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SEASON TWO

SEASON ONE: EPISODE FOUR

PUTTING THE SUPPLY CHAIN ON THE BLOCKCHAIN

Have you and your colleagues jumped onto the blockchain bandwagon? Business experts suggest that these shared digital ledgers could lead to much greater transparency, efficiency, and trust in the supply chain. Understandably, many trucking and logistics industry leaders are rushing to learn more. And, it seems, blockchain is not a matter of if but when… But, Transport Topics Managing Editor of Features Seth Clevenger wonders, what does this rush mean for an industry, which relies so much on trust among business partners? Will it be able to put its trust in this technology platform and its immutable data? And, most importantly, how and when will all of this happen? To answer the pressing question, Clevenger goes directly to those who know the most on the topic: a co-founder of BITA (The Blockchain in Transportation Alliance) and a trucking technology expert. What they say will help you understand more about the realities of the technology in your industry and see how the supply chain ends up on the blockchain. Listen now.

FEATURED GUESTS

Vice President of Special Projects for McLeod Software, is Co-Founder of the Blockchain in Transport Alliance (BiTA) and serves on the BiTA Board of Directors.

Jack Legler is technical director for the Technology & Maintenance Council of American Trucking Associations. In that role, he manages the council’s recommended practice development process.

Ken Craig

Jack Legler

EP. 04

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Episode Transcript

Roadsigns S1E4.mp3

[00:00:02] From Transport Topics in Washington D.C., this is Roadsigns. This podcast is brought to you by International Truck. Now here is your host, Seth Clevenger.

[00:00:14] Welcome to Roadsigns, the podcast series from Transport Topics that investigates the trends and technologies that will shape the future of trucking. In this episode we're going to explore the promise that blockchain technology may hold for the transportation industry. The potential for blockchain extends well beyond cryptocurrency. It could represent a better way of conducting business in many industries, and trucking is no exception. The application of these shared digital ledgers that keep immutable records could lead to much greater transparency, efficiency and trust in the supply chain. But when and how will blockchain appear in trucking? We'll set out to answer those questions in this episode. The possible use cases for blockchain within the transportation industry range from freight transactions and fraud prevention to regulatory compliance, vehicle maintenance and more. To help us decipher what all of this could mean for our industry, we're going to bring in Jack Legler, technical director at the Technology and Maintenance Council of American Trucking Associations. But first I'm excited to welcome a guest who is playing an important role in preparing the transportation industry for the move toward blockchain. Ken Craig is vice president of special projects at McCleod Software and a co-founder and board member at the Blockchain in Transport Alliance, a consortium of fleets and other industry players who are developing standards for the use of blockchain in transportation. Thanks for joining us, Ken.

[00:01:28] Thanks Seth. Good to be with you today.

[00:01:30] So in the technology world everybody is talking about blockchain as the next big thing. But as soon as you step outside the usual tech circles I get the sense that there's still a great deal of confusion and misunderstanding about what blockchain really is. Does that seem fair to say?

[00:01:44] Yes, unfortunately that's still the case. It's a complex technology to start with and hard to grasp and everybody, many people, grab an idea that they first grasp from the technology and they think that’s what blockchain is and so you got a lot of different ideas. And there certainly is no standard definition of that as well. But a big part of the confusion, of course, is still the bitcoin effect—that it's used synonymously often with bitcoin, that bitcoin is blockchain and vice versa, as opposed to recognizing that blockchain is a technology that bitcoin and the cryptocurrencies are based on. And a lot of this is exploited and fueled by disingenuous marketers and you often see this when a new technology comes out on the market, it's exploited and things are offered to the market that really have no meaning or are not sustainable. And we're seeing that here as well, so those two things still create quite a bit of confusion and hype and you know in the market.

[00:02:55] Sure. So a very good starting point of course is that blockchain does not equal bitcoin. It was originally devised to support bitcoin but the real reason everybody's talking about blockchain here is because of this universe of possibilities it could hold for many other industries, including transportation, but ultimately you have this distributed digital ledger that keeps a permanent record of transactions. So Ken, I ask you: what's so great about that? Why is this a better way? Why should the transportation industry be interested in blockchain?

