Published on Dec 2, 2020 in Logistics Middle East
In a post-COVID world, blockchain and tokenisation present an opportunity to accelerate digital change in logistics. Here, we explore how the technology is set to transform supply chains in the GCC
Following a radical shake-up of the global supply chain caused by COVID-19, industry leaders are paying close attention to the post-pandemic future for shipping, ports and other critical parts of the logistics pipeline.
Beyond the major considerations – such as where to base key hub locations to mitigate against potential future economic shocks – the global crisis has provided a logical point to step back and examine the industry’s most fundamental elements from the ground up. At the core of most industries’ supply chains is shipping – and at the core of shipping is years of processes built on physical transactions.
From tracking the movement of assets to preparing customs documentation and ultimately proving the receipt of goods, along the entire pipeline, business has traditionally been conducted using paper and pen.
Yet in recent years, the logistics industry has made a concerted shift towards blockchain and other Fourth Industrial Revolution technologies including artificial intelligence and big data – a shift that has been catalysed by the global onset of COVID-19. As part of this transformation, businesses have sought to re-purpose tech solutions from other industries – nowhere more so than in the logistics industry.
One example transplanted from the world of payments is tokenisation – a technology primarily used by financial processors to protect credit card details. Now, following years of success in Europe’s payments industry, it is set to radically improve logistics asset management across the GCC, as well as streamline the shipping process by minimising the need for physical documents.
Tokenisation works by storing a firm’s sensitive data in a highly secure digital vault and automatically replacing it with a placeholder ‘token’ of the same length and format. For example, a 16-digit credit card number could be represented by a series of random, unrelated digits that would be of no use to a would-be fraudster without access to the original data.
Unlike encryption, which can be unscrambled by figuring out the key, the sensitive information never leaves the vault, meaning the token is completely indecipherable on its own. It is therefore virtually impossible for even the most determined of hackers to access the valuable underlying data. This encryption-by-proxy is best understood using the example of a poker chip. The chip itself has no intrinsic value until it is brought back to the original processor, at which point it is exchanged for cash.
While the most common application for tokenisation is payments processing, the technology is playing an increasingly significant role in a much wider range of industries – including in the logistics sector by improving efficiency and security along the supply chain. Key use cases include tracking asset movement, enabling the easy flow of shipments from one port to another, and digitising what have been traditionally paper-based processes.
One of the first major players to enter the market is Slovenia-based CargoX, which aims to “kickstart a revolution in global logistics” through its Smart B/L Bill of Lading solution. Using tokenisation, the platform offers logistics companies and shippers a highly secure and efficient alternative to paper Bills of Lading, which collectively cost billions of dollars per year and can take up to a week to complete the transfer.
Following major successes in Europe, Stefan Kukman, the company’s founder and CEO, has previously spoken of plans to bring CargoX to the GCC, saying: “With so much of the Middle East economy built on trade, this is an opportunity for regional logistics companies to cut costs and gain a competitive edge.
He added: “The adoption of a blockchain based smart bill of lading will affect logistics and trade in the Middle East as much as it will in any other part of the World. It will transform the analogue, slow and sometimes troublesome processing of physical paper-based cargo documentation into a digital experience with a maximum level of trust and security when transferring the document.”
The GCC logistics industry is already moving in this direction following the launch of Fasset, a FinTech startup which tokenises hard assets via blockchain technologies. The system works by “fractionalising” – or breaking down – larger assets into smaller tokens, similar to the way CargoX turns a bill of lading into a digital document ready for virtual transmission at the click of a button.
Fasset – which has received millions in funding from strategic backers in the UAE, Saudi Arabia, Bahrain, Kuwait, and Singapore – is the first of its kind to receive authorisation from the Central Bank of Bahrain to test its concept in the country’s FinTech Regulatory Sandbox. Fasset intends to focus on financing sustainable infrastructure across a number of industries including energy, transport, ICT and social sectors such as Education and Healthcare.
The launch of Fasset is timely. In light of the ongoing COVID-19 pandemic, governments the world over are increasingly digitising their trade processes. The latest country to do so is India, which moved its trade documentation workflows to blockchain-based platforms in a bid to minimise person-to-person interactions in the shipping process.
While the GCC has so far not formally regulated for the use of these technologies for shipping documentation (apart from Bahrain with its electronic transferable records law), customs requirements specify only that electronic documents need to be uniquely identifiable. In fact, blockchain-based platforms are already playing a major role in supply chain management across the Gulf, and according to 2019 research by the Middle East Institute, are central to “expanding commercial ties and overcoming obstacles to global trade”.
In particular, the paper emphasised the benefits of digital shipping documents that allow for the processing and tracking of millions of unique data points on shipments and containers while guaranteeing a high level of security and transparency. This move towards blockchain stands to benefit manufacturing firms handling complex supply chain routes in particular, and a surge in use of the technology is anticipated. According to research firm Gartner, blockchain is set to support the movement and tracking of US$2 trillion of goods and services globally by 2023.
Moreover, the GCC is better placed than most to drive this technological revolution. Firstly, the region’s historically strategic location between Eastern and Western trade routes means more efficient processes and faster shipping times have positive reverberations for supply chains globally. Second, decades of tech-focused economic diversification have resulted in some of the world’s most advanced digital infrastructure – exactly what is needed to put high-speed blockchain systems into place. Finally, key players within the GCC logistics industry have demonstrated a strong appetite for the uptake of these new technologies.
Last year, Bahrain’s APM Terminals – which manages the country’s sprawling Khalifa Bin Salman Port – launched a blockchain-based system to overhaul traditional processes and speed up shipment clearance times. The firm’s managing director Susan Hunter praised the effectiveness of the technology, saying: “Many of the processes for transporting and trading goods are costly, in part, due to manual and paper-based systems. Replacing these peer-to-peer and often unreliable information exchanges, the platform enables participants to digitally connect, share information and collaborate across the shipping supply chain ecosystem.”
Blockchain has also had a positive impact on road-based logistics. Bahrain is connected to Saudi Arabia, the region’s largest market, by the 25-kilometre King Fahd Causeway – one of the busiest crossings in the Middle East that facilitates the flow of imports and exports via many thousands of commercial trucks each day. Despite recent restrictions owing to COVID-19, for the most part passage of commercial freight was able to continue as usual, thanks to high-tech artificial intelligence scanners installed along the length of the causeway.
The scanners automate blockchain-based data collection and allow shipment inspections to take place before trucks reach the border. This has greatly increased both the speed and capacity for customs processing as demonstrated by the US$1.45 billion in trade between the two nations during the first half of 2020.
Saudi Arabia too has made similar strides towards enhancing its customs processes with advanced technologies. In September of last year, the country’s customs authority partnered with shipping giant Maersk to highlight the importance of blockchain to reduce time and costs while enhancing security. That came after the country launched its first-ever blockchain-enabled shipment from the King Abdul Aziz Port in Dammam to Rotterdam in the Netherlands in May 2019.
The UAE has recorded similar developments, with a dedicated nationwide Blockchain Strategy in place and freight forwarders offered access to efficient digital processes via the Silsal information exchange platform. Furthering these efforts, the World Economic Forum recently collaborated with Dubai Future Foundation (DFF) to produce a blockchain toolkit to strengthen the supply chain.
In an increasingly digital world, where logistics players and governments alike are keen to limit person-to-person interactions, blockchain and tokenisation present an opportunity to accelerate digital change. Recent developments such as the launch of Fasset and the rapid uptake of blockchain technologies throughout the supply chain indicate that the Middle East – and in particular the GCC – is set to be at the forefront of this change.