Malta is quickly making a name as a global centre for blockchain and DLT-related businesses. Despite the transparent DLT regulatory framework, there are still many people who are not aware of the benefits blockchain technology could potentially bring to their various industries.
Most people associate this technology with banking and cryptocurrency such as Bitcoin, but whilst this was once the case, things have moved on a lot since then. As a matter of fact, Blockchain as a secure, decentralised, and encrypted ledger has many use cases in other sectors, including the shipping industry.
Located along the Mediterranean’s principle shipping routes, Malta has become a major transhipment hub. There are two main commercial ports; the Port of Valletta and the Malta Freeport. In 2018, Malta Freeport Terminals handled a record 3.31 million TEU containers and plan to complete an ambitious investment programme related to equipment and facilities in order to increase the Terminal’s capacity to 4m TEUs in 2019.
As things stand, the shipping industry has not evolved much in terms of administration over the last 150 years, making it one of the most paper-intensive industries in the world. Despite improvements and advancements in technology, most transactions are still heavily dependent on paper documents including charter parties, sale contracts and bills of lading.
Documents such as bills of lading for example, can change hands multiple times before reaching the receiver and this can result in a number of delays and errors. It’s sometimes also the case where the bill of lading arrives at port after the cargo does. Now Distributed Ledger Technology (DLT) could make control over shipping almost paperless.
Decentralised, distributed database
At its most fundamental level, blockchain functions as a decentralised and distributed digital database that allows users to upload information in real time, depending of course on their authorisation rights. Imagine it in the same way as a spreadsheet functions on Google Docs. An unlimited number of users (all with permissions) are able to edit and update the document and have their actions replicated across all other versions of the document.
Whereas most centralised databases update information at specific moments, data that is shared over blockchain is constantly being updated in real time, every time a new block is added to it. Each block includes a timestamp and is linked to the block before it by means of a chain of data. Whilst this information can be accessed by all, not everyone is able to add a new entry to the chain, and once information has been entered it cannot be edited or deleted.
Decentralising data in this way means that it also becomes much more secure, as there is no single point of failure within the system, implying that it is almost impossible to manipulate information or to hack the system.
Blockchain can take the paper out of shipping by involving all stakeholders including shippers, receivers, carriers, banks, terminals, and customs officials to exchange and store their information in an encrypted format. In addition to this, automated payments could become self-executing with the use of smart contracts, as and when certain predefined obligations are met.
The potential that blockchain has to transform shipping operations into more efficient and profitable enterprises is already being recognised by some forward-thinking businesses such as Maersk and logistics company FedEx for instance. Another blockchain based company, CargoX, recently carried out a pilot for the first ever smart-contract bill of lading while claiming that its services can reduce the cost of issuing and processing bills by up to 85%.
In November 2018 a Memorandum of Understanding was signed between nine leading terminal operators and shipping companies to form a consortium to develop the Global Shipping Business Network (GSBN), which will in turn launch a digital platform that is based on the blockchain.
Blockchain has the potential to improve logistics on a worldwide scale by creating “smart ports without papers” and improve efficiency and security by allowing all participants such as shipping lines, port and terminal operators, customs authorities, and other stakeholders to interact and process documents and data.
There are still many obstacles to overcome before we will see widespread use of blockchain in shipping. One of the most important factors will be ensuring that the law fully supports and protects all stakeholders and clients, and of course, the willingness of public authorities to embrace this innovative technology.
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The article has been published on the Malta Independent on Sunday, 10 February 2019