UPS bets on blockchain as the future of the trillion-dollar shipping industry | TechCrunch

The world is run by trade. Freight and logistics in the U.S. alone account for nearly $1.5 trillion annually (2015 data). As the world’s economies scale up, that number is only expected to increase as we become more dependent on the international supply chain for our goods and services.

The industry, however, is not prepared for growth, as it currently sits on top of a crumbling infrastructure prone to systematic inefficiencies and rampant fraud. Countless intermediaries rake in fees and drive up the price of shipping. The problem is that the complexity and opaqueness of the process make it difficult to put checks and balances in place.

The FBI estimates that cargo theft causes an annual loss of approximately $30 billion per year (U.S.), with an average theft value of $190,000. In effect, cargo theft can cost consumers up to 20 percent more for their goods. And though most of the problem areas have been well-documented for decades, the distributed nature of ownership has instilled little accountability in any of the industry’s stakeholders.

However, disruption is coming to the industry in the form of blockchain technology, which promises to deliver a cheaper and more efficient system of managing logistics. Innovative startups, as well as major incumbent parties, are investing enormous amounts of time and resources in blockchain development.

Most recently, UPS announced they were going to join the Blockchain in Transport Alliance (BiTA), a forum for the development of blockchain technology standards and education for the freight industry. The alliance hopes to spur standards development for the shipping industry as a whole by implementing a secure blockchain system.

Why now? Why is UPS, along with hundreds of other major companies, betting on blockchain?

The answer: They want to be a part of the revolution. They want to play an instrumental role in developing the smart logistics network of the future. And they recognize that if they don’t get their foot in the door, someone else will.

The future of logistics and freighting will be heavily dependent on blockchain.  

The main appeal of blockchain technology lies in its ability to create decentralized and immutable ledgers — networks that have no single point of failure, are maintained by multiple parties and whose information cannot be hacked or corrupted. This increases the security and transparency of all information that is stored on a blockchain across the life cycle of a transaction.

The freight and logistics industry incorporates a large number of brokers and significant amounts of hidden information across complex supply chains. No single party can access all aspects of the chain. Currently, the freight and logistics industry is heavily controlled by freight brokers, which exist to facilitate transactions of loads from shippers to carriers. Brokers seek out loads, tag on a markup, then sell it to carriers. This not only increases costs for carriers, it also leads to increases in downstream prices that directly affect consumers.

The lack of efficiency, transparency and security across the global networks is precisely the problem blockchain technology is designed to solve. Blockchain, if adequately leveraged, will give customers the opportunity to participate in a freer, more transparent global trade, and potentially limit the need for brokers and lower intermediary costs.

For those reasons, Linda Weakland, UPS’s Director of Enterprise Architecture and Innovation, is long on blockchain. She says, “It has multiple applications in the logistics industry, especially related to supply chains, insurance, payments, audits and customs brokerage. The technology has the potential to increase transparency and efficiency among shippers, carriers, brokers, consumers, vendors and other supply chain stakeholders.”