# Applying NFTs: Logistics By [Origins Research](https://paragraph.com/@origins-research) · 2022-08-07 --- ![by @Jinn_Sherman, @s4mmyeth, and @BONDS756 ](https://storage.googleapis.com/papyrus_images/5abd995d9ca55f03fe2d6e64a70c43b51ee53fd768cb2a244930069e3bb32c2e.png) by @Jinn\_Sherman, @s4mmyeth, and @BONDS756 The logistics industry facilitates the trade between parties by means of transporting, storing and delivering products through supply chain networks. NFTs are the perfect technology to apply to supply chain, but that’s not the only application for the logistics industry. This article performs a deeper dive on the industry challenges and overlays the solutions that can be derived from blockchain technology. Article Outline: ---------------- * Industry Background * Industry Challenges & Blockchain/NFT Solutions * Real World Case Studies * Risk Considerations * Closing Remarks Industry Background ------------------- The logistics industry is the backbone of global trade. Without this infrastructure, many companies will be unable to operate. [Statista](https://www.statista.com/statistics/943517/logistics-industry-global-cagr/) valued the sector at circa 6 Trillion USD in 2020. Growth is projected at roughly 5% per annum: ![Source: Statista](https://storage.googleapis.com/papyrus_images/914fd94f0039caa91eb7e3e8f1122df26ecaf27dcb52f1d5ac7adca0e6d56a82.png) Source: Statista The logistics industry can be broken up into the following sectors * Air Freight * Road Freight * Mail (Postal Services) * Domestic Parcels * International Parcels * Sea Freight * Rail Freight * Warehousing & Distribution * Contract Logistics Road freight makes up the largest segment, with 33% of the total market share: ![Source: Statista](https://storage.googleapis.com/papyrus_images/76e8ed0e44b3728abc69f696a1d674c5d8d6faa457b88869ef6c526f68993813.png) Source: Statista These different segments of the logistics industry facilitate export of products to be traded globally. In fact, we can see the global export value of trade in goods has sharply increased in the past two decades, as supply chains have become more efficient and reliable. The global export value of trade is sitting at a multiple of four times what it was in 2000: ![Source: Statista](https://storage.googleapis.com/papyrus_images/6c903e23da9bc16bda43a88457a9ac4ee6a7cd7076180df1af7596f48b7e3db2.png) Source: Statista [Boston Consulting Group (“BCG”)](https://www.bcg.com/industries/transportation-logistics/market-insight-tool) reviewed the mix of logistics companies that make up each of the segments. While the Road Freight is by far the largest segment, the top 10 companies only take 2% of the market share. This suggests that there are a significant number of participants within the logistics industry, so would benefit from a single source of truth of shared distributed ledger. ![Source: BCG](https://storage.googleapis.com/papyrus_images/2a859ad8fe9a83e66fced71b0297d185b3e7f0bdb83c629cca8304eaf62d88fc.png) Source: BCG The [COVID-19 Pandemic](https://www.who.int/health-topics/coronavirus) caused a pivot in operational needs. Demands on the logistics sector rapidly increased due to pressure on pharmaceutical supply chains, as vaccines were rapidly distributed across the globe. [The importance of the logistics sector was highlighted by the necessity for shipping vaccines](https://www.ifc.org/wps/wcm/connect/2d6ec419-41df-46c9-8b7b-96384cd36ab3/IFC-Covid19-Logistics-final_web.pdf?MOD=AJPERES&CVID=naqOED5), but the Pandemic also caused disruption which impacted competitiveness, economic growth and job creation. Ultimately logistics facilitates trade, helping businesses get their products to customers which was hindered by global lockdowns. This drop off in growth can be seen from the reduction in revenue over the past few years. The industry is recovering as restrictions on travel ease - technological advancements will further improve the rate it heals. Outsourced logistics is becoming increasingly common practice as it enables companies to focus on their core activities. [Third-party logistics (“3PL”)](https://www.shipbob.com/uk/3pl/) providers have the knowledge and resources to manage and simplify their supply chains. The global and domestic markets for outsourced logistics services are constantly evolving. It is increasingly important the industry improves its efficiency in terms of processes, relationships, and technology. Blockchain and NFTs are where the technology can be enhanced. The following review the industry challenges and blockchain solutions. Industry Challenges & Blockchain/NFT Solutions ---------------------------------------------- ### 1/Opaque Supply Chains Supply chains maintained on centralized servers restrict the transparency of where parcels are in the transit process. Blockchain offers a transparent real time solution. It enables all parties to view where the asset is in the supply chain process. NFTs provide the ability to attribute a digital footprint to the real world asset, which can then be tracked on chain. If the item were to go missing or stop moving for a period of time, then the person overseeing the movement of goods could inquire as to the reason and prevent misplacement or loss before it happens. Preventative measures as opposed to retrospective action could save the industry for losses incurred in replacing or payouts for loss of goods. This further helps with the concept of [last mile visibility](https://www.mhlnews.com/global-supply-chain/article/22050049/lastmile-visibility-in-a-global-supply-chain). ### 2/Archaic Logistics Contracts Contract logistics aims at a long term collaborative approach to solving mobilization of products. While the terms of the contracts may vary, having an automated contract can reduce costs, particularly when it comes to manually reviewing the execution of the required terms. Blockchain offers an automated solution when using networks such as [Ethereum](https://ethereum.org/en/), which