IBM-Maersk Blockchain Platform: Breakthrough for Supply Chain?

The last few months there was not much exiting news from the blockchain front. Most focus was on Bitcoin and other cryptocurrencies and their spectacular rise and fall. But that is changing (for the technology!), so back to reality!

There are various signals that a number of corporates are moving their blockchain projects towards production. We recently have seen the announcement of the IBM – Maersk project, to create a blockchain  based corporate. If accepted in a sufficient way by the various players in the shipping industry supply chain  that could mean a real breakthrough for blockchain and other distributed ledger technologies.

“The big thing that is missing from this industry to digitize and unleash the potential of the technology is really to create a form of utility that brings standards across the entire ecosystem,” Maersk’s Chief Commercial Officer Vincent Clerc  

Present challenges in the shipping industry

This announcement is an answer to the growing demand across the shipping industry for efficiency gains and opportunities coming from streamlining and standardising information flows using digital solutions.

The world’s shipping ecosystems with more than $4 trillion of goods shipped every year have grown in complexity. One major challenge with supply chain management in the shipping industry today involves record keeping. A lot of record keeping is still based on inefficient outdated systems. Along with paper legal documents, much of the international shipping industry's information has been transmitted via very old technologies.

Presently, many shipping supply chains are still confronted with enormous bulk of paperwork and bureaucracy involving many intermediaries in cross-border trade. Especially the traditional cross-border shipping processes usually involve manually transporting and verifying paper documents for each shipment. Just as an example: “a shipment of refrigerated goods for instance from East Africa to Europe can go through nearly 30 people and organizations and involve more than 200 different communications”.

This means that today, a vast amount of resources are wasted due to inefficient and error-prone manual processes. This could lead to lost documentation or delays in delivering. goods. These costs of the required trade documentation to process and administer many of these goods are estimated to reach one fifth of the total costs of moving a container. By the way, the cost of global trade is estimated at $1.8 trillion annually.

Why blockchain?

The attributes of blockchain technology are said to be ideally suited to large networks of disparate partners like the shipping industry. This technology opens up an entirely new set of possibilities and an innovative opportunity to engage the entire global shipping ecosystem.

Blockchain technology addresses the many supply chain challenges as it establishes an immutable record shared of all the transactions among network participants that is updated in real time, enabling permissioned parties in a private blockchain environment access to trusted data in real time.

Blockchain may emerge as a valuable tool that can allow all participants in a shipping industry supply chain to understand the movement of goods. For example, as goods move from one place to another or one part of a company to another, companies may use blockchains to keep track of how goods are moving and where they are. But blockchain may also enable things like supply chain validation, food safety verification, etc.

IBM – Maersk Joint Venture

This January IBM and the Danish global leader in container transport and logistics Maersk announced their plans to create a joint venture to provide “more efficient and secure methods” for conducting global trade using blockchain technology. For that purpose both companies will form a new blockchain-based electronic shipping and supply chain company whose aim is to commercialize blockchain technology.

The goal of the venture is to release a blockchain-based digital platform for all aspects of the global supply chain system, from shipping to ports, and banks to customs offices, to improve companies’ supply chains. Aim is to make global trade more efficient, transparent and secure. As such the companies will jointly bring the new platform to market with both companies providing intellectual property and supporting the commercialization of the technology.

Advisory Board
To address the specific needs of the industry, Maersk and IBM are establishing an advisory board of industry experts and government officials to help further shape the platform and services, provide guidance and feedback on important industry factors, and drive open standards.

Governance
Once regulatory approval is obtained, the joint venture will be owned 51% by Maersk and 49% by IBM. The new company will be headquartered in the New York area. The CEO of the new joint venture company will be Mike White, previously President of Maersk Line in North America. A Board of Directors will oversee the new company and include members from Maersk and IBM as well others from outside.

Global trade platform

The aim of the new company will be to offer a jointly developed industry-wide global trade digitisation platform for containerised shipping. The platform will be built on open standards and designed for use by the entire global shipping ecosystem. It will offer a suite of digital products and integration services to speed up ocean cargo shipping and mitigate supply chain risk.

The company will use blockchain technology to power the new platform, as well as employ other cloud-based open source technologies such as artificial intelligence (AI), Internet of Things (IoT) and analytics. The blockchain solution will be based on the Hyperledger Fabric and built by IBM and Maersk.

The aim is to introduce blockchain technology to link all the different global supply chain participants - including manufacturers, shipping lines, freight forwarders, third-party logistics, port and terminal operators, shippers, customs authorities and other actors - in one secure, digital platform where they can share and use information but also leverage the data to develop products for their customers and the industry.

It will be designed to help manage and track the paper trail of the many shipping containers across the world in real time by digitizing the supply chain process from end-to-end to enhance transparency and the highly secure sharing of information among trading partners.

Testing
IBM and Maersk began a collaboration in June 2016 to build new blockchain- and cloud-based technologies. Since their collaboration started, multiple parties have piloted the platform including DuPont, Dow Chemical, Tetra Pak, Port Houston, Rotterdam Port Community System Portbase, the Customs Administration of the Netherlands, U.S. Customs and Border Protection. The platform is currently being tested by a number of selected partners who all have interest in developing smarter processes for trade.

"Our ambition is to apply these learnings to establish a fully open platform whereby all players in the global supply chain can participate and extract significant value." Michael j. White CEO of the new company

How it will work
The solution will enable the real-time exchange of original supply chain events and documents through a digital infrastructure, or data pipeline, that connects the participants in a supply chain ecosystem. This enables detailed visibility of the container’s progress through the supply chain. Each participant in this supply chain ecosystem can view the progress of goods through the supply chain, understanding where an in-transit container is located. They can also see the status of Customs documents or view bills of lading and other data. No one party can modify, delete or even append any record without the consensus from others on the network.

