The list of Initial Coin Offerings in supply chain logistics--completed or planned--is a long one. What's obviously missing in the discussion is whether the tokens that are being proffered in the ICOs are going to be needed to make distributed ledger technology a reality in the transport sector.
FreightWaves has identified more than 20 ICOs in the transport sector that have been announced or launched. They are at various stages of the process; their white papers range from being classic black letters on a white background, to carrying full graphics. Some of them lay out what they want to do with tremendous clarity. Others leave a lot to be desired.
One thing that is consistent through all the ICO white papers is that the blockchain protocols lean heavily toward residing on the Ethereum platform. This makes sense, because Ethereum was developed specifically to host the smart contracts that would be at the heart of any blockchain tools developed for the supply chain. In those instances where the specific size of an ICO is listed, the currency is always listed in ETH, the currency of the Ethereum blockchain.
The second consistency of the white papers is their identification of the problem to be solved. The argument they make is similar: back-office operations in the transport sector have not changed for years; they are adding enormous costs to all players in the supply chain; distributed ledger technology can fix it.
For example, ShipChain, which had a successful pre-sale of its tokens last fall, enough that it did not need to go through with its regular ICO, described the problem like this in its white paper: “The lack of a unified communication platform prevents the various players from interacting efficiently. Most land transportation providers, carriers, governments, customs brokers, and freight forwarders have outdated ways of keeping track of their goods. According to KPMG, 40% of global manufacturers lack information and material visibility across their supply bases. In some cases, companies are still using paper ledgers to track their products. Given that upwards of 65% of the value of a company’s products or services is derived from its suppliers and its supply chain, utilizing older highly ineffective systems results in tremendous amounts of wasted time, resources, and money.”
Slogn gets specific in a white paper section called “Real Life Scenarios.” These contrast the current method with what it envisions should the industry move to a DLT solution.
For example, under the heading of “Instant Pay,” the Slogn white paper says under the current system, “Brokers pay motor carriers 30, 45 or 60 days after they receive the delivery confirmation paperwork. If a motor carrier wants to receive the payment sooner, Brokers or Factoring Companies assess a quick pay fee of 1-5%.” Under “Solutions,” Slogn said that with a DLT in place, “Payments are made to carriers as soon as the receiver confirms the shipment has been received and that there are no issues.”
Similar, for Fuel Advance: “Anytime a trucking company books a load, they ask for a fuel advance from the freight brokers providing the job. Fuel Advance is a partial amount of the final load rate. Freight Brokers charge at least a 1% fuel advance fee. Fee and the total fuel advance amounts are deducted when the final payment is made to the trucking company.” “Solutions: When a load is booked, the carrier is allowed to spend a certain percentage of the load rate on fuel without any charges or penalties.”
Why does this all work better with a token, at least according to the authors of the various white papers? With financial transactions made completely with tokens whose ownership would be by the consensus mechanism of the ledger. As a protocol named Fr8 says in its white paper: “Once delivery is confirmed via Fr8’s smart contract, settlement begins. Settlement can be made instantly via Fr8 token or in fiat through ancillary services. Settlement can even be triggered by the smart contract to execute automatically based on proof-of-delivery. After final settlement has been made, the smart contract is formally closed out.”
What it doesn’t say is the assumption behind all ICOs: that a robust industry of money-changers will develop that will be able to convert tokens into hard currencies, known as fiat currencies in the blockchain world. A shipper of carrier can then have the profitability of the transaction that is initially paid in tokens able to be easily converted to a currency that for now at least is more widely used, like a dollar.
Getting your just rewards
Another aspect of the token ecosystem is a series of rewards, where you earn additional tokens for taking certain actions on the ledger. For example, among the ICOs Freightwaves has discovered have been two protocols that would share information on a vehicle’s maintenance and other history, Vinchain and VLB. Both protocols award users of the system, not just for doing a nice thing, but also because their use of the protocol contributes to what the developers hope would be a vast and growing transparent knowledge base, stored on the ledger, of presumably millions of vehicles’ history. (While vehicle history may be the primary focus of those ledgers, the idea of a growing history of other information comes through many of the white papers, such as broker and driver performance.)
There has always been a dichotomy in discussion of blockchain and bitcoin, that sort of went like this: “I don’t believe in the whole bitcoin phenomenon, but I do think blockchain technology will be a significant game-changer.”
The pushback to that has often been that distributed ledger technology will always work better with a cryptocurrency, because otherwise the speed and efficiency gains of DLT will be slowed by friction with the banking sector. Yet one of the most significant announced commercial applications of DLT—the replacement of the Australia Stock Exchange’s legacy system Chess with a DLT system built by Digital Asset—involves no cryptocurrency. While the slew of white papers on transport solutions all call for a cryptocurrency—that’s why they are ICOs—what would be not publicized at this point is an alternative that didn’t use cryptos and instead relied on fiat currencies.
Beyond those broad similarities and largely unified goal, a random walk through various white papers does bring out a few differences.
--Putting aside the hysteria that has infected much of the cryptocurrency world, ICOs initially had a legitimate reason to exit. The ICO was designed in part not just to make developers wealthy, but also to provide a base of funding to create open source software, which can be difficult to monetize. But a blockchain protocol called IMMLA, which had a successful ICO last year, spells out in its white paper how it would claim a percentage of every transaction on its blockchain protocol. It said that IMMLA would take 1% from any financial transaction completed on its platform, estimates that it would “occupy” at least 1% of what it calls “global cargo transportation services.” “Thus, financial transactions via IMMLA will be at the level of 1% * $1 trillion = $10 billion per year. Revenue: 1% of these transactions = $100 million per year.” IMMLA also says its revenue would be provided by “Other third-party and built-in paid services: advertising, analytics, banking services, accounting services, arbitration, insurance, customs clearance, etc.”
What it doesn’t mention, but which some blockchain protocols have projected as a source of revenue, would be to build the support network for the software that runs the platform. Still, the IMMLA revenue projections were more specific than what was found in most white papers, which generally had revenue projections only on what the ICO would bring, but not on any continuing businesses.
What about brokers?
--The role of brokers: two separate white papers have very different takes on the future role of brokers in a world where distributed ledger technology is deeply embedded in the supply chain. Conventional wisdom is that DLT, being a technology that would disrupt intermediaries, would be devastating if not fatal to the voice brokerage industry.
ShipChain’s white paper sums up this view: “The ShipChain blockchain will supplant the need for brokers by allowing carriers the ability to find shipments and intelligently route their team for multimodal transportation based on factors such as distance, traffic, weather conditions, fuel use and more.”
But the Fr8 proposal views brokers as still important in a market where Fr8’s protocol becomes dominant. “Fr8 doesn’t want to eliminate brokers entirely - quite the contrary,” it writes in its white paper. “We believe individual brokers will exist in the marketplace as representatives of shippers or carriers, much as they do today. But we want to give every broker access to the tools and information they need to operate effectively and capture the full rewards for their hard work. Today’s brokers exist primarily as liaisons of relationships. Now independent brokers can enter the Fr8 ecosystem as enablers--a critical asset for optimizing our network of shippers and carriers.”