Logistics

Hong Kong takes the lead in blockchain logistics after Maersk TradeLens demise

China and Hong Kong are pouring money into the blockchain logistics industry to take the lead.

After Danish logistics firm Maersk terminated its blockchain-based supply chain platform last year, industry builders have not given up on blockchain applications in global trade.

Hong Kong-based Global Shipping Business Network (GSBN), a nonprofit consortium focused on blockchain trade applications, is bullish on blockchain as a crucial logistics tool in the long term.

According to a report by the South China Morning Post, GSBN currently operates one of the world’s largest platforms that can be described as an alternative to Maersk’s TradeLens tool. The platform is based on a permissioned blockchain with strong data governance, allowing only authorized parties to contribute and consume shipping-related data.

Since launching its blockchain-based shipping platform in 2021, GSBN has tapped major shipping partners like Cosco, Orient Overseas Container Line and Hapag-Lloyd. The organization has also reached partnerships with terminal operators like Hutchison Ports, SPG Qingdao Port, PSA International, Shanghai International Port Group and Cosco Shipping Ports.

Among the members, only German Hapag-Lloyd and Singaporean PSA International are not based in mainland China or Hong Kong.

Despite major industry firms like Maersk terminating similar projects, GSBN CEO Bertrand Chen is confident that blockchain has yet to catch on, and its adoption may take another decade.

“I think for a lot of people, the clear understanding is this industry has digitized,” Chen said, arguing that there’s no chance that global trade will continue using “pen and paper” by 2032. According to the executive, blockchain has the potential to help the industry transform in response to triggers of supply issues like COVID-19. He stated:

“Because of COVID-19, because you have to change the process, I think this is one of the regular use cases of blockchain […] Probably that’s better than NFTs of digital art. NFTs of documents for global trade — this will be the real killer use case.”

The executive suggested that China was taking the lead in blockchain logistics because the country has been pouring money into the industry. He also acknowledged that many local blockchain solutions have so far been highly specific to China.

“When you throw so much money in one sector because it’s a policy, you’re bound potentially to be able to get lucky,” Chen said. He added that China’s investment in blockchain development would benefit GSBN by generating more potential partners for the firm.

The GSBN CEO also said the organization has global ambitions and is working to attract more European shipping lines. The nonprofit even hopes to onboard Maersk one day but admits that such a scenario “may be slightly challenging,” Chen noted.

Hong Kong has been increasingly emerging as a major Web3 and cryptocurrency hub over the past few months, with the local government taking action to adopt clear industry regulations. Despite a blanket ban on crypto in China, some Chinese government-related firms have reportedly been growing interested in crypto investment, with state-owned firms like CPIC launching crypto-related funds in early April.

Magazine: Asia Express: Zhu Su’s exchange did $13.64 in volume akshually, Huobi

What are the applications of NFTs in supply chains?

PFP NFTs have seen a lot of adoption over the years. Can NFTs be valuable in real-world scenarios and address pain points with supply chains?

What are the real-world challenges of implementing NFTs at scale across supply chains?

Technology is often only a means to an end and is seldom a silver bullet. There are several real-world issues that can hinder progress with rolling out NFTs and blockchains across supply chains globally.

The benefits of digital twins for real-world goods can’t be underestimated. However, today’s supply chains globally are extremely intermediated and run on trust. A farmer in Africa sells their produce to an intermediary as they have for years. This develops a certain amount of trust between the two parties.

As a result, resistance to change would be high, even when the farmer realizes that they will accrue value better in a more transparent supply chain. On the other hand, the intermediary wouldn’t want a new system, as their livelihood relies on the margins they make using the farmers’ produce.

Consequently, supply chains are susceptible to resistance from various stakeholders to such implementation. Drug supply chains could become extremely efficient with nonfungible tokens and blockchains. Yet the industry thrives in countries such as India and Nigeria, and corrupt stakeholders across the supply chain would be opposed if a new system is proposed.

Therefore, any technology being introduced into these supply chains will need to have both a top-down approach and a bottom-up approach. The top-down approach will involve governments and regulators mandating better traceability; the bottom-up approach would be firms solving this issue by working on the ground with stakeholders and spreading awareness of the benefits of the technology.

Which companies are using blockchain for supply chain management?

Several luxury and logistics brands use blockchain technology and NFTs to track their products and create digital twins that can help with community-building initiatives.

Major marquee brands in the auto, luxury and retail industries have already started integrating NFTs into their supply chain to obtain the innumerable benefits they offer.

