Blockchain Has the Power to Create a Sea Change in the Way Shipping Does Business
Giant commodities trader Mercuria announced in January that it would employ blockchain technology to sell an oil cargo to ChemChina. This month, IBM revealed a blockchain collaboration with Maersk to track its cargo.
Previously, blockchain served as the foundation to secure bitcoin transactions. Now, it promises to supersede hundreds of years of maritime commercial practice by replacing bills of lading and attendant transactional documents, substituting a secure online mechanism to buy and sell goods.
Maritime traders and brokers would be wise to keep track of developments with this burgeoning technology because it may bring a sea change in the way they do business. It seems unlikely in the short term that blockchain will displace the myriad bill of lading, charter and sale of goods terms and conditions. But it certainly has the potential to disrupt the way goods and services are bought and sold, by eliminating the need for middlemen to carry out the financial aspects of each transaction.
The implications of blockchain are profound, given that the World Economic Forum estimates trade finance constitutes a $10 trillion annual market. The technology’s cryptographic protections make it virtually tamper-proof. Each transaction must be signed using a private key, which prevents access by unauthorised third parties, and the transaction requires several independent confirmations during the process.
Blockchain logs every participant in the process, which supporters hope will prevent money-laundering and create greater transparency. The technology provides for a revision-proof, public timestamp for each transaction.
At the moment, there is no universal blockchain technology that governs Internet transactions. A variety of companies, including IBM, Bosch, Microsoft, Samsung, Toyota and Visa, are developing applications to implement the technology and expand its global reach. Nasdaq employs blockchain in its Linq system.
More than 2,500 blockchain patent applications have been filed. Other companies, including Thomson Reuters, are forming consortiums to create a broad-based blockchain structure that serves a variety of industries. For example, the Linux Foundation Hyperledger consortium is drawing together hundreds of companies and organisations to create standardised blockchain software.
The European Union set up a regulatory task force last year to study blockchain and earmarked EUR 1.1m ($1.18m) for a 12-month pilot project to explore the scope of regulatory technology. If it can be made impervious to hacking, the technology may bolster financial stability and open more avenues for government oversight of financial transactions.
Standardisation of blockchain could foster the development of far more “smart contracts” (that is, computer protocols that facilitate, verify or enforce contract performance), ease intellectual property transfers and expedite government contracting and supply-chain services, while reducing infrastructure, compliance and auditing costs. Yet how smart is smart? Will such contracts entail only payment and delivery terms, or will they eventually address the many clauses within a typical bill of lading, charterparty or commodities contract of sale?
With the advent of blockchain, coupled with ever-accelerating improvements in artificial intelligence and quantum computing, how long will it be before a smart contract can resolve demurrage disputes, deviation claims, weather-related delays, lien issues and the like?
The maritime industry has by no means embraced blockchain at this stage, and it is not at all certain that entrenched and time-honoured commercial practices will easily give way to online technology. Blockchain is not yet available or commonly leveraged into usable applications beyond bitcoin, and it is problematic whether regulatory authorities will approve of this technology and its security protections in less than a glacial age.
Consider, though, that when 9/11 occurred, White House press secretary Ari Fleischer learned of the attack via pager and then US president George Bush spoke to his secretary of state over a telephone landline from a primary school. Sixteen years later, current president Donald Trump communicates directly to 26.6 million followers through Twitter.
“Blockchain Has the Power to Create a Sea Change in the Way Shipping Does Business,” by Keith B. Letourneau was published in TradeWinds on March 23, 2017.
A version of this article was first published in the March 2017 edition of Mainbrace, Blank Rome’s quarterly maritime newsletter.