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Blockchain in logistics: What it is and how it’s changing the industry

Written by Beth Owens on February 9th, 2021

Most of us have heard the term ‘blockchain’ at one point or another. But far fewer have an in-depth understanding of how it works and what it can be used for (take it from us; it’s far more than just Bitcoin!) 

However, there’s set to be a significant shift as blockchain technology becomes more accessible and widespread – including in the world of logistics, shipping, and freight. The blockchain logistics and supply chain market is set to grow to $3.3 billion by 2023, which is set to usher in a new era for the industry.

So, what does blockchain mean for these industries, and how can merchants and 3PLs take advantage of its powerful capabilities? 

By the end of this post, your business is going to have answers to these questions. So, read on! 

What is blockchain technology?

Before we dive into blockchain logistics, it’s important to make sure that everyone reading is on the same footing. So, we’re going to start with the basics: What exactly is blockchain?

In its simplest definition, blockchain (also known as ‘Distributed Ledger Technology’) is a decentralized digital database or ‘ledger’ for storing large amounts of information that individuals or companies can access globally in real-time. 

In essence, blockchains function as a kind of peer-to-peer network, often linking thousands of individual servers with full insight into the activities of that blockchain. So, when someone wants to add information to the ‘end’ of this chain in the form of a transaction, order, or data entry, this can only be done with the consensus of everyone within the network. 

This verification helps to ensure accuracy and full transparency over the activities taking place within the blockchain and is just one reason why businesses across industries are showing interest in how this technology could be applied to help streamline operations and eliminate costly errors.

How does blockchain actually work?

In a blockchain system, data is stored within a digital ledger in batches known as ‘blocks’. Information can be added to a block by any computer within the network and time-stamped to verify its authenticity. When a block has reached capacity, it’s tied to previously-filled blocks in chronological order, hence the name ‘blockchain’.  

All entries to a blockchain are encrypted via what is known as a ‘hash algorithm’ to secure the data and link it directly to the preceding block. This makes it impossible to alter any data within one block without altering the rest within that chain, which makes for an extremely secure storage system.

Because the data is stored in a strict sequence, this also enables everyone to see the full history of additions and edits (very much like the version history on a shared Google doc) preventing that blockchain from being changed or removed without the awareness and consent of all systems in the network. This makes it virtually impossible to hack or steal sensitive information from a blockchain or for it to be lost due to a system outage (since it’s held collectively). 

What are the advantages of using blockchain?

Accuracy

Every record added to a block needs to be approved by every computer in the network, which safeguards against human error in the verification process. 

Traceability

Because data entries to a blockchain are time-stamped and visible to all parties, this makes it easy to see the progression of the chain over very long periods of time. This is ideal for information that may be required for auditing purposes, such as financial records. 

Data security

Because digital ledgers are decentralized and replicated in every device belonging to the network, blockchain is incredibly resistant to technical failures that could result in the loss or corruption of data.

Flexibility

The nature of blockchain makes it possible to record any data that you want to keep secure and accessible, making it applicable to a broad range of industries.

3 ways that blockchain is changing the logistics industry

The logistics industry is growing increasingly complex, with supply chains involving a growing number of locations and third parties for the processing, fulfilling and shipping of goods. With management often changing rapidly between stages, there is huge potential for miscommunication and error total place – one of the reasons why supply chain inefficiencies are costing businesses millions of dollars per year.

According to the World Economic Forum, widespread blockchain adoption could increase global trade by as much as $1 trillion over the next ten years by removing trade barriers and speeding up lengthy processes. In this fast-evolving landscape, logistics is set to be one of the big winners – if companies take advantage of blockchain’s capabilities. 

So, let’s take a look at some of the ways that blockchain is already transforming how we approach logistics:

Lowering administration costs

There’s one issue that has plagued logistics for decades; the so-called ‘paper monster’ of seemingly endless documentation, ledgers, and communications that characterize supply chain management.

Physical paperwork is costly, difficult to track, and easy to misplace, sometimes resulting in huge slowdowns in transportation and delivery because information isn’t readily available. As order volumes have steadily risen, administration costs have increased in tandem to such as much as 20% of total transportation costs.

The decentralized nature of blockchain allows important logistics information to be distributed between all parties involved in the supply chain with easy access. Major retailers such as Alibaba and Amazon have already begun experimenting with blockchain to make their cross-border operations more efficient. 

Real-time tracking

Visibility has long been one of the biggest challenges in logistics. As goods pass from one supply chain partner to another through different management systems, this can disrupt the flow of data and relies heavily on everyone having access to a multitude of platforms – an arrangement that is both time-consuming and costly to maintain.

 a cardboard shipping box in line with other boxes, floating above its base and scanned by lasers

With fast and same-day delivery becoming a bigger consumer expectation, real-time tracking that can be rapidly scaled has never been more important. With its chronological ordering of data, blockchain technology is an intuitive approach to recording every step of the order fulfillment or delivery process. Companies, such as ShipChain, already taking advantage of blockchain’s capabilities for more efficient shipping strategies.

Freight efficiency

With trucks moving over 70% of freight domestically in the U.S, this is a critical part of the supply chain which has traditionally been under-optimized. A fractured industry made up of millions of companies and drivers, trucks are driving more than 29 billion miles with partial or empty truckloads, usually due to issues of matching supply with demand.

Blockchain technology provides regular collaborators, such as (trucking companies, carriers, and 3PLs) with a secure and transparent platform for sharing the latest information on current and future order volumes, ensuring that forecasts can be better incorporated into logistics planning.

As a new technological frontier, blockchain is still in its infancy, so it’s likely to be some time before we see widespread usage by companies and 3PLs. But with its streamlined approach to information management, blockchain technology is set to revolutionize logistics by developing solutions for problems that the industry has been grappling with for decades.

Our biggest takeaway? Blockchain is a space that all companies should be paying attention to – there’s a lot of exciting developments on the horizon!

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