Walmart utilizes digital twin technology to track the food supply chain ecosystem, increasing trust. Automobile giant Ford uses digital ledger technology to ensure it gets ethical minerals for production.

The diamond behemoth De Beers also uses blockchain to validate whether diamonds are sourced from war-free zones. Along with this, transportation companies such as FedEx and Maersk use this technology for their operations.

Luxury brands such as DeBeers, Louis Vuitton, Dolce and Gabbana, and Gucci have turned to NFTs for customer integration and loyalty. As nonfungible tokens act as digital twins of real-world goods, they not only offer transparent supply chains but also greater community retention through customer experience.

What are the advantages of using NFTs in the supply chain from a customer perspective?

Customers can see where products come from and the various routes they take before arriving at supermarkets.

Last but not the least, the end-consumer will get access to the evolution of a product. They have transparency on where the raw materials were produced and the companies that were involved in the production. This offers another dimension from a customer experience perspective bringing creators of products closer to the end-user.

In the FMCG, pharmaceuticals and sectors where expiry and counterfeiting are a major hassle and could potentially lead to catastrophic consequences, NFTs can be a lifesaver. Along with that, the trust factor in brands also increases among customers. Apart from the primary benefits, NFTs can help make supply chains more sustainable, which in turn can help the environmental, social and governance (ESG) narrative of businesses.

As nation-states, central banks and the markets demand more sustainable practices from global businesses, ensuring a transparent and efficient supply chain can help firms with their ESG narrative. Should a company wish to weave sustainable practices into its supply chain, carbon efficiencies achieved through the use of NFTs could be a great value add. For the new age-conscious consumer, this means sustainable products, and for the globe, it means lower emissions.

What role do NFTs play in the supply chains?

Real-time tracking, settlement and documentation of the supply chain cannot only create more efficiencies for businesses but also help with better financial products that they can rely on for their operating capital.

NFTs create a digital record that is immutable and transparent. What this offers the supply chain industry is a transparent trail where everyone in the ecosystem would have complete visibility. Therefore, right from producing the raw material for goods to displaying them on a website or brick-and-mortar shop, the usage of NFTs will provide traceability and help in supply chain management.

Phygital NFTs have proven to be a great utility when they are tagged to real-world goods. Using NFTs for tracing a good or a manufactured product right to its source can add credibility to the product. It can also offer consumers a method to understand the source of the product they are looking at and choose one based on the providence of the product.

Apart from traceability, NFT-gated procurement and NFT-gated warehousing will help data scientists with valuable insights into product journeys at an individual level. Such granular data will help analysts, business owners and investors assess inefficiencies in the supply chain. This will help set new service level agreements (SLAs) with service providers on the supply chain and monitor them to hit these SLAs.

Furthermore, weaving NFTs and digital twin technology into the supply chain will enable companies to automate payments through the system and perform instant settlement once goods are delivered. Multiple checks and balances before transferring payment for finance teams would be a thing of the past once real-time traceability is enabled.

Real-time tracking will also help financing products like trade finance, where the status of goods can be used to borrow working capital by stakeholders on the supply chain. Supply chain managers who have an enhanced vantage point can intervene at the right checkpoint in the event of congestion or bottlenecks. This makes supply chains more efficient, resulting in better revenues and lower costs.

Why should businesses adopt nonfungible tokens in their supply chains?

NFTs can be used in supply chains to make them more transparent and efficient, leading to several billion dollars being saved. This is yet another space where Web3 technologies can have real-world applications.

The supply chain is an integral part of any business. Right from pharmaceutical giants and fast-moving consumer goods (FMCG) behemoths to local direct-to-customer brands, most businesses are dependent on efficient and resilient supply chains to deliver their products and services effectively. Despite being a vital cog in the wheel for organizations, supply chain networks are far from efficient on a global scale.

One of the key applications of blockchain technology has been traceability in a supply chain. This feature of the technology has been experimented with in trade finance use cases by banks such as HSBC. This is a use case that relies more on smart contracts and blockchain infrastructure layers like the Ethereum and Solana blockchains.

While nonfungible tokens (NFTs) as a technology paradigm were not necessarily planned to disrupt supply chains, they can bring about a massive transformation of pain points in this space. NFTs can act as “digital twins” of real-world goods and can help traceability within supply chains.

Here are a few numbers, statistics and narratives to put things into perspective.

