Smart Capacity and Smart Contracts: More Value for the Asset Heavy
One potential use of smart contracts is to create networks of smart capacity with multiple cooperating carriers. In effect, these networks will create their own virtual 3PL, using a group of trusted carriers to service customers as a single entity.
One key aspect of smart contracts is that they assume there is a certain level of trust between parties. In terms of smart capacity, this is crucial. For starters, each carrier within this network must be carefully vetted for insurance, safety, maintenance, driver standards, equipment standards, etc. This should be similar to how you handle things when you broker your excess freight currently. In this case, the vetting is done before gaining admittance into the group. An additional feature is that all parties to the capacity network trust the others to properly vet new entrants. Once a new carrier is approved by one member, all the other carriers must accept and trust that vetting. For example Carrier X is vetted by Member A. Member A does the due diligence and deems Carrier X to meet the criteria for admission. The other members of the group no longer need to vet Carrier X as the trust relationship has already been established. The burden of carrier compliance is now shared throughout the group, reducing each member’s costs. As the use of blockchain is adopted by government, insurance and truck and trailer OEMs, the direct and indirect costs related to compliance and monitoring will decrease significantly.
Once a carrier has established that they meet the necessary criteria, they must maintain that level of compliance. By using Blockchain technology and smart contracts, all parties to the network will see any areas of non-compliance and the smart contracts will become a form a self-policing. If the carrier no longer meets one of the smart contract’s criteria, they will no longer be active within the smart capacity network. For example, if a carrier needs to maintain a CSA HOS score below a certain level, and they have an incident that puts them above that threshold – the smart contract will prevent that carrier from participating. No other intervention is required by any other party to the network.
Now, here is what separates smart capacity networks from traditional ‘Power Only’ relationships. Consider this scenario, Shipper 1 is a party to this network, through a separate smart contract with a lead carrier (the one with the relationship) – Carrier A. Carrier A is the lead carrier for this account, but has entered into this network to help handle the capacity requirements. Shipper 1 needs a load picked up in New Mexico and delivered into Chicago. Carrier A currently has no trucks in the New Mexico area. However smart capacity group member Carrier B does have a truck that will be empty in Las Cruces later today. Using smart capacity, the network understands that lead carrier A is unable to perform the move and will automatically assign the load to carrier B who is able to execute the contract. A few things have happened here. One – the shipper has their freight moved on their desired date and with a carrier that they know meets their criteria for doing business with. Carrier A will not be potentially running a truck with a lot of deadhead miles to meet the service levels that shipper 1 has set forth. Carrier B has secured a load for their truck without having to use broker freight for their backhaul. And here is the best part – this happens automatically without any intervention from any of the parties the smart contract controls it all. Finally, each participant can enter into separate smart contracts with shippers, and utilize the smart capacity network, as long as the pricing, network and equipment can fulfill the criteria established by the smart contact.
At its most basic level, smart contracts and smart capacity will use a predefined set of rules that determine who may participate, and govern the actions taken to fulfill the contracted service. These criteria are coded into the smart contract and the software then automatically makes decisions based on that coded logic.
A few things to keep top of mind regarding smart capacity. One is that all parties to the network have visibility to all other members. So, in the earlier example, Carrier A knows where all of Carrier B’s equipment is and Carrier B knows where all of Carrier A’s equipment is. Two, all parties have visibility to the loads that the other members are doing – within the confines of the smart contract. Three, all participants must agree to allow the network to optimize the entire system, not just each company optimizing on their own, and in isolation. This does involve individual actors giving up a degree of control, however, if the underlying coding and logic is correct, then each party should maximize its profits.
In an ideal situation, each participant agrees to a set contract pricing that each customer has with the network. However, a smart contract is able to have the logic required to allow each carrier to have different prices within the smart capacity network. This would also provide a measure of defense against accusations of anti-competitive behavior. Further, each carrier would have the ability to decline the load. If a shipper throws a curveball to the network, which makes the load less palatable, the contract between the lead carrier and the shipper would automatically adjust to make the load (potentially) more attractive to the network, which could include pricing, accessorials, appointment times etc.
In summary, a smart capacity network is one that uses Blockchain to distribute information to all parties of the network, as well as Smart Contracts to automate the policing and compliance features of the transaction. The smart contracts can monitor progress, dictate courses of action and ensure compliance. Once all parts of the smart contract have been fulfilled the contract could automatically trigger payment for the service rendered. This has the potential to greatly reduce overhead, by automating many common dispatch items as well as remove the need for third-party freight auditing as the contracts will provide this data in real time. Capacity and equipment will be better utilized, and shippers get to know that any carrier that touches their freight will maintain a minimum standard of care and compliance, without having to vet each and every carrier. All of these features will result in reduced costs, and greater profits for all participants – a truly symbiotic relationship!
Next week we will examine how smart capacity networks could optimize for Hours of Service capacity, something which will become more important in the upcoming months.