Updated: Dec 22, 2020
Cargo theft is one of the most significant risks faced by the logistics industry. According to BSI Supply Services and Solutions, cargo crimes cost the industry $22.6 billion last year alone. Without question, this is an issue that causes considerable losses, and that must be tackled as quickly as criminals find new ways to innovate.
As time progresses, thieves find creative ways to commit cargo crimes. The question is, aside from heightened security and prevention measures, what else could be done to ensure cargo is protected? With the implementation of blockchain technology in various processes related to the supply and logistics industry, it is time to understand if it could also provide a solution to cargo theft.
But before we go into it, let's talk about the nature of blockchain.
In 2017, Marco Iansiti and Karim R. Lakhani coined the following definition: "blockchain is an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way."
From its conception, it was intended to be "invulnerable" and to achieve that, every transaction is completely transparent and verifiable.
To go a bit further into it, Francisco Montenegro, Digitization Specialist and Blockchain expert at ConsolFreight, explains how the technology works:
"Once a block of information is appended to the chain, it is immutable, and it cannot be changed. To add one block to the chain, the network of validating nodes must reach consensus. It is done by solving a complex mathematical puzzle that verifies the hash of the previous block and generates a new hash. If the network fails to reach consensus, then the block will not be appended to the chain. But once a block is added unto a public blockchain, it is virtually impossible to remove it."
The immutability and security that characterize blockchain technology could potentially advance in incorporating security measures and improved processes for many industries. Let's explore the possibilities in mitigating cargo theft.
How can blockchain help in the protection of cargo?
As the benefits of blockchain became evident, the transparency of transactions and the secure verification process attracted various industries to the technology.
When it comes to the logistics sector, there is an increased potential in making transactions secure. Here's how blockchain could protect cargo:
1. Asset Tracking to Improve Security
BSI also reports that 66% of cargo theft in North America happens during transit and that the two most common types of cargo thefts are unattended cargo and hijackings.
Blockchain can be used together with IoT and other technologies to enhance the traceability of products. It can help verify that a product is legit. And, paired with IoT sensors, it can also provide information about location and conditions to keep all the parties informed.
The implementation of blockchain technology through the supply chain could help in dissuading thieves from targeting cargo. In practice, IoT sensors could alert the blockchain in real-time if they detect changes in temperature or light.
Then, the blockchain could trigger an action, such as notifying authorities.
Also, there's a technology that many are talking about, called geofencing. Powered by GPS, geofencing creates a virtual fence around specific coordinates. With this and similar types of security measures partnered with blockchain, we could immediately determine if a product has been moved from its place.
These types of advancements could improve asset tracking and in turn, increase the difficulty of cargo theft for criminals.
2. Preventing Fraud Through Transparency
Unfortunately, fraud is one of the biggest threats to the supply chain and logistics industry. Because of its strategic nature, it is often difficult to identify. Even more difficult in an industry where there are so many players involved in the transportation of goods. That characteristic, mixed with piles of manually updated paperwork, creates a recipe for easy manipulation and theft.
Rather than targeting unattended cargo or violently attacking transporters, this type of practice takes meticulous planning and research. Some examples of cargo theft fraud include identity theft, double-blind brokering scams, and fake pick-ups.
Blockchain technology helps to fight these types of deceptive crimes with its immutable record that can only be changed if all of the participants of the chain (or network) validate the request.
In practice, this would remove physical documentation from the process which would eliminate the possibility for falsification. Aside from that, the technology adds transparency and easier tracking to the transactions, two of the features that could help mitigate the risks and vulnerabilities of the chain.
3. Optimizing payments and processes
The way it works right now, the payment process in the logistics industry is tedious and lengthy. There are many stakeholders and cross-border participants in the transaction which also creates many inaccuracies and disputes.
The problems that arise from the involvement of so many parties include delayed payments, overpayments and receiving only partial payments. By incorporating blockchain to the freight and cargo billing process, the industry reduces the intermediaries and moves to more direct and automatic transactions.
One example of how this would work is by using blockchain to establish a "clear protocol" for determining when each party has a payment obligation. In practice, a set of rules can be put in place so that payments are released only when the shipment has been delivered.
That way, the shipper, freight forwarders, consolidators and all of the parties involved will get their payments automatically without the risk of lost documentation, or errors related to manual handling.
Similar to payments, other processes such as the transfer of ownership of the Bill of Lading (B/L) and related documents of title, are already being simplified and secured with blockchain technology.
By digitizing relevant documentation through the use of blockchain, the process of transferring information and ownership is optimized and protected. As for the benefits, blockchain-powered documents can help to avoid lost documents, delays in payment, and even theft of the document itself.
4. Enhancing Trust with Smart Contracts
All of the processes mentioned above are related to the most intricate values and procedures of the supply chain. Every one of these factors needs to be organized and set in an official agreement to make sure that cargo theft is prevented.
Blockchain technology presents the possibility of entering binding " smart contracts" that are coded like a computer program. A smart contract can be useful in providing transparency, mitigating risks, and increasing trust.
But, how do smart contracts work?
In super simple terms, the way that a smart contract works is that all the parties agree and stipulate rules that cannot be modified unless everyone is involved.
But, it is a bit more elaborate than that. A smart contract is a self-executable contract, an autonomous agreement that doesn't need or require the involvement of other parties. To get a better idea, an article by self-proclaimed blockchain evangelist, Robert Kufner, breaks it down excellently:
Firstly, the smart contract is written into the blockchain as a code.
The parties involved may remain anonymous on public ledgers; however, the contact and transaction are recorded.
A triggering event such as a due date, expiration date, strike price, or other condition is set so that the contract is easily interpreted and automatically executed according to the terms written in the code.
Since the data in the code is visible on the public ledger, regulators can monitor activity in the market while the individual parties involved can still protect their privacy.
In plain text, the contract includes specific parameters that a validating network oversees to ensure that they are met autonomously. If the settings are met and validated, the smart contract will execute its decision without the need for human intervention. For example, the release of payment.
However, if the parameters are not met, then the contract proceeds to take a previously set action for this case. For example, creating an insurance claim or alerting the police.
This contract lessens the need for involving third-parties and consequently reduces possible errors or false information.
It is extremely difficult to stop cargo theft. But by adding transparency, incorporating new technologies, and digitizing outdated processes, blockchain technology could be a catalyst for avoiding it.
As Francisco Montenegro adds:
"Blockchain as a stand-alone technology can prevent cargo theft by discarding the possibility of fraud and creating an immutable digital twin of the container on the blockchain that can be verified by Barcode, RFID or other identification technology. This provides higher traceability standards that cannot be tampered with, but the real game-changer is the endless possibilities of combining blockchain with other technologies. For instance, when combining blockchain with IoT devices, you will have a relentless gatekeeper taking care of the cargo and protecting it against theft at all times."
What do you think about using blockchain to optimize security in logistics?
*ConsolFreight's Digitization Expert Francisco Montenegro collaborated with the information in this article.