49% of businesses have zero knowledge of what’s happening at key touchpoints in their supply chain due to a lack of visibility.
Counterfeiting goods cost global brands more than $232 billion in 2018.
In industries such as pharmaceuticals, the counterfeit market alone could be close to $200 billion per year.

The scale of the problem can be understood from the numbers above, and NFTs can offer solutions to these inefficiencies. Adding to this, there are also other interesting use cases that lie at the convergence of blockchain and supply chain, which is discussed later in this article.

How blockchain technology is used in supply chain management?

Blockchain benefits the supply chain industry by enhancing the traceability, transparency and tradability of goods and services that move along the value chain.

The future of blockchain-based supply chain?

The demand for the blockchain-based supply chain is driven by customers’ need to know the specific source of their items and whether they were made according to ethical standards.

Blockchain technology use cases in supply chain management have the potential to address concerns in traditional supply chains, like removing the need to prepare burdensome paperwork. Moreover, a decentralized, immutable record of all transactions and organizations’ digitization of physical assets can make it possible to track products from the manufacturing unit to the delivery destination, enabling a more transparent and visible supply chain.

However, the implementation of blockchain in the supply chain is yet to achieve mainstream adoption as high-level expertise is required to reap the benefits. Additionally, because blockchain technology is still in its infancy, it is governed by various laws in many nations, which would affect supply networks. Despite this, blockchain-based solutions will likely gradually replace conventional supply chain processes and networks; this transition won’t occur all at once.

How blockchain enhances tradability in the supply chain?

Tradability is one of the unique advantages of blockchain technology. Blockchain platforms ensure tradability via the tokenization of assets. Tokenization turns a tangible object, such as a product, into a digital asset, and the system keeps one token for each product, which can be exchanged in the market.

Blockchain platforms help tokenize an asset by dividing it into shares that digitally represent ownership. Users can transfer ownership of these tokens without actually exchanging physical assets because they are tradeable. Moreover, automated smart contract payments help license software, services and products accurately.

In addition, the consensus is provided via blockchain, meaning that there is no disagreement over transactions in the chain by design. The chain’s unique ability to track ownership records for physical assets like real estate and digital assets is made possible because every entity uses the same ledger version.

You might wonder why companies prefer asset tokenization instead of directly paying in fiat. One possible reason is that smart contracts enable peer-to-peer payment that speeds up the transfer of funds, lowering the time it takes to reimburse businesses for goods or services supplied.

Additionally, token payment prevents fraudsters from taking advantage of chargeback situations to steal from businesses. Once a payment is made, it is sent to the business’s blockchain wallet account, and no unapproved withdrawals can be possible.

How blockchain enhances traceability in the supply chain?

To trace the activities along the supply chain more efficiently, concerned parties can access price, date, origin, quality, certification, destination and other pertinent information using blockchain.

Traceability, as used in the supply chain sector, is the capacity to pinpoint the previous and current locations of inventory and a record of product custody. It involves tracking products as they move through a convoluted process, from raw materials to merchants and customers, after passing through many geographic zones.

Traceability is one of the significant benefits of blockchain-driven supply chain innovations. As blockchain consists of decentralized open-source ledgers recording data, which is replicable among users, transactions happen in real-time.

As a result, the blockchain can build a supply chain that is smarter and more secure since it allows for the tracking of products through a robust audit trail with almost concurrent visibility.

By connecting supply chain networks through a decentralized system, blockchain has the potential to enable frictionless movement between suppliers and manufacturers.

Furthermore, producers and distributors can securely record information such as the nutritional value of items, product origin and quality and the presence of any allergens using a collaborative blockchain network. In addition, having access to a product’s history gives buyers more assurance that the items they buy are from moral producers, thus making supply chains sustainable.

On the contrary, if any health concern or non-compliance with the safety standards is discovered, necessary action can be taken against the manufacturer based on the traceability details stored on the distributed ledger.

How does blockchain technology improve supply chain management?

Unlike traditional supply chains, blockchain-based supply chains will automatically update the data transaction records when a change is made, enhancing traceability along the overall supply chain network.

Blockchain-based supply chain networks might need a closed, private and permissioned blockchain with limited actors, in contrast to Bitcoin and other financial blockchain applications, which may be public. However, the possibility of a more open set of partnerships may still exist.

