Blockchain To Be A Gamechanger For Global Shipping

The souls that operate maritime shipping operations have been described as “Optimists of the First Degree” as the level of global trade is impacted by Trumps China tariffs and the gloomy forecasts for global economic growth resonate.

It may be that the issues that face the shipping business are so large as to be too great for any one operator to solve on their own and so a new era of “collaborative capitalism” has arrived. One wonders if such a move has a hint of trying to legitimize oligopoly as a desirable economic structure.

To illustrate what I mean consider the fact that several of the world’s largest maritime carriers have joined the “TradeLens” blockchain platform that is co-owned by IBM and the container giant Maersk.

Digital ledger technology, or blockchain, could eliminate or drastically reduce the paperwork which is such a big part of shipping. Large amounts of documents accompany transactions, including bills of lading, sales contracts, letters of credit, charter party contracts, port documents etc. These documents pass through a host of different parties for the carriage and delivery of the cargo to materialise and payments to be made, processes that are long and time-consuming.

We can be sceptical about cryptocurrencies, however, the blockchain technology behind them is a dynamic game changer. It has the power to radically overhaul the reams of paper such as “Bills of Lading”, “Authority To Move Goods” etc and create a revolution by turning the shipping of goods into paperless, online environment. This would liberate all parties in each transaction using public and private keys to execute physical transactions, exchange and allow the storing of sensitive information in an encrypted format. This will allow a seamless delivery of contractual obligations, present and accept instructions and exchange payments in a secure manner.

IBM and Maersk launched “TradeLens” as an ecosystem in early 2018 as they sought to exploit the technology of blockchain for the global supply chain systems.

This would use an encryption process to link port and terminal operators, cargo owners, customs authorities, freight forwarders, brokers and transportation companies in a seamless process that could be smoother and more efficient than the old method of having to rely on an seemingly endless round of paper checks and rechecks.

Think of the saving of time and effort if a transaction could be sealed and approved electronically and allow the verification to be securely stored so that it couldn’t be changed or deleted by any of the users or an outside party.

What has stimulated the growing interest in TradeLens ecosystem?

The Baltic Dry Index (BDI), is issued daily by the London-based Baltic Exchange and it is a composite of the Capesize, Panamax and Supramax Timecharter Averages. It is reported around the world as a proxy for dry bulk shipping stocks as well as a general shipping market bellwether that measures changes in the cost of transporting various raw materials.

Most directly, the index measures the demand for shipping capacity versus the supply of dry bulk carriers. The demand for shipping varies with the amount of cargo that is being traded or moved in various markets (supply and demand).

Given that the supply of cargo ships is generally both tight and inelastic, it takes on average two years to build a new cargo ship, the cost of laying up a ship is too high to take out of trade for short intervals. Therefore marginal increases in demand can push the index higher quickly. Conversely, marginal demand decreases can cause the index to fall rapidly.

The index rose quite rapidly in February from 598.32 to a peak of 2457.19 in August. Since then it has tumbled back by 26.4% to 1809.00 and sits dangerously close to a technical support point at 1763.44.

Naturally shipping costs will vary across the world, but as tariffs have diminished business confidence and investment, the International Monetary Fund (IMF) said global trade in goods has been left stagnant so reducing the prices carriers can charge to move cargo.

On top of this depressing trade background, shipping must face the fact that it must deal with rising costs as well as shrinking revenues. Ships are high polluters as they emit millions of tons of greenhouse gases such as sulphur dioxide, carbon dioxide and methane, gases. All of these contribute to global warming by trapping heat in the atmosphere.

Maritime emissions account for around 3% of global carbon dioxide output, roughly the same as aviation. According to the World Economic Forum, if shipping was a country, it would be the sixth-largest polluter in the world.

Therefore, it is not surprising that if TradeLens can help streamline the business and save costs the numbers of joining companies will undoubtedly rise. In January 2018 apart from Maersk and a subsidiary only one shipping carrier had come onboard. The initial take up was slow, for as in a typical free market, they view was why get involved if the platform was owned by a competitor.

However, over time it has been realised that shrinking revenue and rising costs implies that the benefits exceed such reservations. At the end of June two top five carriers were recruited, taking the total number of ocean carrier lines using the platform to 15.

IBM Blockchain Vice President, Global Trade Todd Scott says that large ocean carrier commitments have set TradeLens “for an even bigger year in 2020.” He said:

“…Over the past year we have received commitments from organizations around the world and, in turn, have seen steady growth of our TradeLens ecosystem. …”

Todd explained that TradeLens was already breaking down longstanding data and processing silos that existed among trading partners, dramatically reducing the documentation required for all every shipment.

It is early days still and there is a long way to go until the industry can capture the full potential of blockchain shipping can be realised.