In simple terminology, Blockchain can be defined as a shared and irreversible system for documenting transactions. It is a digital ledger process stored across an array of computer network systems. The workings of Blockchain are intricate, but the basic idea behind it is straightforward. It distributes the storage of data in a manner that there can be no ownership and control over such data, eliminating the possibilities for manipulation and fraud. Blockchain technology emerged out of a branch of mathematics together with cryptography that protects information by using codes to ensure secrecy, allowing only the intended persons to read and process the information further.
Information is one of the key driving factors behind the success of a business. The information should be authentic, accurate and processed fast. Blockchain stores and delivers information from an unalterable distributive ledger or database that can be accessed and shared only by network participants having specific permission. It tracks orders, delivery, payments and production processes among several other activities. Members with access to the database see a distinct and consolidated view of the entire sequence of transactions from start to finish, delivering enhanced trust and efficiency.
The shipping industry continues to rely heavily on paperwork with most of the transactions revolving around mountainous documentation involving ship owners, charterers, banks, agents, customs, contracts, bills of lading, port documents, letters of credit and various agreements between the concerned parties. These documents have to necessarily pass through numerous channels of approvals to enable the merchandise to get shipped and delivered to the rightful recipient. This entire procedure is cumbersome and time-consuming. Often, the cargo reaches the destination port even before the documents are cleared. Blockchain eliminates paperwork entirely to allow all stakeholders involved in a shipment to get in touch with each other, perform transactions, exchange & store information, complete contractual commitments and swap payments.
One crucial area where Blockchain can apply resourcefully in the shipping arena is in the execution of smart contracts where this technology enables transactions to progress automatically based on the terms and conditions in an agreement. These smart contracts are in effect computer programs that run and execute independently in the Blockchain process and ensure that the contractual obligations are satisfied by all the parties connected with a deal or transaction.
Without Blockchain technology, it would be impractical to execute contracts in a smooth and transparent manner because the participants in an agreement maintain separate databases. In contrast to traditional methods, this new technology allows a shared database that governs Blockchain rules. Functions in the smart contract execute automatically, and the parties involved validate the outcome instantly with no need to exchange communication or involve a conciliator. To illustrate an example, a company can automatically remit payment to a shipper when the cargo arrives at a destination. This is enabled by smart contracts that have self-executing tasks coded through the Blockchain and perform actions when the preset conditions are satisfied. In other words, this technology enables the spontaneous execution of a maritime contract with events triggering actions that would in the normal course require direct human involvement.
The shipping industry can benefit from Blockchain technology in the following ways:
Real-time updates and faster processing:
Mailing of documents related to various deals is eliminated and information is exchanged freely and instantly over the network. Tasks that were performed manually in earlier times become automated removing scopes for error, delays and fraudulent activities. The shared distributed ledger permits easy management of documents that renders the physical handling of documents redundant. The use of smart contracts enables quick customs clearance and approvals required at various stages.
Transparency and reliability:
With the help of a unique code or key, authorized persons can access information and bring transparency to the whole process by viewing the transactions previously performed by other individuals in the chain of processes. Tracking systems based on Blockchain allow the associates to view past events concurrently and gain direct access to data in real-time.
Encrypted information automatically allows privacy and increased data security. Users cannot edit or modify information already stored in Blockchain, therefore it prevents unlawful activities by individuals with access to the information stored.
A considerable portion of the expenses involved in trade and commerce is consumed by documentation work, order processing, procedural delays and human resources working to correct errors. With the level of accuracy and speed that Blockchain provides, wasteful expenditure can be eliminated entirely.
Let’s also look into certain challenges being faced by this new technology. The fact that Blockchain is only about a decade old means the technology is still at a nascent stage of development. So there is a considerable period of time remaining before it matures into a full-fledged one for businesses to gain confidence and adopt the technology. Implementing and managing the system requires comprehensive expertise among the staff working in an organization. The technology is energy-intensive and consumes substantial processor power. There are also issues concerning its scalability as business needs increase.
Blockchain is acknowledged as one of the most pioneering technologies that is at the core of the shift from the traditional centralized server-based system to a distributed and highly secure transparent network of computers. According to a study conducted by the World Economic Forum in 2018, adopting Blockchain has the potential to enhance world trade by $1 trillion in the next decade.