[00:03:29] Well blockchain, the technology of blockchain, is very good. You know it's really a mash up of a lot of different technologies that have improved over the last few years. The key, key features that would apply to the supply chain is not just having a permanent record of transactions. I mean you can do that now with relational database technology. The key is if you insert the word securer or immutable, you know a permanent immutable record of transactions, so that when things are put into blockchains they’re cryptographically hashed so that they can't be modified, they can't be changed later, so you get an immutable record and then you got the whole distribution of the blockchain to every node, every person in every group that's participating all have their own individual copy of that. So you get those kind of features so where we need and can find use cases that need that type of security, autobility, immutability those type of things, blockchain will have a place in that. Plus the other side of it too is the additional feature, the smart contract feature which allows you to actually put executable logic in the blockchain. It can be triggered based off of certain events and those things really are where the potential and the promise of blockchain come from, where we can really get the benefit that can be used by the use cases that need that.

[00:05:13] Okay. And let's go ahead and talk about some of those potential applications within the trucking industry. Some of the possibilities out there, you know you mentioned contracts, freight contracts, their invoices and payments, tracking preferred delivery, maybe even recording vehicle maintenance and warranty information, and the list goes on. So Ken, I want to ask you what you see as the most promising use cases for blockchain in trucking.

[00:05:40] That's a good question. There are several. The ones you hear about quite often though, is taking some of the real key features of blockchain like its immutability and its security and everything to set up IDs that are completely verifiable, so that fraud detection would become a very good use case, so that drivers, people coming up trying to pick up loads that aren't theirs and things like that would just absolutely be shut down. You'll be seeing payments where, you know, when something's delivered it can be paid immediately. That's the type of thing that can happen: proof of delivery. The provenance effect will be very, very important in food safety and things like that. We've already seen several good proof of concepts on that. And as we look at cold chain custody, and the farmer requirements for high value items and things like that, they will bring a lot of great supply chain visibility in for the shippers and consignees of those type of products as well. So it's like, you know, cold chain custody and those things will be like a provenance on steroids type of effect for blockchain.

[00:07:10] And let's just consider a, you know, just a typical freight transaction between shipper and carrier. How might blockchain improve just the efficiency and reduce the friction of doing business with a basic freight contract?

[00:07:25] Well if you look at how things work now, everything, every transaction, it's all single to single, it's business to business, it's transaction by transaction, in that it's one to one. Blockchain will really provide an environment where it'll be a many to many business transaction. So when we look at like for instance, the provenance effect, you're tracking fruit, it's picked in South America and it's being placed on a blockchain, so that it’s tracked every step of the way. Well now you'll have that blockchain interacting with many different vendors and suppliers and people that touch that all along the route. So you get this many to many effect and that in itself will greatly improve efficiencies, and when you talk about reducing friction that will really make a big difference.

[00:08:58] And you mentioned the, you know, the potential to prevent fraud and eliminate errors such as double charging through blockchain’s collective bookkeeping approach, the shared digital ledger. Any other examples of how that can play out in the transportation industry?

[00:09:15] That's how we come into this, this effect of being able to use the general ledger to set up absolutely verifiable I.D.s and things like that. Fraud will become much, much more difficult to do, at least in the ways it's being done now. You know like in the computer industry we’ve seen as technology has increased it's become harder and harder for bad actors to break in through the computer system. So what they're doing now is they’re finding different ways. They’re coming out now and doing phishing attempts and social media penetration and things like that. And so it's going to make fraud much harder to do in the ways that it’s been done in the past. And they'll certainly have a lot harder time doing it and they'll have to find other ways to do it.

[00:10:10] OK. And blockchain might also play a role in vehicle maintenance in the future, perhaps by keeping an immutable record of maintenance work performed, when parts were replaced, when parts will likely need to be replaced and component warranty information. Can you see the value in moving some of that maintenance data to a blockchain network?

[00:10:37] Yeah I think that would be a very good application and use case for blockchain. Once a tracker comes off the line it's immediately placed into a blockchain environment and everything that touches that from then on is recorded. So you get this kind of like the “super Carfax effect.” Every single thing that has occurred there is recorded so that becomes again, it decreases fraud, it makes everything very visible, and I think we’ll definitely see that being used in the maintenance world.

[00:11:12] So let's also look at blockchain’s potential for regulatory compliance. So driver hours-of-service information is one possibility that’s out there; another example that seems promising to me is the potential to document compliance with food transportation requirements under the Food Safety Modernization Act. You mentioned that a little bit before, but Ken, what opportunities do you see for blockchain to improve regulatory compliance in trucking?

