They’re believers in it no matter what. But for others to feel comfortable and to gain mass adoption of the technology, things like privacy and processing time acceleration will need to be taken into consideration and accounted for.”
Collaboration is key as it will require all involved to adhere to the same protocols and standards to harness the potential value.
Finally, because blockchain code is open source, it can complicate the protection of intellectual property rights. That is becoming less and less of an issue, added Stark, who stated that companies are now more openly discussing what they are doing and how they’re doing it as it pertains to blockchain and other technologies that tie into blockchain.
“Every company is at a different stage in its blockchain journey. Some are very heavy on the tech side of things and well-versed in the technical aspects of blockchain, and then you have companies that are in the very early stages of adoption,” he said. “We have to cater to these different stages of knowledge as it pertains to this really awesome technology.”
But when it all shakes out, Stark concluded, “Digitization, and the application of emerging technologies like blockchain, hold huge potential to accelerate the adoption of value-adding business processes. This is particularly true for trucking, one of the largest and most important industries in our economy."