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How Blockchain Can Increase the Efficiency of The Freight & Logistics Industry

Originally published on: CoinSpeaker
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January 05, 2018

Photo: Matt Champlin / Flickr

Photo: Matt Champlin / Flickr

Trade is an important factor in the development of our economy and the emergence of modern civilizations. The oldest money based on coins can be seen as a substitute for trading values, too inconvenient for carrying them by hand, or goods that are physically absent nearby, and therefore the money itself requires logistics. Together, trade and logistics are the backbone of the every major civilization since close to the beginning of mankind.

Globalization has opened new trade routes, technologies have changed the opportunities for buying and spending, and, naturally, the need for transportation has reached its historic high. Unsurprisingly, most shipping customers are shocked and confused when looking for brokers, still relying on obsolete paper documents, written manifestos and verbal arrangements for the delivery of goods from one point to another. It’s time for a breakthrough in the handling of the freight process.

Market Review

The movement of goods has a significant and growing influence on the daily lives of people around the world. According to a market report published by Transparency Market Research, “The market’s global value is expected to grow to $15.5 trillion by 2023 , making it one of the largest industries on the planet”.55 billion tons of freight was transported in 2015, with expected growth to 92 billion tons by 2024.

The United States is the largest, but also the most fractured market in the logistics world.  With nearly 4 million total drivers (1 of every 9 being an independent owner-operator), 500,000 trucking companies, thousands of adjacent logistics companies, and making up nearly 10% of the GDP, it’s the biggest target.

For the process of shipping freight it is possible to use various channels: air, sea, rail and road. The life cycle of any transportation, regardless of the channel used, is determined by four main participants. Shippers are the customers of the logistics services; they are the actors who have freight and need it transported. They don’t want to coordinate the actions of several drivers, they need a fixing price and responsible for the cargo.

Brokers coordinate carriers to organize multimodal orders. They act as dispatchers of the industry. Carriers can be rail, air, sea, road and others. But most carriers operate only in one segment. Drivers are operators of a specific vehicle from the park, some are “owner-operators.”

Problems of Modern Logistics Industry

Here’re the main problems of the modern logistics industry:

If a package is delayed or late, but it`s location information is regularly updated, this reduces the likelihood of customers sending complaints or will require reimbursement. However, the transportation industry does not meet this requirement. Tracking problems lead to confusion among carriers, failed handoffs, failed deliveries, and even lost shipments. Economically, this is a disaster. Loss of efficiency, fuel and time, as well as partial loss of production, are added to billions of dollars a year in the freight industry – the costs that brokers rarely cover and that completely fall on the shoulders of the senders.

The lack of transparency is mainly due to unsatisfactory data processing practices (or, worse, to the deliberate failure of the parties to provide accurate data). Often, due to fragmentation, insecurity or to protect the exclusivity of their schemes, brokers can not or do not deliberately notify the sender of the names of carriers and the names of drivers involved in the carriage of the goods.

The US Federal Bureau of Investigation estimates the annual losses associated with the theft of goods in excess of $ 30 billion in 2016 and predict further growth, with an average theft amounting to 190,000 US dollars. Theft of cargo increases the prices in the industry by about 20%, which adversely affects all customers of the freight industry, that is, practically on  every person on earth.

Usually, brokers charge the cost to their own advantage, sometimes up to 30-50%, increasing the cost of the cargo and reducing the payment of carriers.

All of the above problems, together can be defined as a problem of improperly constructed incentives. It is profitable for all to show dishonesty towards the next party and  break laws  or safety standards of global manufacturers lack information and material visibility across their supply bases. tandards. In this regard, senders and customers are interested in finding a better solution.

How Blockchain Can Solve the Problems

According to KPMG, 40% of world producers are experiencing problems related to lack of information and control of materials at their supply bases. In some cases, companies continue to use paper accounting books to track their products. That leads to considerable losses of time, resources and money.

To solve this problem, modern technology is required, but it is possible to use a fairly simple concept. Imagine a fully integrated system covering the whole supply chain from the time of shipment from the enterprise, field or farm to the delivery of the final product to the customer’s site, combined with the non-trusting and transparent contractual contracts.

Upon delivery and confirmation, the contract will be completed and recorded on the main blockchain, releasing any payment escrows. A system based on a blockchain system will ensure the encryption of each individual route point, which will be available for interpretation only to the parties involved in the process. This will increase the visibility in the supply chain for senders and will simplify the possibility of communication for carriers, reducing delays and misunderstandings.

Blockchain will help eliminate the need for brokers, providing carriers with the ability to search for supplies and providing an intelligent route for transportation by all modes of transport, based on factors such as distance, weather conditions, fuel consumption, etc.

The use of blockchain technology in the freight industry to encrypt geographic data increases the visibility of cargo and thus dramatically reduces the level of theft. Using barcodes or hardware integration, RFID provides an automatic asset check each time you send reports to electronic journals. By bringing accountability to every step of the process, the blame game between carriers, brokers and shippers is mitigated.

Due to the encoding and encryption of information about route points and cargo data, the delivery of a digital escrow for the fair assessment of the actual arrival of goods as part of specific deliveries is possible. Conflicts between the parties regarding the location of goods are excluded.

  • The life of ordinary consumers will change for the better

This will happen because the value of goods will be reduced. By reducing the amount of loss, fraud, and theft, as well as cutting out some unnecessary intermediate costs, we would expect that consumers will see logistics contributing less to the price of finished goods and food.

With proper application, the blockchain can revolutionize both domestic and international markets for the transport of consumer goods.

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