The push-pull of industry-wide blockchain adoption

We’re at the growth point for a technological breakthrough that will revolutionize logistics for decades to come. The question remains: When will it scale? (Photo/Shutterstock)

The push-pull of technological innovations in transport and communications is nothing new. It’s all a matter of how the technology is adapted and brought into the current marketplace’s way of doing business. The pull of trade generates a push in both markets to invest in the newest transportation developments.

This results in what transportation economists call the “double-stimulus” of trade. The growth of the freight industry in the 19th century is such an example. As railway lines extended into undeveloped locations, farming opportunities emerged that were previously uneconomic. This encouraged trade and settlement that made demand for the railways self-perpetuating.

What’s fascinating about product life-cycles is that innovations first must go through an introductory stage before reaching a tipping point. The tipping point perpetuates the newly established technology (whether it’s a product or a system or both), and then emerges a growth period before maturity establishes, and then, inevitably a decline. Over the past two centuries, these cycles tend to run in about 35 year lifetimes. Interestingly, in the United States, the total railway network reached its maximum in 1916, at 266,381 miles of track. As of 2012, the network had declined to 136,623 miles of track.

Trucking is in the midst of a digital transformation, with revolutionary changes from all ends of the logistical supply chain. And with such a transformation comes the need for data – real-time data – so freight efficiency across a range of metrics can be maximized.

Of course, it then becomes how companies are able to synthesize and aggregate that data swiftly enough that it makes a “real time” difference. Blockchain technology could disrupt any given industry, but transportation and logistics are especially ripe.

In the coming years, logistics services will make or break the business models of shippers. More than ever before, they’ll require more accurate freight pricing and real-time shipment information.

“We need to embrace and lead with technology,” Justin Hall, chief customer officer for LTL conglomerate YRC Worldwide, explained during a presentation at the ALK Technology Summit. “Data is the new oil for our business,” he stressed. “Predictive analysis is a big deal for us; it will help us develop more dynamic pricing and better division of labor.”

While the industry clamors for one-stop shops, logistical data warehousing that handles everything from final mile, to reverse logistics, to contract logistics, all with real-time data, it’s easier said than done industry wide. For smaller businesses, “making high velocity data-based decisions are easy; they can react quickly,” said Hall. “However, larger ones such as YRC: a company with 384 terminals that operates 60,000 pieces of equipment and employs 32,000, it’s just not as feasible.”

In order to make themselves more nimble, YRC is developing “pods,” small, cross-functional teams that can make faster, real-time decisions for customers, especially in terms of pricing.

The use of distributed ledger technology can put an end to fraud concerns, which was one of the hold-ups for comprehensive industry adoption. However, now that the cryptocurrency market has demonstrated that fraud is no longer the real issue, it’s now about creating blockchain technology that can scale. It’s still in its nascent stage, according to LTP.

Distributed ledgers are version 2.0 of the current systems, and can work around concepts such as identity verification, public/private transaction distinction, and automated execution of contracts which are more akin to what regulated financial institutions require to implement these systems at scale.

While requiring all nodes (servers) to process each transaction makes blockchain natively resilient to cyberattacks – as hundreds or thousands of nodes would have to be hacked to gain control of the network – it also slows transaction processing and, ultimately, its scalability. Computerworld details the efforts of a company like The Ethereum Foundation that are trying to solve just such performance issues.

Once the contracting parties agree to the terms of the transaction, identity verification takes place and the transaction is included in the interested parties’ digital ledger. This includes independent nodes that oversee the transaction, the seller, buyer, financier, and even insurance companies. All parties can participate and see what is relevant to each of them. There, the agreement remains securely stored and hard to repudiate subsequently. This speeds up the debtor confirmation process as well.

Also, distributed ledger technology has the potential to bring smart contracts into vogue. Smart contracts are programmable contracts that function on distributed ledgers. When the parties in the contract meet certain conditions, the contract executes specific actions written in the distributed ledger. This eliminates the hassles of notifying the contracting parties of any changes in bank details, etc. As a case in point, consider the example we laid out between a broker and carrier.

Blockchain could well usher in the next technological revolution in invoice financing. According to LTP, estimates suggest that the global factoring industry has a value of about $3 trillion annually. Significantly, the factoring industry will continue to grow by approximately 10% each year. The businesses that succeed in realizing the complete potential of this technology will acquire a hard-to-beat competitive edge.

Concerning blockchain technology we are still in the introductory phase. Organizations like Blockchain in Transport Alliance (BiTA), and the over 890 companies applying for membership in the industry, are maximizing the pressure to hit a tipping point sooner rather than later.

It’s not about evolution right now, it’s about revolution. Those unwilling to adapt and pioneer, or at least jump on the bandwagon, will fail sooner than later.

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Chad Prevost

Chad is radio host and broadcast media specialist for FreightWaves.