Smart contracts will revolutionize the supply chain. Or not. Their value will be evident in the next few years as more businesses roll out smart contracts to handle the paperwork side of logistics. Whether that will result in a sea change for the industry or just a more streamlined process remains to be seen, but smart contracts are coming — and coming quickly.
Smart contracts are based on blockchain technology, but their promise lies in the ability to streamline paperwork processes — everything from order to payment — and improve confidence among parties that all aspects of the contract will be executed.
At the Blockchain in Transport Alliance (BiTA) Spring Symposium in Atlanta, Agoric CEO Dean Tribble explained some of the transportation-specific use cases for smart contracts. These include driver credential verification; chain of custody; payment; automated payment release; automated accounts receivable loans for completed delivery; and links to associated financial transactions.
Recent tests of smart contracts have demonstrated a significant cut in bill of lading (BOL) transfer time to as few as four minutes and payments to carriers being made in just hours instead of days or weeks.
The term “smart contract” may be unfamiliar to many, but it is not new. Thousands of people already utilize smart contracts on a daily basis.
“The first smart contract happened in 1989,” Ron Leibman, a partner with McCarter & English, a full-service law firm headquartered in Newark, New Jersey, told attendees at the BiTA Symposium Chicago in November. “If you use Paypal and Venmo, those are smart contracts because you agree to terms and there’s automatic processing.”
National law firm BakerHostetler has partnered with Clause, a software platform for smart legal contracts, to develop a blockchain-based automated legal agreement for the freight market. This is a smart legal contract available digitally to the involved parties which tracks the post-signature performance of the contract by integrating with the existing enterprise systems.
According to Katherine Lowry, director of practice services at BakerHostetler, leveraging blockchain creates more transparency and “notarize(s)” that certain events in the transaction happened, such as timely pickup or delivery, or even the use of lumpers when needed.
“After a traditional contract is signed, all you have is a PDF,” Lowry explained. “Someone has to create an Excel spreadsheet that calculates one metric, configure a software system to manage another, and manually input data or send emails to ensure everything flows smoothly in carrying out the contract. It’s inefficient, difficult to track and more likely to create deviations from the agreement.”
From the perspective of a trucking company or owner-operator, the smart contract could be the most positive change to happen in the industry in decades.
Smart contracts can turn the old BOL into an interactive document that follows the shipment from origin to destination, recording each step along the way and triggering executables, such as fuel surcharge payments or detention payments, when certain conditions are met.
Smart contracts also can speed up the payment process, automatically triggering payment upon delivery verification. The simple act of scanning the barcode on a box or receiving an electronic signature will trigger that payment.
According to Leibman, the ability to standardize language in a smart contract can also dramatically speed the process and lower costs.
“I think the more forward-thinking folks in the smart contracts area are not thinking all or nothing, they are thinking, what areas of the contract [can we automate] so folks can have a paralegal look over the contract instead of a lawyer.”
Standardizing contracts that include costs for detention or accessorial charges and that trigger those payments automatically could potentially reduce time truckers spend chasing payments that may never materialize. FreightTrust offers a digital freight management solution for brokers, carriers and shippers. “The FreightTrust Protocol for Smart Contracts enables not just a completely paperless workflow for carriers, it also provides new opportunities for leveraging data to make better decisions,” the company said.
Smart contracts have already found success in other areas of society, from financial markets to e-commerce payments, and there is no reason to believe they can’t be successful in logistics markets.