Some of the largest supply chain companies in the world have begun the process of moving their work to a blockchain. A previously unnamed collaborative effort between the world’s largest shipping company, Maersk, and IBM, has now grown to 92 participants and been dubbed: TradeLens.
Far from an early prototype, the blockchain platform has been quietly orchestrating global trade with less reliance on middlemen for a year, resulting in 154 million shipping events in ports around the world, and is now growing at a rate of one million per day.
The cooperative effort now also includes Germany-based Hamburg Sud, which Maersk bought last year for $4 billion and U.S.-based Pacific International Lines, along with numerous customs authorities, cargo owners, and freight forwarders.
Collectively, the shipping companies account for more than 20% of the global supply chain market share, with 20 port and terminal operators in Singapore, the United States, Holland and more, serving 235 marine gateways around the world.
But perhaps more importantly, as of today, the platform is emerging from its beta test, is now accepting early adopter applications, and is announcing a new custom smart contract service for executing complex shipping orders with fewer middlemen.
“We have seen a lot of skeptics talk about the validity of blockchain solutions,” said IBM general manager and head of blockchain, Marie Wieck. “And I think with over 90 organizations and over 150 million events captured on the system we really are seeing proof in the pudding in terms of where people are spending their time to get benefits from blockchain.”
TradeLens gives users access to their own blockchain node similar to those on the bitcoin blockchain that lets users send money without the need of banks. But in the case of TradeLens, a shipper can cut out as many as five middlemen, even for simple queries such as identifying the location of a shipping container.
At stake is what Transparency Market Research expects will be a $32.9 billion global supply chain software business by 2026. As far back as 2015, the World Trade Organization estimated that simplifying the global supply chain could reduce costs among users by as much as 17.5%, with developing nations expected to see as much as a 35% increase in exports as they leap frog over legacy technology platforms.
“We think that this really levels the playing field in terms of participants’ access to a global platform, as well as sharing information economically,” said Wieck. “The scale that is building here is making that even more affordable.”
While the exact potential savings vary, Wieck says users can cut as much as 40% on shipping by compressing the time between each step to almost zero, and saving “thousands of dollars” per transaction. Additionally, Wieck expects users will be able to more effectively collaborate by having a real-time view of which products need shipping, and the location of the nearest empty containers.
“TradeLens is leveraging the benefits of blockchain as a technology for distributed information sharing,” said Wieck. “Whatever might be needed by customs and regulators to ensure efficient and safe trade, all of that information is available in real time to the participants.”
As part of that effort, customs authorities from Saudi Arabia, Singapore, Australia and Peru have also agreed to use TradeLens in varying capacities. Among the most significant agencies to join is the Customs Administration of The Netherlands, which expects to handle 15 million shipping containers this year and can facilitate as much as a third of all the trade passing through Europe, according to the agency’s head of trade relations, Frank Heijmann.
Heijmann says TradeLens was tested as part of a European Union security research project, called Core, with Dutch and Belgium Customs and the U.S. Customs Border Protection (CBP) “on a limited scale with a few companies in just a couple of trade lanes.” In spite of the limited scope though, Heijmann says “it is proven that the system has its value for trade and customs, so now it will be the time to expand” its use in parallel with the current risk mitigating systems.
“Maybe on the long-term, data pipelines even can take over the current customs declarations, once the information has proven to be sufficient and reliable.”
To generate that data, both IBM and Maersk are running a node on the distributed ledger built using IBM Blockchain, with each of the ocean carriers also expected to plug in. To simplify future integrations, a series of application processing interfaces (APIs) is also being released today along with the beta version of smart contract platform, ClearWay, which runs self-executing code that fills in for middlemen.
Unlike the bitcoin blockchain, and other “permissionless” blockchains such as ethereum and zcash, IBM and Maersk are charging to access the TradeLens distributed ledger. While pricing for access has yet to be solidified, it will likely adhere to industry standards by charging on a per-container basis. The ClearWay smart contract functionality will be priced separately.
Until that time though, the cooperative effort between Maersk and IBM will still need to make money. To do so, the pair of companies has shifted its business model away from earlier plans for a stand-alone joint-venture. Instead, the business operations of IBM and Maersk are now largely being managed separately, with the intellectual property that comprises TradeLens being co-owned and jointly developed.
But the new “cooperative” structure could unnerve some potential customers. The original purpose of the joint venture was to create a crucial sense of distance between the founding companies and their competitors who might also benefit from the platform. To help off-set those concerns the CEO of Maersk’s New Jersey-based TradeLens operation, Mike White, says a number of barriers have been put in place, including contractual restrictions on sharing data and technical barriers in the form of the independently managed blockchain nodes.
If successful, TradeLens might literally embody the common refrain among blockchain users that “all ships will rise” when they use a shared, distributed ledger. Facing decreasing global freight rates, Maersk last quarter became just the latest container shipper to cut profit forecasts.
Among the competitors aiming to cut cost those costs and increase profits is the former head of blockchain at Big Four accounting firm Deloitte, who earlier this year announced he was raising $100 million to launch a supply chain platform using the ethereum blockchain and blockchain startup Fr8 that is preparing to raise $60 million via an initial coin offering to build its own blockchain logistics platform.
“The value proposition is for all ecosystem participants,” said White, who previously worked as the CEO of Maersk North America. “The ability to get better access to more real-time data, to have better visibility end to end, to be able to connect one to many in a more efficient and effective way, makes the cost of getting that information lower, it makes the ability to manage your own business better, and it makes the ability to service your customers that much stronger.”
Courtesy of forbes