Blockchain along the Belt and Road

Peter Bullock and Suraj SajnaniThe images that come to mind when envisioning a Belt and Road project will typically feature feats of civil engineering and concrete being poured, as opposed to bits and bytes. However, these projects, which involve rejuvenating trade links through enhancements to existing infrastructure, are likely also to produce many opportunities to re-think the systems and processes which enable trade to flow through the resulting routes.

At present, the adoption of information systems and telecommunications technology in the transportation and logistics industries is generally limited and what there is, is patchy.  Most of the more advanced systems in use are proprietary (DHL and Fedex, for example, have for many years had sophisticated package tracking systems).  Advanced capabilities, however, have not been adopted by the world outside of large logistics corporations.  But times are changing.  This article reviews a recently launched logistics platform and explores how such start-ups and the logistics industry more generally could benefit from distributed ledger technology (DLT), also known as blockchain.

Blockchain has attracted a lot of attention in Hong Kong of late.  Recent initiatives include:  the release of a Whitepaper commissioned by the Hong Kong Monetary Authority (HKMA) and prepared together with the Hong Kong Applied Science and Technology Research Institute (ASTRI); the launching of the HKMA Fintech Facilitation Office, a Fintech Supervisory Sandbox, and Fintech Innovation Hub; and the first Hong Kong Fintech Week.

Blockchain on the road

In short, blockchain is “technology that supports networks of databases to create, disseminate and store information in a secure and efficient manner,” according to the HKMA-ASTRI whitepaper on DLT. Although there are still a lot of unanswered questions and the law has yet to catch up, when applying this technology in the logistics industry, blockchain is able to deliver a crucial component that existing technology has thus far failed to deliver: trust.

In particular, structural trust built into a shipment’s tracking system allowing trust to be placed in multiple carriers along a complete delivery route. This can be achieved by the transparent and immutable nature of a distributed ledger.  DLT provides trust by publishing every transaction to every node on the network, so that anyone interested in an underlying transaction can ensure that the payload of anything transferred of value has not been tampered with.  Systems can be envisaged, for example, where a trucker’s history of accident-free trips can be made available online and “authenticated” by DLT.

The authors of this article met with Felix Wong the founder of 36 Link a recently launched logistics platform. He assessed whether the theoretical advantages of blockchain can be applied in the real world of trucking.  36 Link is an award-winning Hong Kong start-up that connects shippers with Anchortrucking companies.  The company aims to modernize the sales and order management systems that trucking companies currently use.

The current composition and modus operandi of the trucking industry in South East Asia demonstrate the limitations that are also found among trucking companies in Hong Kong and China:

  1. the industry is highly fragmented.  Whilst there are companies with a large fleet of trucks, most companies are two-to-three-person operations running a single vehicle.  Stable, regular orders are often provided to large fleet trucking companies, whereas irregular jobs are provide to smaller operations.  Trust being an integral component of the industry, those smaller operations can currently only succeed through a network of personal relationships which they rely on to acquire new jobs;
  2. competition is less fierce for cross border ASEAN routes, but the barriers to entry are high owing to high investment in establishment costs (setting up field offices, hiring customs brokers, etc);
  3. trucking companies (even many of the larger ones) use rudimentary shipment allocation / roster systems.  These systems regularly consist of paper and pen ledgers, chalkboard rosters and excel spreadsheets.  Orders are often received and instructions dispatched to drivers through Whatsapp or WeChat;
  4. on the other hand, trucking companies’ major clients are e-commerce suppliers.  While these shippers may not yet be using the most sophisticated systems, their business make them savvy and open to using technology in trade. Short payment terms demonstrate the low level of trust between such suppliers and trucking companies.  Implementing blockchain based systems through shippers may be an approach that finds a more positive reception than implementing blockchain based systems through truckers.

In comparison, 36 Link offers a web and mobile based platform through which shippers can locate trucking companies. It also allows trucking companies and shippers to communicate for price quotes and shipment instructions. Within the same system, trucking companies can also allocate shipments and rosters to truckers.

So far so ordinary.  However, the success of sector specific platforms is dependent on meeting the needs and concerns of the potential user base.  Those involved in arranging road freight services have a particular view of risk.