Blockchain in Logistics: comments on Morgan Stanley’s report

Blockchain in Logistics: comments on Morgan Stanley’s report

Blockchain has been in the news a lot this week. Bloomberg said that interest was at an all time high. Part of this trend is Morgan Stanley’s report “Blockchain in Freight Transportation: Early Days Yet but Worth the Hype.”

The report highlighted blockchain’s potential to affect multiple aspects of the logistics industry: global truck brokerage, freight forwarding, truck fuel spending, and supply chain management software. The suggested winners from blockchain development in the freight industry are asset-based truck carriers such as Schneider National, Werner Enterprises, Old Dominion Freight Line and XPO Logistics.

Blockchain adoption in the logistics industry will mainly remove middleman roles and increase transparancy and standardization throughout the supply chain. This puts asset-light third-party logistics (3PL) companies like C.H. Robinson Worldwide and Echo Global Logistics under pressure. Blockchain may replace their role as shipper-carrier matchmakers because it improves transparency, speed and security in this area. Morgan Stanley has predicted that large third party logistics companies will not be threatened by blockchain if they become early adopters. It is the smaller brokers who cannot afford to invest in blockchain that will likely be squeezed out of the market.

Fleet card operators such as FleetCor Tech and WEX could also be impacted as blockchain enabled smart contracts replace virtual card payments. Morgan Stanley expects that blockchain-enabled smart contracts will be widely available for commercial use in 2018.

Blockchain in freight transportation will likely use a private/shared consensus ledger rather than a public/distributed ledger. This reduces computing and electrical costs that are associated with public ledgers. It is also more practical in terms of smart contracts: a private ledger requires consent from 50% of involved parties, not 50% of the entire network.

Blockchain’s use in logistics is increasing. Startups are currently piloting digital solutions. For example, Logistics and Fintech reported last week on Wave, a fintech startup using blockchain technology to allow entities throughout supply chains to directly exchange documents. The pilot program with Isreali shipping company ZIM has just been completed successfully.

Blockchain will be increasingly important in logistics. Potential benefits for the supply chain include payment standardization, product quality verification, cargo capacity optimization, and increased supply chain transparency. Obstacles remain, such as accountability, free riding and scalability, but the report paints an exciting picture full of room for new technology to revolutionize logistics.