CargoCoin: blockchaining logistics.

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International trade and logistics together are one of the largest economic sectors

in the world, accounting for over USD 30 trillion annually. 90% of the world cargo

is transported by sea. The significance of the logistics industry and moreover sea

freight is very significant with a 10.3 billion tons per annum in 2016. The logistics

sector is one of the real, physical world areas where blockchain technology can be

applied to improve efficiency and optimize operations. Logistics is a perfect fit for

the blockchain technologies, because logistics is essentially a supply chain of

merchandise, where we have irreversible steps in the supply chain that are

required to progress on to the next step. Furthermore, the blockchain provides

the much needed transparency, security and most importantly trust to all parties

involved in the chain – something that is currently being carried by banks, industry

associations and organizations, etc.

International trade and logistics are very complex nowadays although all

processes are still being carried out the way they were 300 years ago, i.e. on

paper. The title of ownership (Bill of Lading) in the shipping industry is still being

printed on paper and still being sent by courier to the receiving party. The

payments are still being carried out via banks transfers and letters of credit, all

proved to be slow, expensive and take time to clear. New regulations impose

additional checks by US intermediary banks cause further delays. Bank payment

transactions often take 3 to 5 days. All these factors cause losses to the shipping

industry and international trade. Cargoes are delayed, pending for original

documents to be delivered and payments to be received. Each idling day of a ship

could cost as little as USD 10,000 USD and up to USD 150,000 in expenses,

including salaries, port charges, running expenses. Cargo delivery delay penalties

cost millions of dollars per single shipment. Empirical research shows that 17% of

its lifespan cargo ships are idling, waiting for clearance of financial matters,

including financial hold of cargo, freight payment, cargo related documents or

other trade and ship related document. Considering that the global value of sea

freight itself accounts for USD 380 billion per year the delays generated losses are

a billion-dollar figure. That cost is passed on to the clients and to the end users, all

of us. Optimizing the international trade, logistics and sea freight industries will

affect all of us in one way or another.

 

Blockchain technology allows us to introduce smart contracts that will replace

paper documents, provide instant delivery of documents, eliminate the

expensive letters of credit and replace them with blockchain escrow payments.

These 4 points only will reduce delays to under 10% leading to

freight optimization and less cargo delay penalties. Further improvements

such as customs clearance are to be implemented by blockchaining.

Pilot customs services project by blockchain has already started in South Korea.

Other than the delays that account for huge losses each year, there are number of

other problems in the international logistics, that could also be solved through

blockchaining logistics, such as:

• Reducing fraud – replacing paper documents with smart contracts that

cannot be forged will improve trust and accountability of the document

flow.

• Lowering costs and Increasing trust – using an established blockchain

protocol, such as Ethereum and escrow payments rather than bank letters

of credit will significantly reduce the costs of cargo and freight payments,

while at the same time providing for even higher trust and secure

payments.

• Securing information – encryption ensures high security of the

documentation flow, which is otherwise exposed to various parties, such as

bank’s employees, agents, brokers, etc. With a blockchain solution, each

party would have access only to the information that is relevant to them

and will greatly decrease industry scouting for information.

• Safe archiving – paper documents fade over time, get lost, burned, flood

and humidity greatly affect them. With blockchain smart contracts the documents

will always be in perfect shape, ready to review and reference and will not be prone

to destruction.

• Tracking – tracking cargo shipments is a crucial aspect, especially if the shipment is

split in several parts or is being transported by different modes of transport throughout

the cycle. Furthermore, tracking is crucial in the supply chain of food, where batches

need to be traced back to their origins.

Global transportation platforms, such as CargoCoin are essential for the implementation

of the 21 st century technologies such as the blockchain and smart contracts in global trade

and logistics.