CSCMP's Supply Chain Quarterly
Finance
December 14, 2018
Forward Thinking

Maersk, IBM launch first blockchain joint venture for trade, transportation

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The platform, which took 18 months to create, will now be marketed on wide scale, companies say.

After more than 18 months of theorizing and tinkering, Maersk Line and IBM Corp. announced this week the formation of a joint venture to apply blockchain technology, a distributed ledger that creates a transparent and indelible trail of each transaction, to global trade and transportation.

The venture, which had been rumored for some time, will use blockchain to, in the companies' words, "provide more efficient and secure methods" for conducting global trade. The announcement means that "a beta version involving all players of the ecosystem along a specific trade lane can be launched," said Michael J. White, former president of Maersk's North American division and the head of the new venture, in an email.

Copenhagen-based Maersk, the world's largest container line, and IBM, based in Armonk, N.Y., began work in June 2016 to build technologies that would be relevant to the process. Since then, various corporations, marine terminal operators, and government organizations such as the U.S. Customs and Border Protection have piloted the platform.

The venture, which will be open for members across a trading network to join, will allow Maersk and IBM to market the process to a broader range of commercial and government interests, the companies said. The venture is subject to various government regulatory approvals, and it has yet to be named. It is expected to start six months after regulatory clearance is received, the companies said.

The companies said they are encouraging other shipping lines to join, noting that container flow data considered proprietary would not be visible unless the ship line wanted it to be. In an interview at the National Retail Federation's (NRF) annual convention in New York, Karl Heller, partner and global leader for IBM's Consumer Center of Competency, compared the joint venture's platform to a big, distributed database with functionality constantly enabled so no user can change any details without those actions being logged for all to see.

Blockchain's name comes from parties in a transaction adding "blocks" of information to the wider chain. The blocks identify as much information as the stakeholders deem necessary for the transaction to progress and be completed. Fraudulent activity would be virtually impossible because the transaction would represent a single view shared and witnessed by all participants. A transaction can move forward free of hackers and the need for so-called trusted third parties such as lawyers, bankers, and other intermediaries who've historically filled overseer's roles.

At the core of a blockchain's appeal is the development of self-executing, or "smart," contracts that would not require a third party's validation. Contracts could be converted to computer code, stored, then replicated on the system and supervised by a network of computers that run the blockchain. Smart contracts enable the exchange of money, property, shares, or anything of value in a transparent and conflict-free way, while avoiding the services of a middleman, according to supporters of the blockchain process.

Originally utilized to support the Bitcoin crypto-currency, which buyers and sellers use to execute transactions outside of the normal banking ecosystem, Blockchain is gaining interest across multiple industries, not the least of which is transportation and trade. The "Blockchain in Transport Alliance," (BiTA), a group created in the U.S. to develop industry standards, has received 975 applications to join and has 175 members, according to Craig Fuller, a transport IT executive and the group's co-founder. It is by far the largest industry-specific blockchain association, Fuller said.

Maersk and IBM said blockchain could revolutionize the ocean shipping industry, which moves about $3.2 trillion of goods worldwide and which has been a notable laggard in digital development and implementation. According to the companies, the overreliance on paper transactions has driven up the costs of processing and administration to as high as 20 percent of the costs of transportation.

According to White, most inefficiencies are caused by "information silos and ineffective data and documentation sharing. For example, information at origin was not always known by the destination customers in a timely manner." Missing documentation has also attributed to delays, a scenario that could be avoided with a blockchain-enabled program in full swing, White said.

Connor DiGregorio, a procurement research analyst at supply chain market research firm IBIS World Inc., said the databases of parties involved in a transaction are stored separately, which requires the exchange of paperwork. The IBM-Maersk platform will "allow easier coordination of documents on a shared distributed ledger, eliminating much of the need for physical paperwork," said DiGregorio in an email. "Additionally, through the distributed ledger and with the use of smart contracts, approvals and clearing through customs can happen much faster, reducing the time goods are processed through ports and other checkpoints."

Inna Kuznetsova, president and chief operating officer of Parsippany, N.J.-based Inttra, a multicarrier portal that tracks the status of more than 40 percent of the world's ocean containers, said the success of the IBM-Maersk venture will depend on the companies' ability to attract a large number of shippers and customs authorities to the platform. "Blockchain represents an attractive means to build a distributed network," Kuznetsova said in an email. "Yet it requires certain changes to the IT and business process of each company joining the platform, in addition to adopting common standards. Both historically represent a challenge in shipping."

She added that participants with multilayered operations, which represent many in the sea carrier trade, will also need to decide if they want to invest in participation in many networks or wait for a true standard to emerge.

Haller of IBM said the venture is all about inclusiveness. "IBM wants to work with standards and regulatory bodies to make sure all these blockchain networks are interoperable," he said at NRF. "We're working to jointly develop a solution that will work for anyone in the industry that wants to be a part of it. Then it will go from being about blockchain to being a solution for global trade."

Editor's note: Editor at Large Ben Ames contributed reporting from New York for this article.

Mark Solomon is executive editor—news at DC Velocity, a sister publication of CSCMP's Supply Chain Quarterly.

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