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Logistic industry & Blockchain technology

Current problems of Transportation & Logistics services development

Growing competition in consumer and industrial markets, active development of eCommerce and economic growth lead to a steady increase in demand in logistics services. According to the Russian Federal State Statistics Services the volume of cargo carriage was gradually increasing and the number of cargo companies was growing simultaneously.

The quality of transportation and logistics services is slowly becoming the main competitive advantage. Customers and Suppliers are more interested in transparency of supply chain, delivery speed and service costs. Leading companies are slowly beginning to introduce new technologies in their business processes: automatization of warehouse operations, blockchain for tracking deliverables, IoT for the entire logistics cycle. Innovations will help to optimize the operations, resolve current problems and increase potential money flow.

Cargo transportation volumes

 Even though logistics industry is growing, high competition, growing expenditures and other external and internal factors (interpretation below) affect the market. As a result the income of most logistics businesses hasn’t increased or even decreased and as a result 92% of transportation & logistics companies decided to go out of business over the course of 3 years. At the same time, the income of major market operators (DHL Logistics, Expeditors International, DSV, XPO Logistics) went up by 5-15% only in 2018. Experts believe the reason for this is good management and integration of innovations and new technologies.

Russian Freight Transport Market

Research by Logistics Coordination Council in Russia done in 2017 showed that Logistics is one of the three industries most susceptible to bankruptcy. For example, in the same year, there were over 1 million registered trucks with a loading capacity of 12 tonnes or more and only 14% of them were owned by big and medium businesses. According to the RBK group, from the rest 86% of small businesses, only 15% will be able to survive till 2020. In 2018 there already was a decrease in overall kilometerage from 16 to 9 thousand kilometers.

The reason for transportation & logistics companies decline is both due to internal mistakes,political and economic factors. For example, according to KPMG research, the main external factors  that have a negative effect are as follows:

  • Low growth of GDP (1.5% which 2 times lower worldwide average);
  • Decline in population income by 1.7%;
  • Decline in dynamics of the machinery building industry;
  • Insufficient investments volume in the transportation industry (WEF research showed that Russia is ranked 74 in the transport infrastructure development rating and 114 out of 137 in roads quality rating).

A survey conducted in the US during early 2018 showed that 38% of transportation and logistics companies assume that improving quality of services, time of delivery will have a positive effect on their businesses, 19% think it’s important to expand their supply geography. At the same time, 22% of all companies understand that it’s necessary to automate processes, integrate new technologies and even use single platforms for partners and clients.

Internal issues of logistic sphere development

  • Financial issues
  • Security and confidentiality issues
  • Lack of precise plans
  • Lack of employees
  • Lack of unified standards
  • Slow infrastructure compound
  • Other reasons

Of all the world companies, the most income was lost by companies engaged in road transport which was further influenced by the increased prices for fuel, transport services and insurance companies (CNC, CMTPL insurances). Moreover, the cost price for this transportation type is 1.5 times higher than in the European countries and the US (15-20% versus 7-8%). Among the most important reasons that apply to transportation by air, water and land the following should be noted:

1. Customers distrust in new companies.   

2. Lack of system, structuring, operating business plan.

3.Bureaucracy. Besides the risk of data loss, documents management and transfer of their copies can be done with delays.

4. Payments through the banking system. It’s the difficult for international companies that have to pay high fees and wait for the transfer of funds for a long period of time. 

5. High probability of errors. The incorrect or totally lacking accounting system, the risk of replacing or changing the documents post factum and the risk of errors due to the human factor in medium and big companies.

6. Impossibility to fully control the movements of goods.

7. A significant number of intermediaries (mostly in international companies).

8. Insufficient amount of staff. This problem was put to consideration during the international exhibition TransLogistica Poland.

9. The problem of searching and establishing contacts with carriers.

For better understanding of the way to overcome these problems, it’s worth to review successful examples of companies that were able to strengthen themselves on transportation & logistics services market and make a profit even during the economic crisis. Walmart is one of the companies that slowly moves to the use of blockchain technology (supply in the USA  and China), the others are Kroger, shipping giant Maersk, FedEx and even government structures (Rotterdam and Antwerp ports).

Asia and the Pacific region

Asia and the Pacific is the region with the fastest growing economy in the world anda leader in cargo carriage volume, but there are still many issues connected with insufficient logistics processes efficiency. The main trend is growing urbanization which requires companies engaged in domestic transportations to implement control systems for tracking carriage’s movement and new approaches for services’ quality improvement.

Researches from PWC indicate that even in the busiest sphere of cargo transportation there are significant reserves for efficiency growth:

The list of the least developed areas, according to research participants, include specialized logistics centers, risk management systems, security standards and poorly optimized “instant” delivery systems. Moreover, similar research by GateHouse Group indicates the distribution of the basic needs of the core specialists. Each indicator is evaluated in terms of increasing efficiency of business processes in logistics and costs reduction:

As the results show, the most important aspects are wishes for “transparency increase” of processes, including but not limited to cargo movements tracking. The second most important aspect is resources search for the optimization of interaction with contractors and internal data sharing. Then comes the improvement of business processes efficiency, and the matters of management of prices for services is the last one.

