As of 2021, the logistics industry was valued at a staggering $4.92 trillion and it is projected to reach $6.55 trillion by 2023.
Although the payouts seem to be lucrative, logistics companies lose out on a significant percentage of profits due to multiple reasons — like inefficient practices, theft, unnecessary middlemen costs, cyber-attacks, and spoilage of perishable items. Mislabeled, wrongly shipped and stolen cargo alone makes businesses lose $50 billion every year.
Blockchain offers an end-to-end solution for companies that want to run safer, more organized, and more efficient logistics operations.
Blockchain enables logistics companies to become more efficient through a public ledger system that records the movements of each shipping container. With the help of this data, companies can implement faster routes and eliminate unnecessary steps in the logistics process.
Distributed ledgers also reduce bottlenecks and clerical errors. Besides blockchains allow businesses to work on ledger-based contracts that:
- Increase transparency and profits
- Decrease delivery time and costly errors
Some other benefits of this technological upgrade include:
- Transparent recordings
- Reduced costs
- Efficient route information
When coupled with other emerging technologies like big data and artificial intelligence, blockchain could even increase the global GDP and the percentage of global trade. This article explores various pros and cons of implementing blockchain in the logistics industry.
Pros of Implementing Blockchain into Logistics
Blockchain enables the optimization of logistic processes in real-time mode. This tends to improve the relationship between shippers and carriers. Here are some advantages of using blockchain in the logistics sector.
Transportation processes require a lot of documentation that includes terms, conditions, bills, transit documents, etc. Blockchain streamlines the recording of all these steps. Every member of the supply and delivery chain can look through the records and keep track of the goods. This reduces the overall errors in the system and makes them more trackable in case it occurs.
Delivery is an essential aspect where smaller companies can compete with bigger ones. Offering faster routes becomes quintessential, especially for air freight service providers. Blockchain enables faster delivery through route optimization. This also allows companies to reduce expenses on the shipping process.
Maintain Records Efficiently
Blockchain is more than just a database system, and it can do more than just store information. It enables this data to be shared with other parties safely and securely.
For example, when it comes to perishable food items, it becomes imperative to keep solid records to trace every product and its source. Companies like Walmart leverage blockchain to keep track of food items — the blockchain records everything including:
- Where did the items come from?
- Where did it get processed?
- What are all the places the items were stored at?
- The sell-by-date of the item.
Popular businesses like Unilever, Nestle, Tyson, and Dole also use blockchain for similar purposes.
All the data on the blockchain is recorded automatically with a time stamp. It even records data that would not be recorded in a traditional supply chain system — such as steps completed in a production process or the time of a seller’s receipt of a purchase order.
Blockchain also enables end-to-end tracking which is accessible to all members involved in the supply chain. This accomplishes a quicker resolution of disputes than the traditional supply chain systems.
For instance, diamond-giant De Beers uses blockchain technology to track stones from the point they are mined to the point when they are sold to the customers.
Secure Transactions and Certification
The combination of blockchain and IoT simplifies the process of certifications by allowing companies to create smart contracts. They tend to reduce time and expenses. It gives opportunities to both parties to automate the validation process, manage obligations, and so on.
Besides, transactions made on blockchain are secure and are impossible to manipulate. This leads to decreasing fraudulent operations.
Cons of Implementing Blockchain into Logistics
Although implementing blockchain to supply-chain management has many pros, it also comes with some cons.
Intermediaries are agents who take part in the transportation chain. Blockchain actively eliminates the need for intermediaries. When you implement blockchain in your logistics processes, the industry will no longer need such specialists. As blockchain automation increases in the supply chain processes, the number of unemployed workers will rise.
Higher Computational Overhead
Blockchain applications are far more efficient, but they still require more computing resources – or overhead – than traditional databases. This means that some operations may be significantly slower as compared to their traditional counterparts.
The costs of implementing a blockchain solution have the potential to be steep. The costs involved usually are more than the cost required in the traditional approach. These expenses include:
- Cost of hiring blockchain developers
- Planning costs
- Cost of licensing
- Hardware and maintenance cost
- Cost of hiring blockchain integration specialist
Not Yet Ready for Large-scale Use
Many analysts warn against adopting blockchain technology as they believe that it isn’t fully developed or understood yet — especially when it comes to large-scale production.
This is primarily because blockchain is slow and gets slower every time a ledger is distributed or updated. Besides, it is important to note that even though blockchain is more secure than other methods, it isn’t completely free of hackers. In fact, the anonymity of the technology can occasionally put it at risk and facilitate scammers.
Market Monopoly Through Blockchain
Businesses that apply blockchain technology could also monopolize the market and force customers to make the purchase from a singular buyer without even knowing it. This could mean that eCommerce giants could have control over much of customers’ lives in the future.
Even though blockchain is not a disruptive technology, it surely is a foundational one. While it can potentially provide huge advantages to logistics stakeholders, there are also potential disadvantages to it. Hence, whatever blockchain solution you’re implementing in your logistics business should be well-tailored to the targeted supply chain. Ensure that it serves your business model well.
Tim Robinson is Digital Marketing Manager at PACK & SEND, a 25+ years old and respected brand in ecommerce, logistics, and freight delivery solutions. Tim has 20 years of combined experience in sales and marketing. Logistics, D2C, franchising, business planning, and operations management are his core expertise.
Connect with Tim on LinkedIn.