Fleet Transformation: What blockchain can really do

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Sofia Fürstenberg worked with DNV GL and at AP Moller Maersk in its maritime technology division before starting her own consultancy. She was instrumental in the development and success of the Disruptive Sustainability hall at Nor-Shipping and is one of this year’s speakers and panelists at Fathom’s Fleet Transformation Event in London.

Here she explains why she thinks industry should pay more attention to the potential of blockchain

I work with a loud little startup aiming to facilitate an open lab for blockchain collaboration, targeting primarily the maritime and energy sector. It’s called BLOC and its key objective is to be a force for social impact, using blockchain opportunities as a sustainable enabler.

Shipping, trade and the inherent value chain suffer from late and slow introduction of digitization into many of the processes. The Internet is still a quite novel thing on many ships, and paper-based systems remain a significant modus-operandi, not least because many regulations and rules require so. At the same time, building digital infrastructure on top of those currently in use is a massively complex exercise, combining a multitude of existing legacy systems, while ensuring attention and priority to daily operations. So it is no surprise that the technology of a distributed ledger system based on blockchain has huge potential for the shipping industry.

Blockchain has the capability to identify errors and data duplication, self-validate, and mitigate attempts at fraud. It is a system that can’t be hacked and will inherently know if a value chain stakeholder has the ability to pay.

Here are some examples where we see it making a serious impact:

Fuel theft and carbon reduction

One of the great concerns by ship-owners and carriers today, is the lack of proper control of their bunker costs. Bunker fraud and fuel delivery with aerated fuel, the so-called cappuccino effect, have the industry’s full attention.

At the same time, the shipping industry emits as much carbon dioxide to the atmosphere as the largest economy in the EU, which is why EU has implemented the Monitoring, Reporting & Verification Protocol; a requirement for every vessel entering EU ports, to report each ship’s emissions in a standard, validated way.

We want to put the MRV Protocol on a blockchain. With peer-to-peer protocols and a distributed database for data collection and storage infrastructure, we can accomplish an automated and real-time digital verification service, with risk managed by revealing reputational history.

With coded compliance structure, and automated processes, the data reporting will happen faster, and be more accurate, and documentation of compliance will happen by itself, automatically. Cryptographic hashes and timestamps will give a portable and permanent reputation system. We will have a system that monitors CO2 and fuel and provides chain-of-custody tracking, yet ensuring security through a private and encrypted cloud storage.

Eventually we could then through automated smart contracts automatically execute electronic submissions of verified reports.
BLOC is embracing this opportunity because it can reduce risk throughout the fuel value chain, and be a smart enabler for true carbon reduction in the maritime space. And, as if by magic, it will at the same time solve the ship-owner’s fear of someone stealing their fuel.

Killing Bill

Another exploratory industry project BLOC is currently engaged with, is about making redundant the oldest contractual form in the history of maritime trade, the Bill of Lading.

Digital versions of the B/L have existed for many years already, and are saving the users a lot of time and resources in administration and supply chain costs, but have nevertheless not really been successful.

The key features between a paper-based and digital B/L are: the written document, the signature, the originality and negotiability.

Digital signatures are possible, but there has not been hitherto any guarantee that the document has been handled confidentially, as a cryptographic tool. Blockchain can offer that assurance.

Another issue with an electronic B/L is the potential for replication of an electronic document. Again, this could be solved with a blockchain solution. A digital B/L can be realised with a blockchain solution, using contractual code language to create so called Smart Contracts.

The burning question is how to incentivize the industry to use a blockchain platform, given that any legal barriers have been solved. We are faced with those same challenges encountered by those embarking on the vision of the first electronic B/L; namely the different statutory legal environment around the world, port states still requiring a paper-based version, and a general resistance from many actors along the value chain – banks, forwarders and ship-owners, to embrace the opportunity for change.

During the next 7 months, we are developing a first proof of concept with representatives across the transport chain, where we will validate a value-based model for industry adoption.

Moving forward

I am convinced that by delivering a convincing proof of concept together with the industry, where the technical, as well as the commercial and legal feasibility issues are assessed jointly and in an open environment, and with credible solutions proposed, we can finally break this glass ceiling.

I am also convinced that the only successful way to prove a new business model for the trade of goods at sea, is by inviting the industry to be part of it, allowing it to explore the features themselves, assessing altered value propositions and company impact.

I have no belief in some attempts seen in the industry currently, where running with the cake alone seems to be the melody.

Digitization of B/L over blockchain will require change on infrastructural level across the entire shipping sector and beyond. Such a change needs to be value-based, where the impact of the entire value chain has been assessed in order to arrive at a solution that has opportunity for success.

That is why I find my brief tenure with BLOC so interesting. We are focusing on the value-chain, not the individual opportunity for competitive advantage. Because the latter, will be identified anyway.

INFO: The project, “Proposal for a one-year feasibility study to determine the needs and opportunities for a Global Blockchain Hub for the Maritime Industry”, is sponsored by the Danish Maritime Fund, and will be delivered by BLOC and its collaborating partners, through May 2018.

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