Is Blockchain the next big disruption for Finished Vehicle Logistics?
Say “blockchain” at any finished vehicle logistics conference, and the chances are that everybody listening will nod knowingly and agree that it is “new” and “good”. But what is it and how can it help in Finished Vehicle Logistics?
This article is intended to help us all catch up with this technology without getting lost in computer speak or stray into bitcoin trading.
A recent survey by Deloitte suggests that 53% of businesses surveyed believe that Blockchain is a top 5 strategic issue for them and that the activity around blockchain is moving on from Blockchain Tourism towards an active search for practical applications. Indeed, of those companies answering the survey, 47% expect to be able to confirm measurable benefits in a timescale of 1-3 years.
The automotive sector is listed as lying 10th in the list of sectors implementing blockchain which suggests that, for many in our sector, Blockchain is firmly on the strategic radar and in some cases on the active strategic projects list.
Deloitte have repeated the survey and are able to show that Blockchain is gaining momentum globally, with a 10% gain in companies viewing Blockchain as a top 5 strategic issue in one year.
For those old enough to remember the birth of the internet and email, this does feel like a new wave of application technology, the benefits of which, at this stage we still can’t imagine. Having said this, 43% of respondents to the Deloitte survey said that they felt Blockchain is over-hyped.
Blockchain: A simple explanation
A block chain is a database that is shared across multiple computers. These computers are nodes in the network (the basis of the network is important, and I will come back to this). The Blockchain concept uses some clever maths (algorithms) to reduce any document (of any length or type) to a single identifying record called a hash (#). Once each hash is accepted in the network, it is added to a block in a specific order creating a chain. Every document can only have one hash so its unique. Changing a single comma in the document changes the hash.
Because this information is shared by the network, no one can change the hash without the accepted chain all being re-calculated. Therefore, by sharing and setting the record into a single hash, it becomes impossible to edit records without everyone knowing. There is therefore a strong element of trust in the technique.
Cryptography is used so that all communications between nodes are secure; 96% of IT users accept that Blockchain is more secure than other technologies currently in use.
The strength of Blockchain is therefore around shared information that is secure, consistent and accepted by all the member nodes; everyone has the same information and every member knows everyone agrees everything; a democratic approach to data validation and ownership.
Advocates often also talk about the speed and transparency that is applied to the information (because it is shared).
Blockchain is also a very resilient technology; taking the network down would be hard; nodes can go down but its easy for them to recover. The very flexible nature of the hash means that different records in different formats are of minor significance in a blockchain; yet they are terminal using fixed field database technologies.
How can Blockchain help me in Finished Vehicle Logistics?
Finished Vehicle Logistics was once described to me by a seasoned pro as “1/3rd moving vehicles, 1/3rd exchanging information and 1/3rd guesswork”. It’s a definition that has been validated by experience.
Most professionals recognise the need for better forecasts and real time information. Information sharing is a particular weakness with very few consistent approaches or standards.
Most of the IT integration in our sector is weak with a heavy reliance still on SFTP protocol reports backed by Excel, Email, phone calls and even fax. By current standards these techniques are very insecure (Many an IT Director in other sectors would not allow an SFTP server on their network as they are regarded as a real security weakness), slow and prone to error.
Its not hard to create a case for faster information based upon shared standards around documents like vehicle inspection, proof of delivery and vehicle details (though we have a shared standard around the VIN number format itself). Most, if not all logistics professionals would say that yes, better information shared in a standard way would reduce costs and the need for guesswork.
But that’s not the question here. The question is will Blockchain bring this about when other IT technologies have failed?
Blockchain: What are the challenges and what should I be aware of?
There are many hurdles for Blockchain Pioneers. We all know the difficulty of replacing incumbent IT systems. In fact, only 25% of the current Blockchain projects are setting out to do so with most simply layering over what is already there now (bear in mind that FinTech is the lead sector in the Blockchain race).
Then there is the composition of the network. These vary from private single company networks to public networks (of which Bitcoin is the largest). Most of the projects under way are described as private with only 29% being inter-company consortiums.
In the context of Finished Vehicle Logistics, there is no obvious forum or membership where there is any significant level of trust or accreditation on which such a network could be based (by contrast, in Insurance there are accredited global syndicates moderated by the Lloyds register). This will take time to create; who does it, who moderates it, can members be persuaded to trust each other?
Other issues cited by the Deloitte respondents were:
- Standards: The lack of which is a significant issue in our sector now as mentioned earlier
- Regulatory issues: The European GDPR laws are seen as a significant (but not insurmountable) challenge for example
- Privacy: Remember, every node has every hash therefore your competitors have your information on their servers. Comfortable with that?
- Skills: As ever with any genuine innovation, upskilling enough staff in every participating business will take time and money
- ROI: This is a challenging one that merits discussion
Will Blockchain solve my business problems?
The average LSP spends approximately 9% of their revenue on administration. So, if we halve the cost of administration through Blockchain, we save 5% of the total costs of distribution. This begs the question is administration the problem that we need to solve? Asset utilisation is very low for many LSPs. There is no publicly available data, but most would accept that most LSPs struggle to achieve 66% asset utilisation, with lots of empty miles/Km travelled by empty or part empty ships, trains and trucks. If we as a sector halved that problem, costs would reduce by 16%; three times more compelling a target.
We know as a sector that in the value chain of vehicle sales, that finished vehicle distribution is a Cinderella sector because we are a cost that is to be minimised.
The drift towards car sharing not ownership and moves away from fossil fuels are both sorely testing the OEM’s value chain; many are fighting for their future and every financial investment is going towards still bring in these races in a decade’s time. In this context it’s hard to see who will want to divert funds to Blockchain in Finished Vehicle Logistics.
Focus on Utilisation of Assets
Maybe that’s an overly pessimistic analysis? If as we know, Bitcoin is here and it’s a new wave of application technology, so surely we need to get on board as a sector? Maybe this is so. But it does seem to be the case that the real dragon that everybody should concentrate their skills energy and investment upon slaying is reducing the waste of under-utilisation of assets.
If you would like to speak to our CEO, Renatas Slenderis about technologies and how technology might better support your business and supply chain, please contact him directly.