In blockchain-based supply networks, four key actors play roles, including registrars, standard organizations, certifiers, and actors:

Registrars: They provide network actors with distinct identities.
Standard organizations: These organizations develop blockchain rules and technical specifications or standards schemes, such as Fairtrade, for environmentally friendly supply chains.
Certifiers: They certify individuals for involvement in supply chain networks.
Actors: A registered auditor or certifier must certify participants or actors, such as producers, sellers and buyers, to retain the system’s credibility.

How a product is “owned” or transferred by a specific actor is an intriguing feature of structure and flow management and among the benefits of blockchain in supply chain management. But does blockchain make supply chain management more transparent?

As the concerned parties are required to fulfill a smart contract condition before a product is transferred (or sold) to another actor to validate the exchange of goods or services, and the blockchain ledger is updated with transaction information after all participants have complied with their duties and processes, overall transparency across the value chain is improved.

Additionally, the nature, quantity, quality, location and ownership product dimensions are transparently specified by blockchain technology. As a result, customers can view the continuous chain of custody and transactions from the raw materials to the final sale, eliminating the requirement for a reliable central organization to administer and maintain digital supply chains.

How is the modern supply chain evolving?

Contemporary technologies like artificial intelligence (AI), robotics and blockchain are being incorporated into the digital supply network, which combines data and information from various sources to distribute goods and services along the value chain.

Supply chain infrastructure develops from strictly physical, functional systems to a vast, linked network of assets, data and activities. For instance, by utilizing AI algorithms, businesses may extract insights from large data sets to proactively manage inventory, automate warehouse processes, optimize critical sourcing connections, enhance delivery times and develop novel customer experiences that raise customer satisfaction and increase sales.

In addition, AI-powered robots help automate various human-owned manual tasks, such as order picking and packing processes, delivering raw material and manufactured goods, moving items during storage and distribution and scanning and boxing items. According to Amazon, robots allow it to hold 40% more inventory, enabling it to fulfill Prime shipping commitments on time.

Furthermore, as blockchain is immutable in nature, it can be issued to track and trace the source of products and identify counterfeit items and fraud within the value chain. For instance, if a business is transporting perishables like cheese, which must maintain a specific temperature at all times.

The company transporting the cheese can determine whether the temperature has risen beyond the permitted threshold during the voyage or impacted the cargo, enabling them to minimize problems with food quality.

What is supply chain management and how does it work?

Supply chain management actively streamlines a company’s supply-side operations from planning to after-sales services to enhance customer satisfaction.

Supply chain management (SCM) refers to controlling the entire production flow, from acquiring raw materials to delivering the final product/service at the destination. In addition, it handles the movement of materials, information and finances associated with a good or service.

Even though the supply chain and logistics are sometimes confused, logistics is actually only one part of the supply chain. Traditional supply chain management systems involve steps like planning, sourcing, manufacturing, delivering and after-sales service to control the supply chain centrally.

That said, the process begins with deciding how to meet customers’ needs and selecting suppliers to source the raw material to manufacture the product. The next step is to determine if the manufacturer will outsource or take care of delivery. And after a product is delivered, it is a network that will offer after-sales services, such as handling product returns and repairs, among others, which is crucial for customer satisfaction.

On the contrary, modern SCM systems are managed using software from the creation of goods and services, warehousing, inventory management, order fulfillment, information tracking and product/service delivery to after-sales services. For instance, numerous robotic and automated technologies are used by Amazon to stack and store goods, as well as to pick and pack orders. The company has also begun utilizing electric drones to transport packages weighing less than five pounds in selected United States regions.

How blockchain technology can revolutionize international trade

Blockchain technology has proven to be transparent and could make international trade transparent and even more secure.

Since time immemorial, technological innovations have shaped the structure of commerce and trade. The discovery of electricity encouraged mass production and the advent of steam engines ushered in an era of mechanized production.

From information to communication, technology has been used everywhere to make life easier. For this reason, blockchain technology has been tapped by many as the next big thing, considering its use cases which cut across numerous industry verticles.

Mainly used in keeping records of transactions, blockchain technology is a type of distributed ledger technology.

Blockchain makes a difference

According to Statista, blockchain makes keeping data records easier, more transparent, and even more secure. Owing mostly to its resistance to alteration, blockchain offers time-based information on transactions, whether they are between private individuals, corporate entities, supplier networks or even an international supply chain.

It is also a common notion that blockchain is only a technology for Bitcoin (BTC). However, that assumption could not be more wrong. While the technology emerged alongside Bitcoin in 2008, however, today, its use cases have evolved far beyond cryptocurrencies. From finance to e-commerce, food safety, voting exercises and supply-chain management, its applications cut across virtually all sectors of the global economy, including areas directly or indirectly linked to international trade.

