What does blockchain mean for Third-Party Logistics (3PL) providers?


What is Blockchain?

Blockchain is a digital ledger in which transactions are recorded chronologically and publicly. In simpler terms, “A Blockchain is a diary that is almost impossible to forge.

Blockchain in Transportation and Logistics

Multiple sources reinforce the power of blockchain technology and its importance in transforming the future of the entire supply chain. In fact, a recent study made by Gartner suggested that $2 trillion of goods and services will be supported annually by blockchain technology in 2023.

Despite the future impact of the technology in the logistics industry, there is an existing paradigm about the role of ‘intermediaries’ in this process. Many argue that the technology will remove the need of a “middlemen”; however, at dexFreight, we strongly believe that freight intermediaries like 3PLs, play an essential role in logistics. Freight brokers relationship with shippers and carriers is built over time, and that trust bond will not be easily replaced with technology alone, let’s not forget that many of them also add value to the supply chain by improving effectiveness, reducing costs, and providing technology and expertise, among others. As technological advances continue to transform the industry, 3PLs will evolve to fulfill other key roles in the supply chain. Example of “other” roles?

How can 3PLs use blockchain technology?

Blockchain-based logistics platforms like dexFreight seek to introduce significant benefits for 3PLs to solve some of their major pain points:

1. A new level of trust. Establishing and maintaining trust with shippers and carriers is not an easy task. 3PLs need to rely on third-party services to evaluate creditworthiness and past records before moving a shipment. Collecting the necessary information to build a business relationship is costly and timely, and in some cases, reports are not up to date or do not reflect accurate information.

Using blockchain technology, 3PLs will be able to build their reputation, as well as see other users’ reputation, based on real performance. This ‘objective reputation system’ is backed by smart contracts stored on the blockchain, meaning the information is immutable. Reputation is built over time by including key performance indicators such as on-time pickups and deliveries, loading time, accidents, on-time payments, among others, removing the risk of trusting fake reviews or inaccurate reports by supporting decisions on real data.

2. Smart contracts. On average, companies waste over 3 hours processing a single shipment. Many of these processes require manual labor, which increases the risk of human error. Using smart contracts, 3PLs will be able to use unified records of every single aspect of shipment transactions. Agreement terms including rate, location, time, equipment, and payment are recorded in smart contracts, facilitating faster settlement and transactions between multiple users. The smart contract is only created after both parties accept the shipment terms and the only way to modify it is if all the parties involved agree to do it. This means that common phrases such as “I did not agree to pay that extra cost” or “I was never notified about that situation” will be avoided altogether.

$2 trillion of goods and services will be supported annually by blockchain technology in 2023

3. Improved shipment traceability. The planning between shippers and carriers requires coordinating information, paperwork, and communication. One of the main assets of 3PLs is having full visibility over the entire process. Companies that do not have access to appropriate technological resources rely heavily on email exchanges, phone calls, text messages and fax machines, which result in delays, miscommunication, and inaccuracy.

According to the 2018 Third-Party Logistics study, over 60% of shippers and carriers have shown interest in blockchain technology due to its potential to improve visibility and traceability. By implementing this technology, 3PLs will have access to all information such as shipment status, pickup and delivery time, location, incidents, among others, as they happen in real time, allowing the company to make faster strategic decisions and strengthening their relationship with clients.

4. Faster payments. Days to pay carriers can range from next day to over 90 days, causing cash flow problems. According to the Transportation Payment Benchmark Study, both domestic and international payment processes require heavy manual labor, resulting in higher costs for companies. With blockchain technology, users will pay each other for services provided based on terms and conditions they mutually agreed and coded in immutable smart contracts. As all the parties involved have access to same untampered documents including, invoice, bill of lading, purchase orders, and proof of delivery, it requires less time to approve invoices and to settle payments. In addition to this, once all the conditions stated in the smart contract are met, payments are released instantly, reducing the risk of disputes and delayed payments.

5. Digitization. It is not a secret that the implementation of technology can bring multiple efficiencies to the supply chain as a whole. Digital brokers like Convoy, Uber Freight, Transfix, and J.B. Hunt developed their own independent freight platforms to disrupt the industry through digitization. According to Armstrong & Associates, companies have raised over $420 millions for freight technology since 2011, increasing the barriers to entry for smaller companies in the market. Despite the efficiencies introduced by digital brokers, their participation in the industry preceded a new set of problems. Each of these platforms works independently from one another, developing data silos. Add to this the fact that small and medium-sized brokers, do not possess the resources to develop digital platforms of their own.

With blockchain technology, companies like dexFreight are developing decentralized logistics platforms to facilitate brokers with the possibility to remove data silos, allowing integrations with other systems, which results in accessibility and visibility from a single platform. This new level of digitization will allow freight brokers like 3PLs to experience all the benefits without large initial investments.

These are only a few benefits that blockchain can bring to 3PLs. The technology is still in a nascent stage. However, according to the 2017 3PL Study-Highlights, shippers are expecting their 3PLs to bring blockchain technology initiatives to the table fairly soon.

If you own or work for a 3PL company, we welcome you to submit your interest request to become an early adopter of the dexFreight platform, our leadership team will be happy to discuss in further details, how you can implement blockchain in your daily logistics operations.

 

Sources

Columbus, L. (2019, January 13). Top 10 Ways Internet Of Things And Blockchain Strengthen Supply Chains. Retrieved from https://www.forbes.com/sites/louiscolumbus/2019/01/13/top-10-ways-internet-of-things-and-blockchain-strengthen-supply-chains/#21a784545e4e

The Economist. (2015, October 31). The great chain of being sure about things. Retrieved from https://www.economist.com/briefing/2015/10/31/the-great-chain-of-being-sure-about-things

Henderson, J. (2018, June 29). Supply chain inefficiencies costing UK businesses more than £1.5bn. Retrieved from https://www.supplychaindigital.com/scm/supply-chain-inefficiencies-costing-uk-businesses-more-ps15bn

How Blockchain Technology Works. Guide for Beginners. (n.d.). Retrieved from https://cointelegraph.com/bitcoin-for-beginners/how-blockchain-technology-works-guide-for-beginners#nonce

Infosys, Korn Ferry, Penn State University, & Penske Logistics. (2017, September 27). 2018 3PL study highlights potential of blockchain and digitization/automation. Retrieved from https://www.penskelogistics.com/newsroom/2017_09_26_3pl-study-highlights.html

Phillips, E. E. (2018, September 21). Digital Freight Startup Convoy Raises $185 Million, Surpasses $1 Billion in Value. Retrieved from https://www.wsj.com/articles/digital-freight-startup-convoy-raises-185-million-surpasses-1-billion-in-value-1537524002

Saunders, K. (2016, December 7). Eft – Supply Chain & Logistics Business Intelligence. Retrieved from https://www.eft.com/logistics/what-blockchain-and-how-it-going-benefit-logistics-industry

Vorabutra, J. A. (2016, October 3). Why Blockchain is a game changer for the supply chain. Retrieved from https://www.supplychain247.com/article/why_blockchain_is_a_game_changer_for_the_supply_chain