A digital revolution is sweeping the maritime shipping industry, and it’s bringing blockchain along for the ride.
That change is long overdue, according to a report released on September 10 by the Inmarsat Research Programme, a division of the satellite communications company. Despite the estimate that it is a $4 trillion industry, maritime shipping has largely been untouched by the internet revolution, said Nick Chubb and Leonardo Zangaro, authors of “How Startups are Driving the Next Generation of Maritime Trade.”
It’s not just a matter of being a little behind the times. “The systems and processes that enable maritime trade have been developed over hundreds of years,” they said. “Some key documents in use today, like bills of lading, would be largely recognizable to a Venetian trader operating 500 years ago.”
Perhaps unsurprisingly, the Inmarsat report places the blame for this directly on the prohibitively high cost of satellite Internet access at sea, a cost it says is dropping fast.
That puts the maritime industry in a position “to leapfrog the last 20 years of internet innovation and rapidly take advantage of all that the connected economy has to offer,” the authors argued. Using tools including blockchain, big data, artificial intelligence, and internet of things (IoT) technology, the “maritime internet is … transforming how the entire industry operates in much the same way that the internet has transformed how society and the economy functions.”
This process, which Chubb and Zangaro called Trade 2.0, is transforming the relatively new ShipTech industry. Already worth $105 billion, it will grow to $278 billion by 2030, they predicted.
“Blockchain has the power to transform everything from shipbroking and freight forwarding, to Admiralty Law,” said Chubb and Zangaro. “The entire trade lifecycle could be conducted through smart contracts that automatically pay out when certain conditions are met. Fed by a network of IoT devices, cargo will be monitored on its journey around the world. Whether it arrives on time, late, or not at all, the contract will execute automatically, paying each party in the value chain what they are owed. Contracts and their execution will no longer be based on English language and good faith, but rules built into code and data.”
Moreover, in an industry filled with old and giant corporations, startups are vital to this transformation, they argued, noting that nearly $200 million was raised from venture capital (VC) firms in 2018 alone. That gives new blockchain businesses a way to get their foot in the door.
Transforming the supply chain
The world’s largest shipping line, A.P. Moller – Maersk, worked with IBM Blockchain to build the TradeLens consortium. That group, which now includes the five largest shipping companies in the world, accounts for more than half of the market. The TradeLens platform tracks more than 120 separate types of data events across the maritime supply chain and processes more than 10 million transactions per week.
The need is so great that TradeLens was among the first industry-wide enterprise blockchain consortia to make it past the trial stage, when companies have to agree to work with their competitors. Beyond shipping lines, its more than 100 members includes port operators, customs enforcement agencies, logistics firms, financial service providers, and even the trucking and rail companies that take shipborne cargo out of the ports.
The advantages include the ability of companies shipping goods on the high seas, often on many ships from many different lines, to track every cargo container in one place. That’s why Procter & Gamble is also a TradeLens member. Permission-based platforms make data available to any party that needs it, but not to those that don’t.
In addition, blockchains’ distributed ledgers make recorded transactions almost impossible to edit, minimizing the risk of fraud. This has allowed the consortium’s members to “create a ‘single source of truth’ for tracking cargo across the supply chain,” Chubb and Zangaro claim.
“Blockchain technology can be implemented to create records of ownership and statements of fact that are far more secure than traditional methods, making it an ideal technology for replacing paper bills of lading,” they said. “[It] is becoming viable as a way of processing and managing customs declarations and certificates of origin, paving the way for smart transactions and automated customs processing.”
Moving all of that information to a trusted and immutable blockchain involving many if not most of the participants in the shipping supply chain has another benefit, the Inmarsat report said. Helping port and customs authorities sniff out smuggled goods and find out where they entered the channel is a key benefit of blockchain, especially when paired with IoT sensors. The U.S. Customs & Border Protection agency is a part of TradeLens, and in late August the Customs Department of Thailand joined.
“Using blockchain for the creation and authentication of certificates of origin or the authentication of goods has the potential to drastically reduce the likelihood of counterfeit goods making it across a border,” the report claimed. “With the input of so many different actors and a high level of trust required, customs is a clear use case for blockchain technology.”
