Blockchain: The Potential to change the entire economic world

Gauci-Maistre Xynou (Legal | Assurance) | View firm profile

The shipping industry has been given a fresh opportunity to
strengthen the security of their data that could spell the end of paper
documentation.  Blockchain technology promises to revolutionize container
logistics by connecting the supply chain in a way the industry has never seen
before. Should the technology enter operation it could also bring annual cost
savings, eliminate time-consuming processes, as well as create trust and
partnership to all parties involved. Blockchain establishes a shared, immutable
record of data which is encrypted and inherently resistant to modification,
requiring confirmation from all participants in the network before any changes can
be made.

What is blockchain?

A blockchain is a database that is used to store digital assets or
transactions which is then replicated and shared across a network. There is now
wider interest from the maritime industry in the potential uses of this technology
to streamline maritime transactional processes.

Its ability is to create “mutual distributed ledgers,” which are
self-governing, tamper-free, online databases that no one owns but that
everyone has access to and can trust. It promises the potential of mass
disintermediation of trade and transaction processing.

Container logistics is rooted in a byzantine world of legacy IT
systems, massive amounts of data-entry-type paperwork and milestone management
processes. Each process requires a different set of documents, typically done
by humans interacting with multiple parties, whether that’s with legacy
computer systems, email, phone calls or sometimes even faxes.

Each of these interactions represents a potential point of
failure, vulnerable to illicit manipulation or simply human error.

The money spent on processing documents that are not digitized is

The introduction of blockchain in the marine shipping environment
eliminates much of the problem in today’s cargo logistics process. Each blockchain
consists of records, called “blocks,” which reference and identify the previous
block using a cryptographic function. This forms an unbroken, verifiable chain
of custody. Old transactions are preserved forever and new transactions are
irreversibly added to the ledger. The beauty of this process is that it’s
distributed, meaning it can live on multiple computers at the same time,
accessible to anyone with an interest in that particular transaction. So it
literally could enable smaller companies to be more agile within the global
trade environment.

Blockchain Benefits

A blockchain has three main characteristics that lend itself to
improving transactions. It is distributed, immutable and permissioned. As the
information within a blockchain is duplicated throughout a network it is not
stored in a centralized location, which allows anyone to access an up-to-date
version of the information (distributed). The information is protected as old
blocks cannot be tampered or altered, and new blocks of information must be
verified by consensus of other members in the network before it is appended to
the previous block (immutable). Which, in the maritime example as it uses a
private blockchain, can only be done by those within a set network that have
the correct read/write approval (permissions). This creates a tamper-proof and
time-stamped digital paper record of the origin and journey of all the
transactional documents.

For the maritime industry, the cost and efficiency benefits of
blockchain technology are noticeable in the context of cargo management, as the
safety of cargo transportation requires considerable logistical and
administrative investments. In the case of paperwork, these include Bills of
Lading, Letters of Indemnity and Charters. To complicate matters, cargo, like
oil, can be sold multiple times in rapid concession during short voyages. The
final paperwork must be signed and approved by a multitude of entities within
the transaction before the cargo can be discharged. This, in turn, would mean
it must be couriered between these entities, which is both time-consuming and
expensive. With the adoption of blockchain technology, it could create a more
efficient and secure platform for transactional demands.

Blockchains would also help replace the typical transactional
paper documents with digital forms. By allowing IoT (Internet of Things) port
infrastructures to automatically update cargo information it would also allow
for the tracking of containers from boat to stack, or verifying the weight of
goods during discharge.

Blockchain in the Real World

The main attraction of blockchain as an efficient platform is to
reduce the instances of an criminal or terrorist activity.  Two examples
of document fraud for criminal gain that blockchain could inhibit are Forged
Bills of Lading and the “Trojan” Container.

In the first instance, an attacker creates a fake set of Bills of
Lading (acknowledgement of receipt of cargo) to allow the discharge of cargo in
advance of the intended receiver. To create these ‘documents’, it requires
specific “insider” knowledge of the cargo. Blockchain technology can limit
viewing rights to specific documents within the transaction to the multiple
entities that require it. It also would create a log every time a document is
viewed and by whom. This digital verification of paperwork would mitigate
against the acceptance of forged Bill of Lading by local shipping agents.

In the second scenario, the spectre of the “Trojan” container is
becoming more common as vessels are able to carry a far greater number per
voyage than ever before.  With the turnaround times in ports kept to a
minimum in order to reduce downtime of vessels, it is impossible to rigorously
check the manifests and contents of all containers. Therefore, containers
carrying cargo different from that of the official documentation is a genuine
possibility.  Incorporating a blockchain system into the customs processes
would reduce the required time for the verification of documents to occur.

In both of these examples, there is potential for terrorist groups
to utilise these attacks. By being able to hide cargo in containers and
circumvent the port security, it can allow the movement and trade of weaponry
or explosive materials used to fund terrorist activity.

Risks and Challenges of Blockchain

Blockchain technology facilitates customs clearance processes
through integration of electronic processes.

There are potentialities for an attacker or hacker to manipulate
the transactional system. This highlights the human oversight that should
remain in order to verify the accuracy of inputs.

There is also an interest in the possibility of implementing smart
contracts, which would allow the automation of parts of the transactional
cycle, including the ability to issue a refund if cargo verification fails.
Currently, within transactional documents, there are a wide range of clauses,
including force majeure (unforeseen circumstances affecting charter) or
demurrage (failure to meet contractual agreements). This makes it difficult to
build these into an automated system as insurers rely on their claim adjusters
to make a fair assessment of the facts pertaining to the loss. An automated
database would not be able to account for the ramifications of breaches due to
the type of transaction, the vessel classification and the route for example.

Also, there needs to be a system of governance and consciousness
that we apply when determining whether the technology should be deployed.

Relationships that are valued in the market today will look
completely different in the future. Today it’s human-to-human selling or
interaction, whereas tomorrow most of this information or the ability to create
those relationships will be managed more by technology and by processes rather
than human beings selling to each other. Blockchain would dehumanize the
process of buying, selling and perhaps operating.

At the same time, there’s a duty of care to ensure this technology
is implemented in the right settings. For example, we don’t need to go and
create social-economic issues in developing countries where jobs might be
replaced by automation. But at the same time, in European and Western countries
where we have a higher head-count cost, the technology can enable us to reduce
those costs.

 The Future of Maritime Blockchain

If successful it could lead to the reduction of paperwork required
per transaction, in turn, reducing overall costs and improving efficiency. A
trading platform based on blockchain technology could create an auditable and
tamperproof paper trail which in turn will improve overall confidence in the
transactional security and reduce the scope for criminal and terroristic

Blockchain will also allow humans to collaborate with each other
and create the trust that has never been created before. It has a very
wide-reaching potential that, if applied in its most holistic sense, would be
extremely beneficial.

Wide-scale adoption of the technology could be hampered, however,
if large industries and the people involved in supply chain management don’t
move beyond the current “proof-of-concept” trials out of apprehension over
sharing data. Or worse, from fear about how it will change their business
models. And that’s the biggest risk of all: that the technology won’t be used.

The beauty of the technology is that no one needs permission to
implement the use of blockchain; there are no regulations—the field is wide
open—we can simply go ahead and do it. But there’s an inherent lack of
understanding of the technology that is inhibiting a more widespread use.

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