[00:11:39] Well I think this is another great example of a good use case that’s going to, could really exploit the technology. When you look at the requirements that are coming down now from the FDA and the Food Safety Modernization Act, those things are pushing the requirements on the cold chain custody. I think it'll reduce counterfeiting and all those type of things and you know blockchain has the ability to not only read and exploit the Internet of Things that are all around the tractor itself, in the truck itself, but also with smart contract, you can do more monitoring of things and reacting to things as well. So I think all of these are going to be a very, they'll be driven by and be able to exploit the modernization of the regulatory environment.

[00:12:34] Sure. And this notion of smart contracts you mentioned, you know where shippers and carriers can track each other's obligations from the initial bid to the final payment, what will it really take for shippers and carriers to come together and really begin doing business this way?

[00:12:51] Well to me that's really a simple answer that it's all going to be up to the shippers. You know the shippers are going to be the 500 pound gorillas in this whole environment and you know when Walmart comes out and says here's our blockchain guys, and here's what it takes to work with us and that's what we'll be doing and the same thing with the big Amazon or anything like that and that's where the standards that BITA is trying to do is really so important because if we can try to get everybody on the same page we can, you know, create, we can avoid creating another EDI environment. But the shippers are going to be the ones that drive this when they come out and say: this is what we need, this is what it should look like. That's what we'll end up doing in my opinion.

[00:13:43] Sure, and for our listeners who might not be familiar with BITA, which is the Blockchain in Transport Alliance, this is really a consortium of fleets, trucking technology suppliers, and other industry stakeholders that are working to develop those standards as the industry moves forward with blockchain. So Ken, can you tell us a little bit more about BITA’s membership: who all is participating in this effort?

[00:14:06] Well we’ve got a great coverage of this supply chain, and remarkably we have, I guess, close to 2,800 applications to be members of the Blockchain in Transport Alliance and nearly 600 members already. So we've got a great coverage of the supply chain and some big names, you know FedEx and UPS and SAP and just all kinds of you know, Delta Freight just joined us, and so we’ve got some great players all across the supply chain. So, you know, we're trying to develop market standards, we're trying to bring together all elements across the supply chain: the shippers, the brokers, the trucks, the telematics providers, you know, and so if we can accomplish that in my opinion we'll have a great chance to respond and accomplish some of the promise and potential that blockchain has for the supply chain. And we've got a good start on that.

[00:15:14] So as we've heard, lots of people and companies are planning ahead for the use of blockchain in trucking. But where we stand today, Ken, how soon might we really see shippers and carriers start to migrate some of their processes and transactions to blockchain that works?

[00:15:28] Well I think you'll see some more, by definition right now just about anybody building blockchain, it’s a private blockchain. And that's what many companies are doing now to develop proof of concepts and things like that. And I think that's a good idea. You know we're doing some of those ourselves, but not to really go out to the commercial market with them, because we're really waiting on the standards to evolve and become mature so that when we build these, so you know, we go earnestly into the commercial market there’ll be, we'll have good stable standards and we can build things with confidence. If you build something right now, you’re probably going to have to rebuild it or redo it later. So right now you only want to be doing that if it's, you know, part of a learning cycle to validate use cases and things like that. You see like Maersk, for instance, just complete a big proof of concept for their container shipping and they got such great results from it, they went ahead and moved it into production, from what I understand, because it was saving them so much money. So you'll see some things like that right now. But in the meantime it'll largely be driven by the evolution and the maturity of the standards that are taking place and that's going to be probably a three to five year process at least to get all that in place before we can really start getting major impact into the supply chain in my opinion.

[00:17:02] OK, well I think that's a great place to leave it. But thanks again for all your insights Ken, we really appreciate you taking the time.

[00:17:09] Well thanks for having me. Hope it was understandable and useful.

[00:17:14] Certainly was. Thanks again.

[00:17:15] Thanks.

[00:17:54] Next on Roadsigns we're excited to welcome Jack Legler, technical director for the Technology and Maintenance Council of American Trucking Associations. Welcome, Jack. Thank you. Good to be here. So Jack what do you see as the potential advantages of blockchain for the trucking industry and how could this improve transactions?

