{"id":22785,"date":"2017-11-14T20:15:18","date_gmt":"2017-11-15T01:15:18","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/maersk-cutting-shipping-costs-and-increasing-supply-chain-visibility-with-blockchain-technology\/"},"modified":"2017-11-14T20:20:59","modified_gmt":"2017-11-15T01:20:59","slug":"maersk-cutting-shipping-costs-and-increasing-supply-chain-visibility-with-blockchain-technology","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/maersk-cutting-shipping-costs-and-increasing-supply-chain-visibility-with-blockchain-technology\/","title":{"rendered":"Maersk: Cutting Shipping Costs and Increasing Supply Chain Visibility with Blockchain Technology"},"content":{"rendered":"<p>The ocean shipping industry accounts for close to 90% of worldwide trade <sup>1<\/sup>, and since 1996, Maersk has been the largest container shipping and supply company in the world <sup>2<\/sup>. Maersk must deal with delays and increased costs from the customs documentation, fraud, inventory and waste management, and the transit of millions of shipping containers worldwide. Digitization presents a significant opportunity to improve transparency of items being shipped, decrease costs of documentation, improve the quality of shipping data, and better identify waste and fraud. The costs of trade documentation processing and administration can be up to 20% of the actual physical transportation costs<sup>1<\/sup>. To illustrate the complexity of Maersk\u2019s shipping operations, a shipment of refrigerated goods from Africa to Europe can include 30 people and organizations and 200 communications between them<sup>1<\/sup>. One lost form or piece of documentation can delay a shipment by days or leave a container stuck in a port<sup>1<\/sup>. As the industry current stands, there is an opportunity to improve transparency, documentation quality, and accountability for shipping mistakes, inventory loss, and fraud.<\/p>\n<p>&nbsp;<\/p>\n<p>Maersk has entered into a partnership with IBM to implement a pilot blockchain technology by the end of 2017 to improve logistics visibility and data interoperability through increased collaboration of shipping partners and foreign governments. This application of blockchain provides all parties with a trusted, decentralized record of shipping data as well as a unified data source to see end-to-end visibility of the supply chain<sup>1<\/sup>. Each new link (shipping record or update) in the supply chain blockchain database is added only through consensus of all users. This solution creates a trusted, \u201copen\u2026supply network for all to see\u201d and also aggregates data from different sources into a centralized location <sup>4<\/sup>, which is incredibly valuable for the multiple decentralized parties found in international shipping and trade. In the short-term, a major challenge for Maersk and IBM piloting this program is to foster collaboration between many parties and a \u201csupportive environment\u201d with understanding from many sides to test the pilot<sup>3<\/sup>. Maersk has identified pilot partnerships with trading partners such as Schneider Electric and Kenyan flower company FloraHolland and government authorities such as the US Department of Homeland Security<sup>1<\/sup>.<\/p>\n<p>&nbsp;<\/p>\n<p>In the short-term, Maersk must focus on creating a collaborative environment through forging good relationships with governments and trading partners for the pilot program in order to determine whether the program is feasible. In the mid-term, Maersk may find that adoption and reaching scale are more challenging than anticipated. Only a third of studied companies have begun to digitize their supply chain, with 72% expected to begin by 2022<sup> 4<\/sup>. It is an expensive and time-intensive process for Maersk\u2019s current partners to adapt to a new digitized process and system, which presents a risk for Maersk spending so much money up front to develop a product. There are heavy fixed costs for Maersk to develop the technology for their digitized blockchain supply chain platform, and while over time the variable costs are relatively low for scaling blockchain, Maersk must be patient to not over-invest early in an otherwise promising project. Additionally, given that change management projects often face a 70% failure rate <sup>5<\/sup>, partners and governments that work to digitize their supply chains may face setbacks, delays, and unsuccessful implementations. Maersk and IBM will need to patiently educate partners (potentially monetizing this education through a consulting arm) through the process of digitizing their supply chains, particularly for customs and government departments which are already prone to being risk-averse, slow, and bureaucratic.