How Logistics Can Benefit from Cryptocurrency
This is a guest post by Kelly Skangale.
Cryptocurrencies keep growing in popularity as we cross the second quarter of 2020. By now everyone has at least heard about Bitcoin, Ethereum, Bitcoin Cash, and their peers.
Apart from being a trending new investment option, they also introduced Blockchain technology in all modern financial applications.
The ability to permanently record transactions on a public ledger has been a game changer for many different industries. And that includes logistics. Not only are companies able to tailor the tech to their needs, but it also improves transparency.
In this article, we will discuss the pros and cons of blockchain applications in the logistics industry. We will list the benefits and challenges that come with the process and conclude with our personal opinion. Let’s get started.
Blockchain Benefits in Logistics Industry
With so many benefits, blockchain seems to be a no-brainer for the logistics industry, which is why more companies are ready to embrace it. A 2018 Gartner survey disclosed that only 1% of CIOs reported investing and deploying it so far, whereas 23% have actual plans or interest in adopting it.
It’s very difficult for customers or buyers to know the true value of products because there is a noteworthy lack of transparency in our existing logistics system. Similarly, it’s extremely difficult to investigate supply chains when there is an uncertainty of illegal or unethical practices.
Blockchain has many benefits in logistics, which we’ll explore below.
Transparency has been a long-standing issue in the logistics industry. Thanks to blockchain technology this no longer has to be so. Through its implementation, every stakeholder is able to access and track deviations or variations in the supervision chain. They can also check the ownership of different assets. This is possibly the most important benefit for logistic purposes.
2. Reduced Transaction Costs
The logistics industry suffers from high processing and administrative costs. To receive a payment for an average invoice, a company needs to wait an average of 42 days, while more than 140 billion dollars are locked up in disputes related to transportation issues.
Blockchain-enabled solutions help to solve this issue as well. Not only will payments be cleared directly and automatically, but it will also lead to a higher level of profitability. It is estimated that the logistics industry will save more than $500 billion dollars per year when blockchain networks reach a higher level of adoption.
3. Faster Transaction Settlements
Since all blockchain transactions follow specific contract-bound agreement terms, transactions can be made instantly while delivery of product happens in a safer and more efficient way.
4. Eliminating Inefficiencies
Trucking and logistics have always had gray corners that lead to inefficient work. 9 out of 10 trucking businesses have less than six trucks in their fleet, leading to internal struggle. Due to this, drivers deliver unfiled truckloads that cover distances of more than 40 billion km per year.
Thanks to blockchain technology, this issue no longer needs to persist. By carefully implementing product tracking systems, this number could decrease drastically. Meanwhile, all parties involved in the process will know exactly what is in each and every truck.
5. Traceability Solutions
Another reason to implement blockchain technology in the logistics sector is the customer’s ability to track products. Current models are relatively outdated and not always reliable. Furthermore, it is possible to track whether a product is original or not through blockchain verification.
There are already several businesses in the restaurant industry that are testing this application, and with much success. One of the biggest benefits of traceability is the ability to match rate quotes to invoices and discover potential inconsistencies between them.
Blockchain-based systems are able to scale easily without any security issues. The only way to make changes to prior blocks is by rolling back all transactions, a process that is extremely expensive even for the wealthiest third parties. As such, it is safe to assume that blockchain solutions are impenetrable, and offer the highest level of security available.
7. Global Adoption
While blockchain was initially reserved for financial transactions, it quickly outgrew the sector due to its usability. At the moment, companies of all industries are starting to embrace the potential of this technology.
Due to the adoption of blockchain solutions by the transportation and logistics industry, some companies are now trying to create universal standards. Organizations like BiTA (Blockchain in Transport Alliance), Alibaba, and Maersk are all working on logistics policies that are based on the efficiency of the blockchain.
Challenges to Consider
The adoption of Blockchain-based solutions for the logistics industry is not an easy tasks. There are several hurdles that have to be overcome.
1. Blockchain Adoption
In the logistics industry, many leading figures do not (want to) understand blockchain technology. To some it seems unnecessary to fix something that is not broken. For others, there is no incentive to the process. As such, there still is a lot of room for growth before the public fully understands the applications of this technology.
2. Complex Industry
There are many different aspects that come together under the logistics umbrella. The complexity of deliveries and freightage does not make the process easy to adjust. Depending on the logistics of each shipment, orders may need to pass through several territories, which makes them susceptible to large amounts of paperwork and delay, not to mention man-made errors.
3. Early Stages of Development
Due to its early stage of development, there are only a few engineers familiar with blockchain technology. This can make the implementation extremely expensive and complex.
The latency of Blockchain still needs to be worked on since it is not yet instant. If, for example, a stakeholder’s private key is compromised or lost, the blockchain could suffer major damage. In order to improve in this area, and before the industry can fully adopt the technology, organizations need to reach a common agreement to trust and implement blockchain-based solutions.
4. Data Concerns
Blockchain applications store data from each transaction in a distributed ledger, which is then used by all parties involved in the process.
Aside from that, there is even more data linked with the cryptographic algorithms. Eventually, it becomes difficult to find a balance between storing data on the ledger and at their traditional databases simultaneously.
The logistics industry is in desperate need of improvement. There are many problems that need to be solved to provide optimal service and avoid costly mistakes.
This is exactly why blockchain technology is a great solution. Whether is it from an organizational perspective, or as a method to create cost-effective solutions, companies can now find new ways to make better decisions.
Therefore, we believe that logistics processes will benefit from this new, revolutionary technology. And even though the majority of businesses are not yet ready to jump on the train, we certainly believe that the world is headed in this direction.
This was a guest post by Kelly Skangale.