Why Blockchain Projects in Logistics Have Taken Off
May 23rd 2018
Blockchain and logistics are a perfect match. The use cases surrounding logistics are simple, one of the primary reason for so many of the blockchains currently active and in use are logistics or supply chain based. But another reason many haven't considered, is that blockchain benefits logistics and supply chain corporations more obviously than any other.
Our experts and consultants at BlockchainDriven saw initial interest and knowledge about blockchain coming from those in finance, but more often than not little came of it or they chose to proceed slowly. In supply chain and logistics we've seen the opposite. Once we've given executives the initial consultation and understanding of how they can utilize blockchain and explain the risks versus the benefits, they were prepared to dive right in.
For corporations, the first and primary benefit, is economic value. Reducing loss, faster and more efficient shipping or transactions, accountability throughout the chain, having advantages over the competition resulting in a higher volume of clientele. The finance industry wouldn't see these advantages as immediately, and while the finance industry is adopting blockchain, progress is simply slower.
The other reason is that many industries looking into blockchain are adamant about a horizontal network rather than vertical.
When it comes down to integrating a blockchain solution, enterprises can decide between three choices: public blockchain, private blockchain, or consortium blockchain. Consortium blockchain rightfully presents the best architecture for enterprises due to flexibility of adding new nodes to the network, while having capabilities open to decentralized or even distributed networks.
Current consortium blockchain solutions are mostly focused on horizontal architectures where a number of competitors in one industry are bundled up together as validators or miners of all transactions that take place inside the network. The reason why horizontal architectures take longer to be implemented is that they are vouching for a much more distant future thinking process where access to data is not as important as real-time analysis of that data and real-time analysis and pivoting of business processes.
Enterprises value data tremendously, since their current business models are based on certain information assymetry, which while important, does not present the major factor in shared economy. The fact that enterprises value their data so much and are not willing to make it open to other stakeholders (whether in public or consortium blockchain networks) even if encrypted sabotages the entire process of blockchain revolution for public and private enterprises. Another thing is quite clear: businesses that do not jump on a blockchain train will be missing the train entirely.
BlockchainDriven consulted a number of public and private enterprises and came up with the most relevant solution that would suit existing realities. Instead of focusing on horizontal structures with competitors fighting for the same pieces of data, we decided to focus on vertical consortium blockchains. The major difference is that vertical blockchains incorporate stakeholders in the entire supply chain of a business as opposed to its horizontal counterparts.
When we are talking about supply chain, we do not mean supply chain / logistics only, as any industry from financial to healthcare to marketing to government has a number of vertical intermediaries who could all become validators in the blockchain network. But supply chain is the easiest field test to understand, so even banks building out blockchains are opting to field test the logistics aspect of their blockchain technology.
The majority of intermediaries are interested in the successful implementation of blockchain network as such architecture will make business processes more efficient and more frictionless. Those intermediaries who base their business models on assymetry of information or exclusive business relationships will be less willing to become part of the network in the short-term, missing out on the opportunities presented in the long-term due to the fact that blockchain - the network of trust - will solve the problem of trust supremely well.
One of the rather public use cases includes STCC, an SEC-registered company involved in the distribution of o-rings in the United States. Due to a number of stakeholders in their supply chain, STCC forecasts tremendous savings in regards to transaction fees. Based on their 8K report, STCC reports that "the DiMO smart contract system can potentially minimize these [transaction] fees and anticipate charging a nominal fee of 90 basis points (...) of the total transaction value for every transaction executed through the DiMo marketplace."
While the short-term outlook is to save transaction fees, the long-term goal of implementing a vertical blockchain-based marketplace could have a number of advantages among others, including greater network of influence, lower cost of inventorying, pricing competition, and anonymity of buyer and seller. St Gobain, one of the major global supply chain players, was exploring opportunities presented by blockchain technology with the BlockchainDriven team to understand relevance, suitability, and value-add advantages presented by blockchain technology compared to traditional database systems such as ERP.
To recap, we expect to see more supply chain and logistics corporations looking to quickly build out their own blockchain projects, while large enterprises are already testing the water using the simplest, most readily beneficial use case of blockchain technology. It is now that we are compiling information about how revolutionary and disruptive this tech can become, and as we see results, new use cases will be built out and tested. For now, logistics and supply chain remain the industry championing blockchain progress.