Despite the blockchain has become a hit, shipping still stays in ancient times, and the processes the parties follow are really old-fashioned. Mountains of paperwork include bills of lading, letters of credit, sales contract, and others pertaining to the vessel and the cargo. All these documents have to pass through at least 30 parties and occur almost 200 different interactions. Numerous intermediaries lead to systematic inefficiencies and rampant fraud, which make it difficult to put checks and balances in place.
Aimed to optimize current procedures, UPS declared that they were going to join Blockchain in Transport Alliance (BiTA), a forum for the development of the blockchain standards and education for the freight industry, and play a significant part in integrating the blockchain systems into shipping industry as a whole. But how does the blockchain that was inspired by a digital currency fit into this traditional industry exactly?
The Use of the Blockchain in Shipping Industry
What’s really fascinating about the blockchain is it is able to create decentralized and secured ledgers and form a single electronic place where countless documents related to a shipment could be stored.
Except for its use as a public ledger, the appeal of blockchain technology also lies in its ability to create “smart contracts”, which are originally self-executing contracts that shall automatically implement the terms and conditions of any agreement between the parties. After a shipment is confirmed and put into the blockchain, no party can falsify there cords. Once transactions are logged, smart contracts will be executed by the network which uses consensus protocols to identify subsequent steps, such as payments, document approvals, etc.
Benefits Afforded by the Blockchain
The use of the blockchain in shipping sector not only turns the whole process into a paperless one, but multiple parties who have the required access key are able to maintain the network where encrypted information cannot be hacked or fraudulently manipulated.
In this case, the security and transparency of the process are largely improved. Counter-party risk is mitigated to some extent when any party can access the historical transactions and recorded transactions are immutable.
Additionally, as blockchains can be effectively tracked through all processes, companies using this technology will be allowed to readily produce a detailed lifecycle report for a product, and make it possible to better track orders and cargoes.
Blockchain technology is able to detect attempted fraud as well due to the fact that the users cannot interfere with the system and alter the information housed in the blockchain. Any attempts to change previous transactions will change the codingof event, which is visible to all the parties. Such protection mechanism practically prevents intentional fraud and theft that plagues the industry. After all, cargo theft takes up approximately $30 billion per year (U.S.) annually with an average theft value of $190,000, according to FBI’s report.
The world is run by trade. If the blockchain is adequately leveraged in