Technology will provide secure mechanisms for exchanging contracts, customs and insurance documentation and container cargo declarations
Blockchain is one of the key emerging technologies that will have a significant impact on commercial shipping business. It is viewed as a secure method of exchanging information for contracts in maritime. It minimises paper use, reduces administration, cuts out duplication and prevents fraud.
Future applications and further developments will ensure blockchain is a major part of the ongoing ship technology market.
This is valued at US$106Bn this year and is expected to jump to US$278Bn by 2030 according to the report Trade 2.0: How Startups Are Driving The Next Generation of Maritime Trade by Nick Chubb and Leonardo Zangrando for Inmarsat Research Programme. The authors predict blockchain, artificial intelligence (AI) and cloud computing will positively impact maritime business.
Blockchain technology is becoming viable for processing and managing customs declarations and certificates of origin, clearing the shipping lane for smart transactions and automated customs processing.
Blockchain-based bills of lading, insurance transactions and permission-based trade platforms will be possible, improving transparency by making trade data accessible to any party that needs it.
North P&I Club deputy director for loss prevention Alvin Forster says blockchains will be applied to processes such as electronic bills of lading.
“Blockchain and smart contracts that automate the ‘if this happens – then do that’ process could be very useful in cargo shipment transactions,” Mr Forster explains to Maritime Digitalisation & Communications. A bill of lading triggers the issue of a letter of credit; however, there are risks involved.
“Blockchain technology shares data across multiple jurisdictions, leading to potential issues concerning cross-border data protection issues and anti-trust rules,” says Mr Forster. “Also, the legal efficacies of digital or smart contracts are still not fully tested under the law of contract.”
Blockchain can improve the traceability of the cargo as it provides transparency in the supply chain and displays changes quickly and reliably to all stakeholders.
“This could prove useful when we think of some of the fundamental problems when shipping dangerous goods by sea,” says Mr Forster.
However, this still requires an honest declaration from the shipper. “An unscrupulous shipper could still wilfully misdeclare the cargo at the time of booking.”
A third useful application is generating a documentary pipeline where a shared blockchain repository allows rapid document exchange and tracked changes in the chain of custody of a cargo.
Mr Forster highlights using blockchain when cargo is sold and purchased several times while on board the ship. He references the example of AP Møller-Maersk’s description of a traditional paper-based system. A single shipment of avocados from Mombasa, Kenya, to Rotterdam involves 30 parties of over 100 people and 200 information exchanges.
“I can see blockchain systems having a positive impact,” says Mr Forster. However, he has a warning to shipping about over-estimating blockchain’s effect on shipping.
“It is important that shipping companies do not get swept in by the hype,” he says. “Not all shipping companies would benefit from using blockchains and not everything a shipping company does needs to be put on a blockchain.”
He thinks suppliers that intend to market blockchain for specific types of trade or application will be successful over those that do not have that focus.
“To take full advantage of the benefits blockchain systems bring, it is more likely to be suited where there are high numbers of transactions that involve an exchange with others or in circumstances where information is vulnerable to being tampered with,” Mr Forster explains. “If a company works in such an environment, then blockchain could help.”
Bolero International is working with shipping lines in integrating electronic bills of lading technology into back-office systems to deliver paperless digital solutions. This is interoperable with blockchain ecosystems such as Voltron and accepted by banks, insurers and authorities for paperless transactions. Electronic bills of lading can be accessed through a programme interface with online portals and ecommerce platforms.
In another example, container shipping companies CMA CGM, COSCO Shipping Ports, Hapag-Lloyd, Hutchison Ports, OOCL, Port of Qingdao, PSA International and Shanghai International Port Group have signed service agreements with CargoSmart for the Global Shipping Business Network (GSBN).
This not-for-profit joint venture aims to accelerate blockchain technology in container supply chains, based on CargoSmart software. GSBN started preparatory work in July 2019, obtaining all necessary regulatory, competition and antitrust approvals.
GSBN will establish a data governance framework, data access portal and application interfaces. Venture partners expect to use GSBN services in Q1 2020, subject to obtaining all requisite approvals. CargoSmart intends to run pilot applications to test the viability of the GSBN blockchain technologies.
Forecast Technology and BLOC [Blockchain Labs for Open Collaboration] have pooled their solutions to deliver BunkerTrace, which uses DNA to trace marine fuel.
BLOC founder and chief executive Deanna MacDonald told Maritime Digitalisation & Communications this enables ship operators to test bunkers on site. “We integrate blockchain with DNA tracing in one solution,” she says.
“It tests the quality of bunkers so owners can select to buy the fuel there and then and ensure ships will be compliant with IMO 2020 sulphur regulations.”
BunkerTrace could also be used by owners for insurance and quality assurance documentation and in the future could be used to trace sources of pollution.