The value chain attached to international trade is a notably complex one. While its transactions involve multiple actors, its other aspects like trade financing, customs administration, transportation and logistics all benefit from the adoption of blockchain technology.

According to Statista, cross-border payments and settlements account for the largest use cases of blockchain technology, especially considering how there have been numerous past efforts to digitize trade transactions.

As of today, the potential of blockchain to enhance the efficiency of trade processes is already being explored. For instance, the blockchain project Open Food Chain is working to improve food security via its Komodo Smart Chain.

Kadan Stadelmann, chief technology officer of Komodo — technology provider and open source workshop — told Cointelegraph:

“Blockchain’s biggest advantage is immutability, meaning data can’t be deleted or edited after it’s on the ledger. For international trade, this provides an opportunity for more transparency across several major industries.”

Stadelmann explained that the technology ensures that foods can be tracked from their origin (i.e., a farm in another country) to the consumer’s local supermarket. He said this can help improve food security around the globe by tackling issues like food contamination outbreaks as 600 million — almost 1 in 10 people in the world — fall ill after eating contaminated food and 420,000 die every year, according to the WHO.

Blockchain can streamline the complex documentation processes that are prevalent in international trade. Zen Young, CEO of noncustodial web authentication infrastructure Web3Auth, told Cointelegraph:

“Digitizing documents for traditional clearance processes, and transactions in international trade can take up to 120 days to complete, but with bills of lading tracked through blockchain, the need for such processes and potential for double spending is eliminated.”

“Transfer payments and transactions are also quicker and cheaper than currently possible through the SWIFT network, blockchain commissions are lower and without maximum limits, which is especially advantageous for exporting goods,” he said.

*A view of the stern of the Ever Ace, one of the world’s largest container ships. Source: Wolfgang Fricke*

Furthermore, Zen added that these factors will help fraud reduction through digitally verifiable and legally enforceable non-paper documentation.

In another use case, IBM and Maersk are working on a blockchain-based solution to streamline the global shipping industry. The project, which is called TradeLens, is designed to digitize the entire shipping process on a blockchain.

The ultimate goal is to create a more efficient and transparent supply chain that can speed up delivery times while reducing costs. So far, the project has been successful in onboarding over 150 organizations, including major port operators, shipping companies and logistics providers.

According to IBM, TradeLens has processed over 150 million shipping events and has saved users an estimated 20% in documentation costs. In addition, the platform has reduced the time it takes to ship goods by 40%.

As blockchain continues to gain traction in various industries, it is only a matter of time before its potential is fully realized in the world of international trade. With its ability to streamline processes and reduce costs, blockchain has the potential to revolutionize the way goods are traded around the world.

Despite its promises, however, there are some weak points in blockchain tech’s application to international trade.

Blockchain’s shortcomings

The major disadvantage of using blockchain is the fact that it is often associated with high transaction costs. For example, when it comes to cross-border payments, blockchain technology has been known to be quite expensive.

This is because blockchain transactions often involve multiple intermediaries, which can drive up costs. In addition, the time it takes to settle a blockchain transaction can be quite lengthy, which can also add to the overall cost.

Another disadvantage of blockchain is its lack of scalability. Due to the fact that each block in a blockchain must be verified by all nodes on the network, the system can often become bogged down when handling large volumes of transactions.

This can lead to delays in the processing of transactions, which can be a major issue in the world of international trade.

Finally, according to Deloitte, blockchain technology is still in its early stages of development, which means that it is subject to a number of risks and uncertainties. For example, there could always be the risk that a critical flaw could be discovered in the scalability and privacy framework that could pose an issue to the financial end of the operation.

In addition, there is also the risk that bad actors could exploit vulnerabilities in the system in order to commit fraud or theft. These risks need to be carefully considered by those who are looking to use blockchain technology in the world of international trade.

Despite these disadvantages, it is important to note that blockchain technology is still in its early stages of development. As the technology matures, it is likely that many of these issues will be addressed and resolved.

As more and more organizations begin to adopt blockchain technology, the overall cost of using the system is likely to decrease. This could make blockchain a more viable option for those who are looking to streamline their international trade operations.

In the end, blockchain technology has the potential to revolutionize the way goods are traded around the world. With its ability to streamline processes and reduce costs, blockchain has the potential to make international trade more efficient and transparent.