[00:18:10] Seth we've been looking at blockchain ever since it popped up in the general business community with great interest. Trucking has got a number of transactional scenarios that would be perfect for blockchain. Anything that lends itself to large volumes of data, for example manifesting, load matching, driver data, all the telematics we have in the systems that just produce many terabytes of data on a regular basis, anything that’s consistent and repetitive can always be amenable to blockchain and we're looking at it with great interest.

[00:18:47] And what do you think about the notion of putting a traditional freight contract on the blockchain to turn it into a smart contract that automatically records each step really from the initial bid to a final payment? What are the opportunities and what are the challenges there?

[00:19:02] Well the opportunities, first of all, are increasing the speed of transactions and any time you increase the flow of capital, you increase wealth all across the supply chain, reducing the transactional costs that are associated with that. Because if your people that actually physically have to do something to make a piece of freight move through the system from a paperwork standpoint that is, it’s going to translate into more, bottom line. Again it's a penny at a time but it's an awful lot of pennies when you apply it to the number of transactions that happen in trucking.

[00:19:39] Sure. And blockchain really works well when the transactions are routine, predictable because the terms are defined in advance. So those create some limitations right? When conditions are unpredictable?

[00:19:50] It's the one-offs that are the things that just can't happen in blockchain. Blockchain requires a high degree of trust, a high degree of repetition, a high degree of predictability. And when you do get into the one-off situation where things change at the last minute, where you're changing conveyances and destinations and placement in vehicles at the very last minute to accommodate a client, that's when things become inconsistent and that is the challenge. Biggest challenge I guess of making things in blockchain, because when you isolate part of the chain it just doesn't work well.

[00:20:27] Sure. And as we mentioned earlier there are lots of different potential applications for blockchain in trucking but some of them actually touch on the maintenance side of the business which, of course, is right in your wheelhouse at TMC. So Jack how could blockchain help with truck maintenance?

[00:20:42] Well anything that can be specified in a contract with great precision, as warranties for example, parch core management transactions where you’re just talking about large volumes of items that are handled in a very legalistic way. All of those things can be converted to blockchain. For example warranty claims: If the conditions of the warranty are met and they can be documented then that would automatically trigger the warranty process to happen without human intervention. It's when, of course, you have the arguments that have to take place between humans that you would not want that have or would not be able to convert that into a blockchain. But anything that literally falls into a formula, an algorithm, where if A happens then B happens and if B happens then a payment happens and if that payment happens it automatically goes from account A to account B and parts move back and forth and it's what happens on a regular basis every day, it's just somebody checking off a box. Now the box will just be checked automatically.

[00:21:45] Sure, potentially could make things a lot easier, a lot simpler, and kind of streamline the way of doing business, if this does indeed come to fruition in some of the many facets of trucking where this could apply. But what are some of the other uses for blockchain that you believe could hold some real potential in trucking, some other applications?

[00:22:06] Well I certainly, I'm thinking the recording of ELDs as it relates to the transaction of transportation. For example where there are long wait lines at terminals particularly when you're dealing with government traffic, for example, where you are working off a very specific contract, but if time delays come in there, then it triggers a secondary charge back. Right now it's very difficult to do because you have drivers have to make statements and fill out reports and paperwork needs to be done, and the paperwork needs to be argued about between managers. If these things can be translated for example to the ELD, you know if the vehicle's moving you know if the drivers rest so it's automatically recorded. And if that's related to a GPS location in a terminal where that delay is happening, then you can automatically document it back to the contractor, trigger whatever contract provision payment, additional payment, may happen to be required or activated by that clause.

[00:23:13] Blockchain enabled detention pay. That's of course a real pain point for the industry so the opportunity to apply some technology and make that easier I'm sure would be appealing to a great many people in transportation.

[00:23:26] Not that anybody has ever argued that records would be fudged but certainly where you try to put idle time into detention time, it's always a matter of subjective analysis, shall we say. The ELD takes all the liar’s poker out of the game.

[00:23:42] And the immutability of blockchain is really what enables this trust in this verified information that we know we can count on.