Initial capabilities
The new company initially plans – upon regulatory clearance - to commercialize two core capabilities aimed at digitizing the global supply chain from end-to-end.

The first is a shipping information pipeline which will provide full end-to-end supply chain visibility, enabling all actors involved in a global shipping transaction to securely and seamlessly exchange information about shipment events in real time.

The second capability, “paperless trade”, will digitise and automate paperwork filings for the import and export of goods. This by enabling end-users to securely submit, validate and approve documents. Smart contracts will thereby ensure that all required approvals are in place, which will speed up approvals and reduce mistakes.

These core capabilities are expected to be fully released within a few months. As development work progresses, the scope of the platform will be expanded to include a wide range of digital services and solutions, supporting efficient and safe trade for all players, and speed up timeliness for cargo movement. Ultimately it will help manage and track tens of millions of shipping containers globally by digitizing the supply chain process from end to end.

What are the benefits?

The company intends to help shippers, ports, customs offices, banks, and other stakeholders in global supply chains track freight as well as replace related paperwork with tamper-resistant digital records.

"This new company marks a milestone in our strategic efforts to drive the digitisation of global trade. The potential from offering a neutral, open digital platform for safe and easy ways of exchanging information (in the supply chain) is huge (for the shipping industry), and all players across the supply chain stand to benefit," Vincent Clerc, Chief Commercial Officer Maersk and future Chairman of the Board of the new joint venture. 

Blockchains may benefit the supply chain ecosystem in various ways.  As blockchain will establish a single shared, immutable, real-time view of a transaction without compromising details, privacy or confidentiality, this platform may provide more transparency, visibility and simplicity, increased efficiency and greater speed  in the movement of goods across borders and trading zones thanks to reduced global trade barriers.

By providing a single view of all transactions taking place among a complex network of parties, blockchains can help eliminate considerable resource waste, reducing time and costs for clearance and cargo and also prevent fraud. This could lead to significant cost savings and increase trade.

Greater transparency
This level of transparency helps reduce fraud and errors, reduce the time products spend in the transit and shipping process, improve inventory management and ultimately reduce waste and cost.

Visibility
Shippers and everybody else in the supply chain will have fast, secure and thus more timely information end-t-end. This may offer better visibility into the state of goods and delivery, and will give manufacturers, wholesalers and retailers a better understanding of the causes of slowdowns or damage.

Securing transactions
Although blockchains alone will not be able to tackle all the challenges of the supply chain and logistics, they will contribute to better risk management including securing transactions, fighting fraud and limiting errors. By addressing both ends of the supply chain, it also addresses the threat of counterfeit goods, fraud and theft.

Quicker reconciliation
Improved record keeping, with distributed ledgers, could improve reconciliation. With distributed ledgers, manufacturers and retailers can all be looking at the digital and physical products in the supply chain, and they can all be looking at the same information, which enables them to cut steps in the shipping and payment reconciliation process.

Growing international trade
According to the World Economic Forum (WEF) by reducing barriers and the friction around information-sharing and border administration within the international supply chain, global trade could increase by nearly 15%, boosting economies and creating jobs. That could amount to trillion of dollars.

Improved financial liquidity
Blockchain can also improve financial liquidity for financial institutions delivering trade finance in the supply chain. Banks providing digital trade finance products will similarly get increased visibility of key events affecting their financing, as well as the digital documentation supporting the transactions. This may speed up the payments process, reducing the time for “trapped liquidity” at banks.

Savings
Blockchain technology can provide “massive savings” when used broadly across the ocean shipping industry ecosystem. This thanks to far lower administrative expenses and elimination of the costs to move physical documents across international borders. When adopted at-scale, the solution has the potential to save the global shipping industry billions of dollars a year by replacing the current outdated systems for tracking cargo and getting approval from customs and port authorities.

Commercialisation and acceptance

The new company will now enable IBM and Maersk to commercialise and scale the solution to further expanding their ecosystem of partners as they progress towards a global solution. Success of the platform, which will be made available to the ocean shipping industry around mid-2018, depends on acceptance of all participants in the supply chain and on whether Maersk and IBM can convince shippers, freight forwarders, ocean carriers, ports and customs authorities to sign up.

Many of them have already expressed interest in the capabilities and are exploring ways to use the new platform, including: General Motors and Procter and Gamble (to streamline the complex supply chains they operate), freight forwarder and logistic company, Agility Logistics (to provide improved customer services including customs clearance brokerage). Customs and port authorities in the US, Singapore, the Netherlands, and Peru also have shown their interest (to facilitate trade flows and enhance supply chain security), as well as the global terminal operators APM Terminals and PSA International (to use the platform to enrich port collaboration and improve terminal planning).

Breakthrough?

It is expected the joint Maersk-IBM venture to get regulatory approval in early spring and to begin selling software subscriptions by the third quarter of this year. This first open platform of significant scale for sharing information and developing digital products related to trade, could mark a milestone in the markets efforts to drive the digitization of global trade and bring blockchain forward. Given the broad business relationships of both companies this joint venture could speed up adoption of blockchain technology by the many organizations who play vital roles in the global industry shipping supply chain.

If accepted in a massive way  blockchain could be the long-awaited game changer that will enable truly integrated supply chains not only in the shipping industry but for a wider range of supply chains. A real breakthrough!