“Blockchain will be a game-changer,” says Ms MacDonald. “A pilot test is starting (end September 2019) on this integrated application on a vessel that will bunker in major ports.”
Further progress is due in 2020. “We are talking with the port authority and Shell to conduct trials in Singapore,” says Ms MacDonald.
“Trials will test the solution from end-to-end as there are lots of pieces acting together with different barge operators and surveyors.”
BLOC intends to work with other port authorities for blockchain applications.
“Rotterdam (the Netherlands) and Antwerp (Belgium) are working on policies to start creating automatic reporting,” says Ms MacDonald.
The next generation of blockchains will collect data seamlessly from sensors throughout the supply chain, enhancing data quality throughout, says Finboot chairman and co-founder Nish Kotecha.
“This is a step closer to having a fully automated data supply chain tracking the movement of the physical product,” he explains. “This digital avatar can then be used to ensure regulatory compliance and verify characteristics of the product, thereby driving a premium.”
This should lead to seamless, efficient, lower-cost and secure data transmission networks tracing the movement of goods worldwide.
A blockchain future in marine insurance
Blockchain could be applied in areas of marine insurance.
“The characteristics of blockchain probably mean it is more suited to high volume commercial insurance products. This could benefit marine cargo insurance through digitalising policies and terms into smart contracts and automating claims processing,” says North P&I’s Alvin Forster.
“As prominent shipowners and carriers move to blockchain systems, P&I clubs may need to interact with these systems.”
P&I clubs should also understand the risks of transacting on blockchain systems and know if there is any increased exposure.
The world’s first blockchain-enabled insurance platform started commercial operations in 2018. EY and Guardtime set up Insurwave while working with software corporation Microsoft, AP Møller-Maersk and numerous insurance industry leaders, including Willis Towers Watson, XL Catlin and MS Amlin. Insurwave integrates and secures the streams of disparate data sources involved in insuring shipments around the world.
It leverages blockchain and distributed ledger technologies based on Microsoft Azure infrastructure and ACORD data standards.
Insurwave will support more than 500,000 automated ledger transactions and help manage risk for more than 1,000 commercial vessels in the first year. It connects participants in a secure, private network with an accurate, immutable audit trail and services to execute processes.
EY associate partner and Insurwave board director Ian Meadows says there is greater transparency and efficiency in marine insurance through blockchain. “This is disruptive technology, along with internet of things and artificial intelligence, to marine insurance,” he says.
“It is accelerating access to data assets. Our customers are looking at digital and omni channels for automatic risk transfer, efficient claims processes and live access to coverage.
Insurwave aligns industries with financial services for transactional flows of ship and cargo data. “Digital policies are smart contracts with 20-30 parties connected,” says Mr Meadows.
“We are driving automation in servicing and extending this into logistics chains that enable tracking cargo on ships, warehouses and lorries, supporting real-time pricing.”
Mr Meadows believes further developing digitalisation in marine insurance will reduce administration and improve transparency. “It will benefit clients as without transparency there will be coverage gaps and shifts in demand the market cannot keep up with,” he says.
“We are already seeing behaviour changing, although it is still incredibly paper driven for audits and business trails.”
Mr Meadows expects more digitalisation, especially blockchain, applications will be introduced in marine insurance. “With real-time, AIS-enabled transactions and completely frictionless trade,” he says.
Shipowners, operators, insurers and financiers need to be ready for a blockchain future in marine insurance. “We are at a point of flux and perhaps making a wholesale shift into the future,” says Mr Meadows. “It is about being ahead of the curve and having a framework that makes this all work.”
Snapshot CV: Ian Meadows
Ian Meadows is a director for insurance at EY. He has over 20 years of experience in the insurance markets of the UK, France, Germany and China. For 10 years, he was an executive board member of insurance market trading platform CSO. He specialises in e-commerce strategy for market modernisation and change.
Blockchain technology explained
Blockchain is the technology behind a distributed network of computers that can be used to store data securely but which, uniquely, has a single memory, says Finboot chairman and co-founder Nish Kotecha.
“That means data cannot be copied to sell the same asset again. It is why blockchain technologists refer to it as the trust platform.”
This technology should improve supply-chain efficiency by providing the exchange and visibility of time-stamped, proofed data, decreasing industry operational costs with intermediaries and authorities, and increased security.
“Blockchain will change how businesses operate for years to come, with exponential benefits to those businesses who adopt it,” says Mr Kotecha.
“Blockchain is ideally suited to becoming the backbone database of the shipping industry.” It provides a window to data in a transparent and immutable way. “This will generate trust between parties, reduce friction and thereby increase efficiency while also decreasing time and costs,” says Mr Kotecha.