Freight Transport in Europe

Freight transport market in Europe faces similar trends: development continues, but to speed up its development there’s a need for something more significant than simple optimization of existing business processes. EU Maritime sector, main indicators of which are shown in infographics, is exemplary in this sense:

To maintain achieved results, the European Commission has made a number of efforts to increase security and efficiency of maritime transport. A single-window concept was proposed and implemented to reduce additional expenditures, state-of-the-art technologies were implemented and the quality of maritime transport tracking was an improvement.

However, even such an important economy sector still requires optimizations and deeper digitization of processes connected with logistics. For European Commission, it is primarily a tool to attract new investments but technological progress is also required for every participant of the supply chain, for only the application of new technologies can overcome traditional for the sector bottlenecks and reduce the actual delivery time and costs.

Possible solutions

In order to maintain development rate in difficult conditions, the freight transport sector requires a combination of 2 factors which often are mutually excluded: reducing costs at each stage of logistics and reducing the interval between the transfer of goods to delivery and its receipt by the receiving party. In order for this combination to work full force, there’s a need to speed up the document flow, track actual location of a cargo, efficiently distribute the load of the resources available to the carrier.

Modern platforms functioning using the blockchain technology can be a great solution for this problem, thanks to which it’ll be possible to significantly reduce costs, increase speed and efficiency of interactions between all participants of logistics processes.

Integration of Blockchain

For the first time blockchain  technology was mentioned in 2008 after developer Satoshi Nakamoto had introduced a Bitcoin cryptocurrency, implemented on blockchain (October 31st). Main principles of the technology -- transparency, high level of security, tamper-proof, anonymity and decentralization (public blockchain) -- were appreciated by the community, developers, investors and entrepreneurs.  In the coming years spheres of application significantly expanded.

In the transportation and logistics sphere distributed ledger started being actively used in 2015-16 enabling the companies to achieve the following improvements:

  • Reduce transportation costs up to 80% (according to preliminary estimation of Samsung);
  • Increase speed of deliveries especially in international multimodal transportations (according to the results of McKinsey & Company research, the buyer is willing to pay 30% more if the goods are delivered on the day of the order)  ​;
  • Reduce the costs of paperwork;
  • Optimize communication between system links and increase the level of trust;
  • Automate, speed up and make payment process cheaper, reduce the costs of upfront payment;
  • Defend the database from cyber attacks, documents from changes;
  • Exclude errors (Industry estimates shows approximately 10% data inaccuracy);
  • Track movements of the goods on all stages.

 

World Economic Forum announced that all changes described above can reduce barriers in the supply chain and increase world GDP by no more than 5% and improve world trade indicators by 15%

Though according to DSCI and APQC (American Productivity & Quality Center) data for 2017 only 1% of logistics companies are using blockchain and 35% are interested in integrating this technology. That 1% of companies includes such giants as:

Walmart​. The gradual transition started in 2016 with deliveries of pork from the US to China. In 2017 the company announced the first results: time of shipment movements tracking tested on shipments of mangoes reduced to 2.2 seconds from the 7 days required previously. The revenue after modernization began to increase. It amounted to $468.7 billion in 2013 and increase to 482.1 and 486.59 in 2016 and 2017 respectively. In 2018 Walmart broke its own revenue record - $500 billion.  

Maersk​. The shipping company is a world leader in its sphere with annual revenue of $60 billion and 18% market share in 2018. Danish cargo carrier started its shipment to the USA and 135 more countries utilizing blockchain in 2017. This decision allowed to increase its revenue that was rapidly decreasing before straight away (2008 - $61.27 billion, 2010 - $56.09 billion, 2012 - $49.49 billion, 2014 - $34.8billion, 2015 - $30.16 billion, 2016 - $27.26 billion, 2017 - $30.95 billion)

Mane Transport International​ (MTIri). A large British company engaged in cargo transportation integrated blockchain in 2017. According to the  Executive Director, J. Cleworth,, the main reason for this is growing number of cyber attacks. Following the attacks the company was paralyzed and unable to deliver the shipment to its customer and as a result suffered losses and lost trust. After platform testing a representative of Blockchain labs for open collaboration, D. MacDonald announced unprecedented results: the cost of some operations reduced by 90%.

FedEx​. In 2018 the company announced a collaboration with Blockchain in Transport Alliance and launch of the project for shipment control and storage of data that will help to solve disputable situations between sender and receiver on a blockchain. It’s a pilot project, but the company’s representative, K. Humphreys said that they will implement other use cases in the future.

Gazprom Neft​. On February 1st 2018, the company’s website published information about successful tests of blockchain technology and IoT to track cargo movements to the base in Murmansk, Russia. During the test, the possibility of technology application for full control of cargo and document flow was confirmed.

