Supply Chain on the Chain (February 2020)

One of the topics in the Blockchain Strategy of the Federal Government in Germany concerns the logistics sector. With this, the Federal Government follows the paper of “Chances and Challenges of DLT (Blockchain) in Mobility and Logistics [German Read]” from the Bundesministerium für Verkehr und Digitale Infrastruktur (Federal Ministry of Transportation and Digital Infrastructure) from earlier in 2019. The logistics sector is one of the industries known for already existing projects concerning the use of Blockchain and other Distributed Ledger Technologies (DLT).

Logistics and Blockchain: Why it is a perfect match

Blockchain technology supports with its capability to provide trust between several parties that are unknown to each other so far. Furthermore, Blockchain allows the automation of specific processes that are built on trust. The shipping of goods from A to B includes several logistics service providers and contractual parties. The parties in this scenario have different interests and priorities concerning the success of delivery of the goods, therefore, this might serve as a role model for the application of Blockchain or DLT technology use cases. Furthermore, the legal challenges with Blockchain and DLT use cases usually lie in the field of data protection through the interaction of individuals. In logistics scenarios, transactions on a Blockchain relate mostly to processes and goods without inclusion of any references to personal data. Therefore, the design of Blockchains is probably less challenging concerning the strict regime of data protection laws: Other scenarios more likely require the use of personal data in some way.

Finally, sensors and other mechanisms connected to IoT processes are already common in non-Blockchain scenarios. Now, the use of Blockchain technology might improve those existing sensors, implement full automation and establishment of trust, and thereby replace complicated processes in particular in cross-border scenarios.

Typical applications of Blockchain in logistics

The Blockchain landscape already knows several use cases taking advantage of Blockchain and DLT.

One possible use of Blockchain technologies concerns the use of “intelligent” seals that allow full control by both sender and recipient of a cargo shipping if the container has been opened (and by whom, where and when). Such a seal improves avoidance of theft and eases control of containers by the authorities and customs.

Other use cases might allow the automated handling of shipping papers and custom documents. If the legal requirements are amended, a full automation in the processing and handling of freight would be possible with containers self-negotiating with custom controls, paying for example custom fees if necessary.

In other use cases, the tracking of goods from the origin to its destination will allow the sender, the recipient but also the logistic providers to have full control of the location of the shipping goods and when delivery of the goods can be expected.

So far, so “Good”?

In most cases, the challenges arise less on the legal side but more on the technical side, in particular costs for sensors. However, some legal restrictions are still in place which one must obey when setting up a logistics use case.

First, in particular the handling of documentation is subject to local laws still requiring stamps and seals as well as wet ink signatures. There are initiatives to improve the processes and legal frameworks to allow full electronic processing of the documents, but for these scenarios, worldwide standards would be required.

Additionally, in case of customs and other authorities that will access the goods for inspections, those authorities need the respective equipment to open an electronic seal and identify themselves as authorities that are allowed to open the seal etc.

In other cases, regulations will not allow a full automation. Automated transportation by freight trains that interact with the infrastructure and other trains based on smart contracts would allow a full automation. However, Germany does not provide a dedicated track infrastructure that is exclusively assigned to freight trains. It will take time until the trust in automation allows self-steering trains in the general transportation network.

For any use case that includes automated legally binding interactions, the general concerns with smart contracts will apply. There are solutions from a legal perspective to avoid typical pitfalls, but it depends indeed on the specific implementation and use case.

The logistic industry and transportation is likely to be one of the leading sectors to apply Blockchain technology and DLT in the near future. Some legal challenges remain for some of the use cases, but projects that have already gone live show the massive potential of Blockchain and DLT applications with the logistics sector.