Using blockchain to mitigate risk in container operations – a researcher’s perspective

blockchain - shipping and freight resourceThe outlook

The theory is that an adopter of technology will not be eager to join in because the technology looks fancy.

A difficulty that Blockchain is struggling to address is that its true potential might only be realized when everyone is on board, but the benefits it brings back might not be visible to all or is not tangible.

The managing board expects the providers to show them how their solution would help them make money while ensuring an acceptable level of risk, not how much they have to pay to join in another platform that they have to add to their collection of systems to be maintained.

The role of CIOs and CTOs is therefore critical to make his/her company become an educated buyer in this emerging market.

A recent study by Son Nguyen, Peggy Shu-Ling Chen, and Bill Yuquan Du at Australian Maritime College, University of Tasmania, Australia revealed the potential of the increasing complexity of system management and the emerging of multiple-event risk scenarios originated from the information flow of the industry.


Blockchain solutions are being realized in container shipping

Blockchain is an interesting case of technology application in the maritime industry. Though the media and the salespeople brought the technology awareness to the industry together with a massive wave of start-ups, the capability and maturity are not up to the pitch in many cases.

The inflation of the marketing departments might have gone too far. Here and there, blockchain is sarcastically called by practitioners as “a solution in search of a problem”.

This assessment does not deny the fact that blockchain, at least in theory, is revolutionary in many aspects, posing a significant disruption that even potentially barring it from being adopted.

In container shipping, considerable efforts have been put on blockchain integrated solutions. Initiated by Maersk and IBM, TradeLens is gaining critical mass with more and more parties connected to its blockchain network built on Hyperledger Fabric and IBM’s cloud infrastructure.

CargoX’s Smart B/L has recently been approved by the International Group of P&I Clubs. Other names also emerged, such as T-Mining (PIN code use case for Antwerp Port Authority), GSBN, AntChain (blockchain deal with COSCO), 300cubits.

In a more inclusive vision, blockchain is finding various use cases in supply chain management.

blockchain

Would container shipping operational risk still be a problem?

The participation of technology powerhouses like Ant Group and IBM and industry giants like Maersk, MSC, CMA-CGM, COSCO in the blockchain-integrated solution market certainly provided a sense of credibility to the technology.

With the blockchain’s progressive adoption, its capability in improving the visibility, integrity, transparency, and resilience of the information flow has been demonstrated at the operational level.

Nevertheless, would applying blockchain mean the container shipping industry be free from current eye-soring information operational risks?

Aligning with the Gartner hype cycle, limitations and potential hiccups are realized and addressed together with deeper integration and more featureful implementations.

By combining the results of blockchain technological risk studies, the reports from specialized institutes, technology solution providers, and adopters, 28 risks were identified in blockchain-integrated container shipping systems.

Furthermore, 47 causal connections were discovered among risks, creating an interconnected network of risks.

Not only serving as a manifest for industrial stakeholders in reviewing solution proposals, the network also unveiled interesting findings regarding the current issues that many parties in the chain should look into for sustainable digitalization.

Security and integrity of data in the blockchain might be secured…as long as it is covered by the blockchain network.

A notion that advocates and salesmen used is that blockchain will bring better data quality with higher security.

Well, sort of. Blockchain can ensure the immutability in the sense that the information is received, endorsed, and chained in the distributed ledger.

The fact that each party owns and protects a copy of the ledger significantly increases the effort needed to falsify data. However, the industry should be aware that that protection is limited by the reachability of the blockchain.

The gateways of information, if left vulnerable, are still deadly weaknesses. All agreed that carrier A reported usual temperature in the container, but are the sensors submitting it reliable?

Could the cargo declaration ensure to be correct? Of course, the trail of information is there, meaning the parties are more attached to their responsibility, but information integrity will still be a pain if blockchain’s members and blockchain service providers take their IT security lightly.

 

Smart contract still has a long way to go

Smart contracts are automatically executed with certain inputs, meaning that the agreed business model is enforced by codes and/or inputs recorded by the blockchain network.

The application of smart contracts in the financial aspect of the industry sounds unattractive, especially when the data quality still cannot be ensured, let alone other scenarios such as errors (programming bugs), or misunderstanding of smart contract’s behaviors.

Losing absolute control of their business activities is unacceptable from the adopters’ perspective. In the case of Hyperledger Fabric (powering TradeLens), the smart contract is used differently, to automate the update of the ledgers at all blockchain members, so-called “chaincode”.

The application of smart contracts is extremely uncertain, not only because of how it is implemented in particular solutions, but also the current underdeveloped legal framework and recognizability of authoritative bodies. If both parties agreed on a piece of code, could a court’s decision reverse the outcome?

 

The capacity of the blockchain network is not an issue…..…yet

The current technical level of blockchain development can maintain the continuity of operations in the container shipping industry. But it is worth noting that the true potential of blockchain requires a populated network with an adequate level of digitalization to be realized.

With the current situation of unstandardized operations in the information flow and the dependence of parties on legacy systems, bottlenecks are observable throughout the supply chain. Additionally, the resilience of container shipping against delays ensures that the throughput capacity of blockchain solutions might not be a pressing issue in the near future.

However, if blockchain-integrated solutions truly become a thing, technical evolvements to allow a larger amount of transactions to be processed per second might be required.

Risks such as lowered performance due to instabilities of infrastructure (e.g., cloud platform), smart contract errors, or cyberattacks might cause significant delays in the network.

The current proposals of blockchain platforms state that they can theoretically scale up to 10~20,000 tps, but the number in operation can be much lower than that, with much more complex situations. With solutions depend on public blockchains (e.g., Ethereum), the number is even lower.

 

System design with standardization is a key factor

The design of blockchains is critical toward the resilience of the network as well as the level of risk a particular blockchain-integrated system faces.

How many members are there in the network? Is there any point of centralization? And how vulnerable is it? How will the ledger be distributed and updated?

These elements will decisively affect the performance of the system. The interoperability of blockchain solutions is another issue, which is pushing the players in the industry to move from EDI to API, which is easier to use, share, and faster in its combination with cloud computing.

Many organizations and associations are trying to build a solid framework for a digitalized future of container shipping (e.g., DCSA, GS1, ISO).

 

About the author

Son Nguyen holds a Master of research degree in Transport Planning and Management and is a Ph.D. student in Australian Maritime College (AMC), University of Tasmania (UTAS).

He is currently researching the digitalization progress of the transport industry and its potential in changing the risks that members in the supply chain have to deal with. 

The above article is part of his fulfillment of a Doctor of Philosophy degree funded by the Tasmania Graduate Research Scholarship, iMOVE CRC and supported by the Cooperative Research Centres program, an Australian Government initiative.

The paper has been published on International Journal of Physical Distribution & Logistics Management (IJPDLM), Emerald Publishing. Permanent link https://doi.org/10.1108/IJPDLM-01-2020-0036.

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