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Commentary: A more intelligent shipping document

A so-called “smart” bill of lading could solve many of the problems posed by traditional paper-based shipping documents, according to Stefan Kukman, CEO of CargoX.

   Shipping today is changing, and while there are those who are still traditional in their approach, the companies that are embracing technology are experiencing the benefits of the digitalization wave firsthand.
   Soon, most cargo owners and transportation providers, in one way or the other, will be forced to accept new technologies in order to stay current, let alone stay ahead of their competition. This is now a fact and not just an item to consider.
   The good news is that many of the myriad problems shippers face when moving cargo can be mitigated through the application of the right technology.
   After proving its mettle in the cryptocurrency market, blockchain is now starting to be used by the shipping community.
   But the technology is grabbing more than just headlines. Because it excels in matters such as proving and transferring ownership, as well as identifying where a document or piece of data is at a given point the process, blockchain has the potential to make shipping documentation processes simpler, faster and more cost-effective. And thanks to extreme encryption measures, a blockchain cannot be hacked, making it more secure than traditional paper documents or even digital copies sent via email.
   Questions remain about just how impactful blockchain can be in the real world of shipping and logistics, but the technology can already be effectively applied to the most critical document in cargo transportation — the bill of lading.

Cost Concerns. Traditional paper bills of lading are essentially as valuable as the cargo they represent, roughly $60,000 on average, but a great deal of time and money is lost in transmitting them back and forth between stakeholders.
   Presently, each bill of lading needs to be sent at least three times via an express parcel delivery service like UPS, FedEx or DHL.
   Once a carrier or NVOCC receives a shipper’s cargo, it must then issue a bill of lading and send it to the cargo owner. Once the shipper receives payment for the cargo, the shipper sends this original document to the consignee — the buyer of the goods or a bank in the case of a letter of credit — by an express courier service. Upon arrival of the vessel at the destination port, the carrier or the NVOCC asks the consignee to present the original bill of lading in order to release the shipment. 
   This process can take up to 10 days, leaving the bill of lading susceptible to loss, damage or even theft.
   If an original bill of lading is misplaced while traveling around the globe, importers are forced to officially declare the document lost, which results in weeks of waiting for a new one to be issued and sent. All this results in additional costs, such as demurrage at the port of destination, late cargo arrival and in some cases total factory downtime.
   And it’s not just time that is lost in transit. CargoX, a startup that offers a blockchain-based “smart” bill of lading, estimates the average cost of transporting a bill of lading is in excess of $100.
   A top freight forwarder prints out more than 4 million paper sheets a year alone. The total cost for sending these documents from origin to destination is estimated to be more than $70 million per year, a cost that is covered by shippers, carriers or NVOCCs and their consignees before ultimately being passed on to the end consumer.
   And this is just one freight forwarder with an estimated 2 percent market share, meaning the overall cost for the entire shipping industry is enormous.

Enter Blockchain. Shippers and transportation providers have long been aware of the inefficiencies and added costs of sending bills of lading around the world, but have struggled to find sufficient solutions. Until now, that is.
   Past attempts to introduce a digital bill of lading that can be transmitted electronically have failed to gain wider acceptance in the industry for a number of reasons.
   For starters, transmission of a digital bill of lading required a central, trusted authority to run the system, which meant exposing those documents and the confidential information therein to an outside party. In addition, the rules governing the exchange processes were not fully transparent and online settlement of value was virtually impossible, which created further distrust in both the system and its participants.
   So why is blockchain and the smart bill of lading the solution shippers are looking for today?
   To answer this question, we must first understand exactly what blockchain technology is as well as what it isn’t.
   A blockchain — originally block chain — is a continuously growing list of records, called blocks, which are linked and secured using cryptography to form a digital ledger. Each block typically contains a “hash pointer” as a link to a previous block, a time stamp and transaction data.
   Public blockchains are by design inherently resistant to modification of the data. At the same time, only those who are authorized can view the ledger or even see information regarding the other participants in the chain.
   Thus, a public blockchain is an ultra-secure, stable and even transparent means of transmitting and tracking any document, including bills of lading.
   Blockchain has made possible, for the first time in history, to connect all the parties in the logistics industry in an open, trusted ecosystem with transparently defined rules of operation. Application of this technology to the bill of lading has resulted in the creation of a so-called “smart” bill of lading.
   Much like transitioning from traditional “snail mail” to email, a smart bill of lading enables much faster transport and ownership change. Because a smart bill of lading is issued instantly and transmitted immediately to the exporter, the whole process takes minutes instead of days. Once the agreed-upon conditions are met, the smart bill of lading is then transferred to the legal owner of goods in a matter of moments, without printed documents and couriers in the middle.
   Adopting smart bills of lading ensures a much lower cost of operation — just a few dollars each, as opposed to hundreds, according to providers currently offering such solutions — in a completely legal and secure environment. It also eliminates the need for storage and archiving of paper documents, as each bill of lading remains readily available in the system.
   And because this most important document is encrypted on a shared blockchain network, accessible only with traders’ private keys, there is no central storage system that could be attacked by hackers.

Bigger Picture. Large shippers and carriers potentially can save millions by digitalizing their systems and processes.
   With a smart bill of lading, today’s physical — i.e. paper — proof of ownership can drastically change. Claiming cargo at the destination port with a blockchain-based bill of lading amounts to digital proof of ownership, making it more secure, instantly transferable, easier to archive and much cheaper than the current paper solution.
   In addition, the ecosystem will connect producers, importers, freight forwarders and other involved parties, saving them time and money while giving them a high level of security, transparency and traceability.
   It may not happen overnight, but eventually, those organizations that choose to adopt new technologies and adapt to the new realities of digital data and document transfer will be far more likely to prevail in the market. They will have more security, lower costs and less time wasted.
   The future likely will see big businesses start to demand blockchain channels for transfer, as this will enable multiple positive technology implications.
   Blockchain already is proving to be a completely workable, secure solution, paving the way for widespread acceptance and adoption. As a result, numerous major importers and exporters are already researching, piloting and even beginning to deploy blockchain-based solutions like smart bills of lading.
   Don’t let your business be the last to figure out what blockchain can do to help improve processes and bring down costs. By then, it might be too late.

   Stefan Kukman is chief executive officer of CargoX, an independent supplier of blockchain-based smart bills of lading. He can be reached via email at [email protected]