PERE: Driving value in European property
Insight | 6 minute read
Supply chains were, historically, relatively short and local. As they became global and more complex, spanning hundreds of stages, with a significant number of invoices and payments, often across numerous geographies, they also became more time consuming and costly to process.
Blockchain, a highly transparent and efficient technology, has the potential to positively impact the supply chain and its management, from point of origin to the place of distribution.
Blockchain was created in 2008 to serve as a ledger for transactions of the cryptocurrency, Bitcoin. Blockchain is an open, distributed ledger capable of recording transactions between multiple parties efficiently in a verifiable and irreversible way. As the name suggests, the ledger has blocks of information that are chained together in chronological order.
There are five principles underlying blockchain technology. The first is the distributed database. Every relevant party on a blockchain has access to the complete ledger (or database) — meaning no single party controls the data or information.
Secondly, blockchain is characterised by peer-to-peer transmission. Communication occurs directly between peers, as opposed to being channelled through a central node. Each decentralised node (or user) stores and forwards information to all other nodes.
The technology’s third principle is transparency with pseudonymity. Every transaction (and its associated value) or action is visible to anyone with access to the system. Each user on blockchain has a unique address that identifies it.
The fourth concept is the irreversibility of records. Once an action has been entered into the database, the records cannot be altered as they are linked to every action that occurred before it. Various algorithms and computational approaches are deployed to ensure the recording on the database is permanent, chronologically ordered and available to everyone with access.
Finally, blockchain’s actions can be tied to computational logic, or algorithms, and thereby programmed. This means users can set up algorithms and rules that automatically trigger actions between users.
Blockchain has the potential to increase the efficiency and transparency of supply chains with the benefits felt from less time in warehouses, to speed of delivery along the supply chain, to speedier payment of suppliers and delivery to the end consumer.
By way of example, a shipping container of flowers from Mombasa, in Kenya, to Rotterdam in the Netherlands was tracked, and found to go through, and required a sign-off from, more than 30 different organisations, with over 200 separate communications involved. Any misplaced paperwork or delayed approval could hold up the container in port for an undefined period of time, or perhaps lose it altogether, and the entire process could take more than a month.
In this example, Blockchain would record the transfer of the flowers throughout the shipment. Every time a pallet is moved, a container filled, or delivery attempted, it would create a record available for all parties to access. This provides a digital trail where all parties have end-to-end visibility of the container’s progress through the supply chain and at any one point all elements of a particular transaction can be accounted for. Delays are reduced, resulting in significant cost savings for all parties.
According to US transport firm Winnesota, for an average invoice, a company must wait 42 days before receiving payment. This is largely because current supply chains rely on paper-based systems, where forms must pass through numerous channels for approval, which increases exposure to loss, fraud, and delay. This delay is known as the lock-up period and significantly impacts on company profitability and ultimately consumer satisfaction.
Smart contracts, which are self-executing tasks that are coded through the blockchain and executed when a certain condition is met, make physical paperwork largely unnecessary. Approvals and customs clearance can be quicker and more efficient, reducing processing times for goods at customs checkpoints. With Winnesota reporting that administrative costs are up to 20% of the overall costs of transportation, the amount of money saved by using blockchain could be significant.
Whilst the benefits of applying blockchain technology appear obvious, one challenge is that logistics companies need to digitise and standardise their data so they can interact with each other. For some businesses Blockchain’s applications can be obscure and difficult to understand. Some however have recognised the potential benefits and this has led to the creation of BiTA (The Blockchain In Transport Alliance).
BiTA is the largest commercial blockchain alliance in the world, with nearly 500 members in over 25 countries that collectively generate over US$1 trillion in revenue annually. It was formed because leaders in the trucking industry saw the value of blockchain implementation into the world of logistics, similar to the previous example. BiTA’s ultimate objective is to form and promote the adoption of blockchain standards throughout the entire global logistics and freight industry.
With rising demand for same-day and one-hour delivery services, the role of blockchain is back in the spotlight. Many projects are underway to apply blockchain technology to the global logistics sector. If BiTA, for example, is able to advance blockchain’s application throughout the industry the potential efficiencies and innovative new services and business models created will be too substantial to ignore.