Blockchain and Smart Contracts – A Bigger Industry Disruptor Than ELDs

We have previously discussed what Blockchain technology is. In short, it is a way to enable value and asset transfer across a wide range of industries and use cases – with total transparency. Blockchain will be a major disruptor for financial institutions, remittance companies (third-party freight companies) and many other transactional ‘middlemen’ (people, services, companies). Briefly, Blockchain systems use a chain of secure records to expose the details of transactions to all approved participants and distribute records across a network of participating computers (decentralized). This eliminates the need for a central authority to maintain records and makes processes more efficient, and ultimately cuts costs.

Sandeep Kar, Chief Strategy Officer for Fleet Complete at the recent Connected Fleets USA event in Atlanta listed the following as among the many benefits of Blockchain:

  • Accelerated payment, better security and reduction of fraud
  • Simplified claim settlements
  • Improved traceability and trackability
  • Elimination of the middleman, which cuts costs, reduces paperwork and shortens the supply chain
  • Reduction in the cost of regulations and compliance
  • Increased transparency of price, ownership and the entire process

Kar further summarized the challenges to implementing Blockchain in the logistics industry:

  • Lack of initial knowledge, skills, expertise and trust in the technology
  • Limited easy availability of cryptocurrencies, which may or may not be coupled with a Blockchain system
  • A bias towards the established infrastructure
  • Lack of a central authority to mitigate risk
  • Potential cryptocurrency volatility because no central authority governs cryptocurrencies

Smart contracts work with Blockchain to facilitate the automation of many processes within multiple industries. Smart contracts are based on a Blockchain technology called Etherium. The programmer behind Etherium (Vitalik Buterin) has described a smart contract as “a computer program that directly controls some digital asset”.

Smart contracts go further than traditional legal contracts that define the rules around an agreement between multiple people or parties, by actually enforcing those rules and controlling the transfer of currency or assets under specific conditions. An asset or currency is transferred into a program and the programs runs code that at some point determines whether this asset should go to one person or back to the other person. Jeff Garzik of the Blockchain startup ‘Bloq’ says that “smart contracts guarantee a very specific set of outcomes. There is never any confusion, and there’s never any need for litigation. It’s simply a very limited, computer guaranteed set of outcomes.” Buterin foresees the development of standardized templates that users will be able to use, similar to the standardized contracts we currently use. This will simplify the process and eliminate the need to custom code each and every contract.

Now, enough of the theories and technical jargon, how will trucking companies utilize (and profit) from Blockchain based technologies?

A trend right now is for larger trucking companies to enhance capacity by partnering with other companies to more effectively utilize capacity and optimize for time, location and ultimately gross margin. Right now, subject to the sophistication of the company, that is a difficult set of tasks. You are dealing with multiple databases and datasets, not to mention the human and environmental elements.

The use of Blockchain and Smart Contracts could provide the necessary framework for trucking companies to take more control over the supply chain of a shipper, while optimizing their capacity and the capacity of carrier partners – who are party to a separate smart contact with the lead carrier. The image below, gives you a rough idea on how this would work. The caveat is that each company in the preferred network would have to add data to the Blockchain within the terms of the smart contract between them and the lead carrier.

Once a contract has been successfully fulfilled (or not), the Blockchain technology will create a transparent and open performance history record. This is a trustless record, as the parties know that the records cannot be edited. Essentially the data is flawless and not open for dispute.

Think of the above as an automated Shipper and Carrier Scorecard – one that will drive better decision making for all parties.

Would be great to hear from more of you regarding possible use cases for Smart Contracts in Trucking.

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