<\/p>\n<p>&nbsp;<\/p>\n<p>A concern not currently addressed by Maersk and IBM relates to information security protocols in using emerging blockchain technology. Authenticating identity and implementing secure access protocols are critical for new technologies <sup>6<\/sup>, which are especially susceptible to hackers as users become acclimated to new technology security protocols. The prominent Bitcoin broker Coinbase has experienced months where an average of one user per day had their accounts hacked through voice and email phishing tactics <sup>8<\/sup>. With foreign cyber attacks increasing in severity and frequency, it is plausible to envision a situation where Maersk may be targeted with a cyber terrorist attack meant to disrupt its supply chain and world trade. To this end, Maersk must immediately work internally and with partners to establish controls such as using machine learning to flag suspicious activity, carefully assigning user access, and implementing dual-factor authentication <sup>7<\/sup>. Maersk and IBM may also consider implementing more severe security constraints such as forcing users for all parties to engage with the blockchain through an intranet of secure terminals that are further removed from external hackers.<\/p>\n<p>&nbsp;<\/p>\n<p>(758 words)<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p><strong>Endnotes<\/strong><\/p>\n<p>&nbsp;<\/p>\n<p><sup>1<\/sup> \u201cMaersk and IBM Unveil First Industry-Wide Cross-Border Supply Chain Solution on Blockchain,\u201d IBM press release, May 5, 2017, on IBM website, [http:\/\/www-03.ibm.com\/press\/us\/en\/pressrelease\/51712.wss], accessed November 2017.<\/p>\n<p>&nbsp;<\/p>\n<p><sup>2<\/sup> Alphaliner Weekly Newsletter, \u201cVolume 2011 Issue 8,\u201d February 27,\u00a02011.<\/p>\n<p>&nbsp;<\/p>\n<p><sup>3<\/sup> Alicke, K., D. Rexhausen, and A. Seyfert, \u201cSupply Chain 4.0 in consumer goods,\u201d McKinsey &amp; Company.<\/p>\n<p>&nbsp;<\/p>\n<p><sup>4<\/sup> Schrauf, S. and P. Berttram, Industry 4.0: How Digitization Makes the Supply Chain More Efficient, Agile, and Customer Focused, PWC Strategy&amp; (2016).<\/p>\n<p>&nbsp;<\/p>\n<p><sup>5<\/sup> Ashkenas, Ron, \u201cChange Management Needs to Change,\u201d 性视界 Business Review, April 16, 2013.<\/p>\n<p>&nbsp;<\/p>\n<p><sup>6<\/sup> Porter, M. and J. Heppelmann, \u201cHow smart, connected products are transforming competition,\u201d 性视界 Business Review (Nov. 2014)<\/p>\n<p>&nbsp;<\/p>\n<p><sup>7<\/sup> Wieczner, Jen, \u201cHacking Coinbase: The Great Bitcoin Bank Robbery,\u201d Fortune, August 22, 2017.<\/p>\n<p>&nbsp;<\/p>\n<p><sup>8<\/sup> Price, Rob, \u201cOne of the world&#8217;s biggest bitcoin exchanges has been hacked,\u201d Business Insider, http:\/\/www.businessinsider.com\/south-korean-bitcoin-exchange-bithumb-hacked-ethereum-2017-7, July 5, 2017.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Maersk is piloting blockchain technology to improve supply chain visibility, transparency, accountability, and cost efficiencies for its global shipping business.<\/p>\n","protected":false},"author":9778,"featured_media":22795,"comment_status":"open","ping_status":"closed","template":"","categories":[2608,1505,2515,1709],"class_list":["post-22785","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-blockchain","category-cargo-shipping","category-international-trade","category-maersk","hck-taxonomy-organization-maersk","hck-taxonomy-industry-shipping","hck-taxonomy-country-denmark"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - 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