Blockchain in logistics is also used by Lynx International (Alibaba Group), Nestle, Golden State Foods, Wells Fargo, Commonwealth Bank of Australia, Brighan Cotton (cotton delivery in the USA) and many startups

Credits Platform  

Credits is a platform that allows integrating blockchain in any company from the transportation & logistics sphere. Thanks to highly functional smart contracts and decentralized, transparent and secure applications, Credits is applicable to unimodal (sea, air, land and rail transport), multimodal and intermodal transport. It can be used in a variety of scenarios:

  • Tracking of goods. It can be done automatically with the help of Internet of Things (IoT), through the interaction of the system and electronic sensors, installed on containers or other transport nodes and through manual data input into the system. With this inventory of goods left, report on the remaining supplies, goods quality control, transport vehicles condition are done at the same time;
  • Payment automation.  Thanks to Smart contracts, system participants can automate payments (e.g. right after cargo delivery). Guarantee of payment after conditions set in the smart contract are fulfilled boosts trust and simplify the work. Also, Credits uses its own cryptocurrency (CS coin) and supports the function of creating tokens. Digital assets are moved within the system without intermediaries (e.g, without banks and other financial institutions) and can also be integrated with payment services. The transaction fee varies, approaching the value of $ 0.001, with more than 1 million transactions per second. The platform also provides a convenient crypto wallet (Desktop wallet and web-wallet);
  • Cargo Insurance. Smart contracts allow to record and make payments  automatically in the case of an insured event (e.g. cargo damage or delays);
  • Documentation management. The Credits blockchain provides a secure data storage and access management (private, public static and ephemeral keys). You can add and read information from any device, anywhere in the world. Using the system eliminates errors and inaccuracies in the documentation ("human factor"), loss and leakage of important data as a result of database hacking (using homomorphic encryption), as well as minimized or completely eliminated delays and late entry of data.

Fast search for personnel or clients, a conclusion of contracts with carriers. A single p2p system is an opportunity to find the best offers, select partners depending on the conditions and geography through user accounts.

Depending on the project, the system can be public or private. With public, any user can connect to the blockchain: read, record data and be sure that after the transaction is approved, the data will not be changed. Users of the Credits public platform have the following tools at their disposal::

Credits Node – Application responsible for processing and storing transactions, execution and confirming smart contract conditions,  for answers to calls from third-party applications and provision of data.

Desktop Wallet – Desktop version of the application, operating on the user’s PC only with the installed node (Credits Node). With its help, one can check current wallet balance, transaction history, make a new transaction and different operations with smart contracts: create and deploy smart contract, issue a new token, view history of smart contract execution.

Web Wallet – Web-version of the wallet available for use without Credits Node installation and allows to perform similar actions excluding the ability to create and deploy smart contracts.

Credits Monitor – Web-application which allows any user to view information about any transaction in the public registry: a total number of network nodes, transaction statistics, transaction details, the balance of a wallet and general information about smart contracts.

Private Blockchain

The system can also be private. This option is often used within one company for various business tasks with strict hierarchy and different access levels (keys management access, the addition of documents, make changes or view of data). Even nodes owners don’t have the ability to delete documents or add deals post-factum. Customers deploy the network on their servers with their access rules which allow to quickly update functionality.

Private blockchain Credits is a separate product for companies, it’s deployed on servers with several clicks and has a range of advantages:

  • Unlimited data storage on clients’ servers;
  • Better control in the form of additional encryption;
  • Higher transaction speed (0.1 sec per transaction);
  • Validation is done by trusted nodes with high performance;
  • Ability to implement any business processes.

In fact, for a company, this means creating its own secure and high-performance network, which will be configured to manage all business processes. Further adjustments of the system parameters with consideration of the peculiarities of a particular business provides wider prospects for improving the efficiency of the company.

The stack of technologies that Credits supports is rather wide and includes C++, JAVA, IPv4 and IPv6 addressing, streaming data transfer with compression on the level of network protocol and fast system for storage and processing of data based on low-level access to file-systems

Credits Private Products 

Credits Private products ecosystem includes 3 components:

1. Private Blockchain.

2. Credits SubChain.

3. Credits Blockchain DataBase (DBMS).

Private Blockchain acts as a basis for the functioning of the entire platform. It provides the basic functionality of decentralized data storage and forms the environment for the execution of smart contracts. Private Blockchain allows you to set your own rules of access to information for any application or user, and a reliable system of additional encryption reduces the risk of unauthorized access to the stored information.

Credits SubChain is used to form a “utilitarian” layer of the distributed platform, thanks to which the company is able to connect its own products and services. This product can be effectively used to interact with customers and partners if the associated business processes and data are initially generated outside the main blockchain platform but must be processed and stored securely in a Private Blockchain. With Credits SubChain it’s possible to arrange a quick exchange of signed documents with partners that will speed up workflow and reduce costs of the company or to receive and store data about tracking of goods for logistics optimization.

Credits Blockchain DataBase (DBMS) provides additional functionality for reliable data storage. This is a database where records cannot be changed after they are made. NoSQL principles and advanced organizational structure allow storing data in different formats and process really large amounts of information with high speed. The statuses of handling the elements of groupage cargo, including the provision of confirmation at each stage - from packaging to delivery to the recipient, large amounts of data on the state of goods and transport in multimodal transportation, as well as any other information that is important to ensure the safety of transport and to ensure real-time control at all stages can be securely stored in the Credits Blockchain DataBase (DBMS).

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