In addition, speeding customs authorities’ work also has the benefit of speeding legitimate goods out of ports, which would significantly affect every participant’s bottom line.
In May 2018, the Singapore International Chamber of Commerce (SICC) launched a project to provide cargo certificates of origin on a blockchain platform, in partnership with local startup VCargo Cloud. Issuing and managing these certificates on the eCO platform will make the process easier, faster, cheaper, and far more secure, the company said in a release.
“This new eCO system revolutionizes what are today still essentially 19th century processes, providing greater security for all users as well as a clear, unambiguous audit trail through the use of blockchain technology,” said the SICC’s chief executive, Victor Mills, at the time.
The digital bill of lading
One of the most important of those 500-year-old pieces of paper that blockchain ledgers can replace is the bill of lading.
This document has three functions, the report said. “[I]t acts as a receipt that the goods have been successfully loaded on to the ship and what condition they are in; as a contract of carriage for the goods; and, most importantly, a deed of title proving ownership of the goods.”
A bill of lading is issued to the company shipping goods when cargo is loaded, and released after the goods have been unloaded and the shipping line paid. Only then is the cargo handed over to its owner. Currently, a bill of lading generally has to be physically sent by courier to the company that consigned the goods to be shipped before they are released. That can take days if not weeks.
“If the bill of lading is lost, damaged, stolen, or compromised in some way the goods can only be released by a court order, which can take some time,” said Chubb and Zangaro. On a blockchain it could be delivered in seconds.
CargoX, a Slovenian blockchain startup, creates smart bills of lading to “securely transfer the ownership of cargo from a shipper to a consignee instantly, saving days of waiting time and 90% of the costs,” the report said.
Along with the bill of lading, another important piece of paper is the commercial invoice. This documents the value of the cargo, as well as the basics of the financial transaction. It is required for customs clearance.
Then there are letters of credit issued by banks and other financial institutions that guarantee payment, and factors who loan money to pay the shippers up front. With about $3 trillion worth of trade supported by trade finance, this bridges the “cash flow gap and greases the wheels of international trade,” according to the report. It is particularly important for small and medium sized businesses and developing nations, it added.
In theory, that means there is a big window for blockchain-based financial services, which would, “exponentially increase the speed of financial transactions in the global trade ecosystem,” Chubb and Zangaro note. But, they added, “[t]here have been a number of attempts to create blockchain tokens for transacting shipping services, [and] none have achieved high levels of adoption.”
Given that 94 large ships sunk in 2017 alone, according to Allianz, maritime insurance is another area ripe for blockchain companies.
Maersk is also a leader in this field, having joined with Ernst & Young (EY), several leading insurers, and enterprise blockchain developer Guardtime to create Insurwave, a platform that will insure more than 1,000 commercial vessels in its first year, according to a release. It will include Maersk’s 350 ships, which are piloting the platform. In all, it will require more than a half million individual transactions.
Launched in June 2018, Insurwave “takes data directly from shipping companies, before verifying it, recording it as an automated ledger transaction, and then feeding it to insurers,” the Inmarsat report said.
By relying on that pipeline of trusted and immutable data, Insurwave will be able to have “claims paid in hours not years, [and] premiums agreed on in seconds,” according to EY.
“With this blockchain, we are bringing together—for the first time—all the parties of the insurance value chain on a single platform,” Martin Henley, CIO of Insurwave partner XL Caitlin, said in the release. “Ultimately, through the use of IoT and smart contracts, policies will be updated automatically to reflect the risks covered. [T]his combination of technologies will help improve efficiency in claims assessment and payment. Those are tangible wins for our clients, no matter their industry.”
The consortium plans to use the platform offer other types of business insurance, including marine cargo and global logistics.
Finally, blockchain-based shipping logistics platforms have one more potential benefit, Chubb and Zangaro said. Tens of thousands of ships “currently collect billions of data points each year about our oceans, world trade, and the environment,” they noted. “This data mostly sits in silos aboard each individual vessel, but liberating it will create entirely new tools, technologies, and methodologies with the potential to disrupt everything from environmental research to commodities trading.”