Blockchain technology in logistics: how can you gain a competitive advantage?

Blockchain technology in logistics

Blockchain is poised to disrupt the logistics and transportation industry. Providing supply chain traceability, decentralized data storage, and removing intermediaries from operations, this innovative technology allows companies to protect from counterfeit, prevent data corruption, and significantly reduce costs.

The worldwide blockchain market size is anticipated to rise from $11.8 billion in 2020 to $70.5 billion in 2026, progressing at a compound annual growth rate (CAGR) of 58.7% during the forecast period. The increasing need for optimized workflows, reduced theft, and an automated supply chain management system is among the key market drivers.

In this article, our software experts consider the main advantages of blockchain for logistics. But first, let’s take a look at what blockchain is.

What is blockchain technology?

Blockchain is the distributed ledger technology (DLT) that maintains a continuously growing number of records, called blocks. Each block contains a cryptographic hash, linking it with the previous block. The ledger is used for carrying out transactions, storing and sharing sensitive information, as well as enabling an immutable data record.

Blockchain is:

  • Decentralized — The network doesn’t provide central authority or intermediaries to approve transactions or verify data.
  • Trusted — Blockchain is often used to ensure trust between parties. To perform a transaction or share data, computer servers have to come to a consensus.
  • Inconvertible — Once something is uploaded to the decentralized distributed ledger, it cannot be altered or deleted, which makes data incorruptible. Thanks to a single version of the truth, organizations avoid any possible disputes.
  • Based on cryptographic algorithms — Besides hashed transactions, the DLT technology employs public-key cryptography.
  • Secure — Blockchain is more secure in comparison with other technological solutions. In order to move or change anything on the ledger, the network of nodes—not a single authority—must confirm that a transaction is valid. In addition, blockchain uses cryptography. As a consequence, it is much more difficult to hack it than other systems.
To hack it, you wouldn't just have to hack one system like in a bank..., you'd have to hack every single computer on that network, which is fighting against you doing that. So again, it’s not unhackable, but significantly better than anything we've come up with today.

Blockchain in the logistics industry

The global blockchain market in the logistics and transportation sector is poised to increase by nearly $889 million between 2021–2025, at a CAGR of 49.93% during the indicated period, according to the report by Research and Markets.

Blockchain software solutions can address various challenges in the logistics industry, from counterfeit protection to documentation maintenance. Logistics companies employ distributed ledger technology to track shipments in real-time, provide stakeholders with shared data access, and establish trust.

Statistics on blockchain technology in logistics:

  • Tracking of products/services and enabling traceability—one of the top priorities during COVID-19—have the largest economic potential of $962 billion (PwC).
  • As of 2020, blockchain software solutions were employed the most in logistics (58%), procurement (31%), and supply chain planning (29%), as found by APQC and Supply Chain Management Review based on the information provided by supply chain experts.
  • 78% of the survey participants said that enhanced real-time tracking of product movement is the main advantage of the distributed ledger technology (QC and Supply Chain Management Review).
  • With blockchain-based systems, 69% of organizations ensure supply chain visibility, which allows them to minimize counterfeit goods and improve product integrity. 62% of companies use blockchain to establish trust between parties, store sensitive information, and enable data/process integrity (QC and Supply Chain Management Review).
  • Eradicating the COVID-19 disease could require the distribution of 7–19 billion vaccine doses across the globe, and blockchain technology is critical for making it possible (the World Economic Forum).

The key benefits of blockchain for logistics

  • Ensuring supply chain traceability — According to PwC, over 50% of leading logistics companies that have already adopted advanced technologies, state that supply chain visibility is a top or high priority. With blockchain, each product is given a digital ID, so that organizations can easily track its way from origin to the hands of customers. The owner history, location, and other data will be available in an application.
  • Protecting from the counterfeit of goods and illegal trading — It is impossible to forge or delete data stored on the ledger. All activities such as login and information changes are logged. Therefore, the DLT technology can be used as evidence in court.
  • Enabling fast data access and ensuring transparency — You and your supply chain partners (e.g., manufacturers, retailers, carriers) can record and view supply chain data such as the product price, current location, manufacturing date, delivery date, storage temperature, quality assurance certification, etc.
  • Minimizing paperwork and avoiding delays associated with waiting for postal items — Reports and documents can be safely stored on the decentralized distributed ledger with data access control. There won’t be any operation delays arising from long post item waiting, since many documents had to be signed manually and each party needs a copy. Blockchain enables digital signatures and provides safe data storage.
  • Centralizing data — Involved parties don’t have to build their own applications to store sensitive information, record data, and track cargo statuses. Instead, they can employ a single blockchain software solution.
  • Automating financial transactions — As DLT is decentralized, there are no official intermediaries that would manage transactions. All transfers are performed between two parties, which allows you to save time.
  • Reducing expenditures — By minimizing paperwork and shared information access, blockchain lets businesses optimize administrative costs. Since stakeholders don’t have to use their own ERP or CRM software, they cut IT expenses.

Providing supply chain visibility, the distributed ledger technology allows you to save money on the lack of theft and counterfeit. PwC revealed that digital industry champions, which are organizations that were successful in implementing innovative technologies, managed to reduce annual supply chain costs by 6.8% and increase revenue by 7.7.%.

In its “Global Blockchain in Healthcare Market - Analysis and Forecast, 2018–2025” report, BIS Research says that pharmaceutical companies lose about $200 billion per year due to falsified medicines. As a result, they will benefit the most from using blockchain software solutions. With supply chain traceability enabled by blockchain, pharma companies can save up to $43 billion on an annual basis.

Blockchain technology in logistics: What’s next?

Although blockchain provides the logistics sector with many benefits, not all companies have integrated it into their work. The reason is quite simple: progress doesn’t happen immediately while blockchain is a rather new technology.

Organizations should apply an industry-wide standard to ensure data unification across multiple parties. Then, they need to agree with supply chain partners on leveraging blockchain software solutions. However, that is worth it.

First, by transforming traditional processes, you will gain a competitive advantage. Second, you will minimize counterfeit and prevent data forge or distortion. Third, you and your partners will reduce IT costs due to a shared digital database. Tracking goods throughout their lifecycle, it is possible to ensure supply chain traceability.

At Arateg, we believe that soon most logistics and transportation companies will employ the distributed ledger technology.

If you have a project idea and want to receive a consultation for free, contact us. Our blockchain experts will get back to you within 1 working day and help address all issues.

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