[00:23:54] We talked about actually the challenges and the word immutability actually goes back to the challenge side of it too. Once that piece of data goes in the system it is inviolate as far as blockchain is concerned. So you can't go back and there's no pencil with an eraser like in golf, theoretically. You can't change the score once it's entered and it’s the same thing with blockchain, once the trusted data element is in the system it passes through the system and cannot be corrected. So if you have a higher degree of errors in your freight system and whatever, your maintenance system, whatever you happen to be dealing with in the blockchain environment, it’s going to present a lot of problems because then you can, because of the error rate, you might very well lose your key to the blockchain and you throw it out of the chain, and then how do you get it back? That's actually one of the interesting arguments that I see going on out there is how do you get the key back if you've been disqualified? What do you do, what do you have to do to re-earn your trust?

[00:24:49] Lots of considerations as we move forward and also lots of possibilities for transportation. And as we consider how blockchain might be used in the future let's also take stock of where we are now. We certainly see a lot of discussion about this within the transportation industry at least over the last year or so and we've also seen some activity. To give an example, Maersk the world's largest ocean shipping line, partnered with IBM to introduce a blockchain shipping platform that's designed to improve the efficiency and security of international trade with blockchain smart contracts. So Jack how much interest in blockchain have you seen on the part of trucking and logistics companies?

[00:25:34] Well we know that they're all looking at it because the very system you just mentioned, of course, the international shipping community is going to pretty much drive this into the 3PL, 4PL all the way down to any motor carrier who is participating in that system. You're not going to be able to participate effectively and competitively unless you are part of the blockchain environment. One of the, of course, challenges on that issue, is you know we've got EDI, we've had that for many years, but EDI is not standard, everybody's got their own little take on EDI and part of blockchain is you're going to have to voluntarily commit yourself as an industry, as a company, to a standardized process that may not be your proprietary take that you've always run all these year and that is going to be one of the challenges: is how do you convert legacy systems and legacy data quickly and enable them to be competitive in blockchain.

[00:26:32] So how quickly do you think this can happen? How soon do you think shippers and carriers will really come together and begin doing business on blockchain networks?

[00:26:40] Well I would suggest it's probably sooner than you would think. Certainly there's some load matching companies that are talking about doing it this year. And once you start seeing the advantages in the marketplace, I think it's just simply going to be a snowballing effect. When somebody starts losing business to somebody else because they will be more effective and can pass those pennies along to the consumer and get a bigger market share, I think it's just going to add one on top of another. I think probably the bigger challenge is how the small carriers are going to adopt into the system. Are they going to give themselves into larger management schemas where they don't have the ability to invest in a blockchain environment, they’re going to have to give themselves over to some type of a new system that would develop, that’s going to let them play competitively with the big logistics companies.

[00:27:33] So in summary, Jack, what do you see as the three most important factors to enable blockchain to really work in transportation?

[00:27:40] Well Seth, we kind of touched on these throughout the interview but really there’s three things. First of which is the ability to give yourself over to trust both in accuracy of the data you're submitting but also being able to give yourself over to trusting other people's data as a basis of a transaction unquestioningly. So that once the data is in the system it makes the transaction happen without any additional human intervention. That's the first thing. Second thing is standardization. Talked about the EDI issues coming up with a standard shipping form that everybody uses that can be electronicized and put into those algorithms. We talked about, so everybody is using the same methods to record an order and assign loads to various carriers. That's probably the most critical part of the process. And then the third thing is how do you involve all these numbers of small carriers in the system. That's actually a vast majority of trucking is in less than 10, even less than five, trucks that are out there. And how do they play as part of this larger blockchain driven system.

[00:28:51] Okay great. And I think it's a great place to leave it, thanks again Jack.

[00:30:09] Before we wrap up let's reflect on what we've heard and try to answer our original question of how and when blockchain will appear in trucking. At this point, the transportation sector, like most other industries, is still in the early stages of exploring blockchain’s potential but interest is clearly growing and the possibilities are vast. Before blockchain can truly become widespread, companies will need to agree to industry standards and that important work is already underway. Moving forward, shippers will play a very large role in determining how quickly blockchain spreads across the supply chain. When shippers make the move to blockchain carriers will follow. But this industry, which relies so much on trust among business partners, also will need to put trust in this technology platform and its immutable data. It may take several years but it appears very likely that we’ll see shippers, carriers and other parties come together to do business through blockchain applications. Roadsigns will return in October to examine the emergence of digital freight brokerage and On-Demand freight networks. Until then I'm Seth Clevenger. Thank you for listening.