Last month, CargoX made history by deploying a new kind of bill-of-lading for a container shipment from China to Slovenia: the Bill of Lading was actually a smart contract, a piece of software executed on the Ethereum blockchain. The maritime freight industry still uses paper bills of lading that take up to ten days to transfer ownership of cargo and settle payments—the equivalent of 400,000 trees worth of paper every year.
Using blockchain to accelerate the transfer of asset ownership makes perfect sense, because the very first blockchain, bitcoin, was designed to do just that: keep track of assets, solve the double-spend problem, and enable censorship-resistant transactions. CargoX’s shipment had four parties on its smart contract BoL: the Chinese exporter, the maritime carrier/logistics provider, the consignee in Slovenia, and the release agent. The CargoX ERC20 utility token (ticker: CXO) was used to power the computations on the Ethereum network. Although CXO is traded on secondary exchanges and has basically tracked the fluctuations of the larger crypto market—making it potentially undesirable as a medium of exchange for maritime shipping—the CargoX platform allows the use of fiat currencies as payments while relying on CXO to power computation.
Ethereum’s scaling problems have been much-discussed in blockchain media. Two major solutions have emerged: Casper, a scheme to move the network from the expensive, computing-intensive Proof-of-Work consensus algorithms to Proof-of-Stake, and Plasma, Ethereum’s sharding solution that divides the blockchain into sidechains in order to reduce the number of nodes required for consensus. Notably, Casper has been recently delayed by 12 months.
What’s fascinating about CargoX’s smart contract BoL is that the team does not have to wait for Ethereum to dramatically increase its network throughput in order to reach scale. Bills-of-lading are actually some of the lowest hanging fruit for blockchain use cases in transportation and logistics. Unlike Visa transactions, which are extremely fast and extremely high volume, paper-based bills-of-lading take up to ten days to transfer back and forth between the NVOCC, exporter, and consignee, and transaction volumes are in the hundreds per hour rather than millions per hour.
FreightWaves spoke to Stefan Kukman, the CEO of CargoX, by phone.
“What we wanted to do with the shipment is gather user feedback,” Kukman said, “because we’re developing a platform for other people—their voice and opinions are really important. In China I was sitting with the exporter, and the first thing he said was ‘why don’t you have this in Chinese?’ I had assumed they spoke English, and they did, but they made the point that if they wanted to transfer the bill of lading to a local 3PL, they could find a cheaper solution if it was in Chinese.”
The biggest surprise for CargoX, Kukman said, were the implications for the importer’s liquidity. The importer realized that it could have held onto its final payment for the shipment for another ten days without incurring any demurrage fees, because the transaction, once started, executed so quickly.
“On January 24, we raised 7,000 Ethereum in our ICO in seven minutes and forty seconds, and ever since then, we’ve been ahead of schedule,” Kukman said. CargoX plans to take its platform live toward the end of this month, said Kukman, and so far, unlike many transport blockchain startups, the team is delivering ahead of the timeline outlined in its white paper.
“I would be happy 100-300 bills of lading per day by the end of this year,” said Kukman. “And considering the partners we’re signing with, that shouldn’t be hard.”
We also talked about the network capacity required by CargoX’s smart contract BoLs.
“We don’t need something really fast like Ripple,” explained Kukman. “In our business, the standard is 2-10 days, so if we do it four minutes, or even an hour, we’re doing great.”
The next step for CargoX, after opening its platform to the public, is putting Letters of Credit on a smart contract. Letters of Credit are commitments issued by banks to exporters at the request of the importer that payment be made.