has smart contract functionality. Automating terms within a contract with measurable criteria can remove the subjectivity when it comes to several parties undertaking the terms of the contract. ### 3/Subscription Models 3PL companies could offer a subscription model for their smaller clients. The calculation of the cost to deliver logistic services may require some manual review, the lower cost customers may be better suited to a subscription model. NFTs can provide tiered access to a portal or website depending on the level of subscription purchased. They can also act as [real life keys to access events](https://medium.com/web-design-web-developer-magazine/misc-irl-nft-utility-challenges-event-nfts-and-access-pass-nfts-d653bbc59cab). Imagine a real use case application whereby your NFT provides you access to a certain type of service offering from the 3PL provider. The higher tier NFT gives you physical access to a wider global reach or level of service. This form of key is immutable so is more secure than your typical application that is currently used by Web2.0 platforms. It will also act as a means of token gating the access to a permissioned part of the blockchain for those within the supply chain can monitor the progress of certain deliveries. ### 4/Validating the Origins of Goods Validating the origin of goods can be reliant on questionable documentation, making it difficult to verify the source of the delivery. This can make it difficult when navigating international border with regards to tariffs and duties (as an example). Other jurisdictions may require disclosure of where the good were manufactured, given different geographical locations have different standards. Forced labour is also rife in the manufacturing industry - regulators are cracking down on this with modern slavery laws. Blockchain and NFTs provide a form of digital tracking for the real life goods - it acts as an immutable, verified equivalent of validating the origin of the asset. The information is all transparent for all related parties to trace the order through the supply chain. This provides verification over the source of the goods within the supply chain and can help deter companies from using forced labour. ### 5/Lack of Trust Among Supply Chain Participants There will be instances where there are several separate entities within a supply chain. These entities will have their own conflicting profit objectives and as such may push the terms of the contracts to the extreme. As such, audits have historically been commissioned to enable these parties to trust each others record keeping process. Blockchain offers a trustless alternative to centralized record keeping. A permissioned blockchain can offer a transparent record of all transactions for all the required entities to track. These entities can rely on the accuracy of the delivery which will cut the costs incurred through having to manually verify the accuracy and completeness of shipments. ### 6/Manual or Paper Based Processes Digitzation is at the forefront of many companies. Many industries have issues with manual paperwork, particularly when the participants are frequently mobile or need to liaise with regulatory authorities for imports and exports. Many companies must rely on manual data entry and paper-based documentation to adhere to customs processes. Digitizing key documents such as the bill of lading will result in huge cost savings. Infrastructure has to be implemented for records to be maintained digitally. Most of this involves acquisition of mobile technology or smart devices. Blockchain offers the next iteration of digitzation. It provides an immutable, transparent, verifiable record of the data. If the infrastructure has already been implemented as part of the Web2.0 digitzation process, then an additional step to Web3.0 isn’t a significant amount more effort. In fact most of the effort would have been exerted through the manual to digital upgrade. Smart contracts can also handle automatic matching of invoices and payments between parties, therefore removing the manual matching process between different company records. ### 7/ Cumbersome, Overcomplicated and Crowded Processes Supply chains can contain several parties within a process. Processes can be simplified to reduce the time delays for transmission of data. Blockchain offers a more automated approach. It removes the requirement for many intermediaries, therefore stream lining the process and removing superfluous participants. Real World Case Studies ----------------------- Several logistics companies are underway to apply blockchain technology, adding value by boosting supply chain transparency and automating administrative operations. The following are some examples of how the sector is progressing in the tech adoption. ### 1/Blockchain in Transport Alliance (“BiTA”) The [BiTA](https://bitastandardscouncil.org/) was created as a forum for the logistics industry to discuss and develop plans for implementing ledger technology in shipping. ![Source: https://bitastandardscouncil.org/](https://storage.googleapis.com/papyrus_images/1764df4a48727bd2279c8c848d9dfca797c1d2689f6cb055489480627192710a.png) Source: https://bitastandardscouncil.org/ BiTA has a committed ecosystem of leaders. The BITA Standards Council is a collaboration cooperating to develop the pro-competitive, open source and royalty-free blockchain/web3 Standards. The consortium includes a number of reputable brands: ![Source: BiTA](https://storage.googleapis.com/papyrus_images/a3f99dd51b9374e1db1043c8321d4af3d1dc12fd43d45eac948cb24ee9a607dd.png) Source: BiTA ### 2/Cargoledger [Cargoledger](https://cargoledger.nl/what-we-do/) is a blockchain based logistics ledger. It provides a single source of truth across the entire delivery ecosystem. They illustrate a revised process through their diagram. ![Source: https://cargoledger.nl/what-we-do/](https://storage.googleapis.com/papyrus_images/3cc29022ce9fdf28c5672f8ade4ccfdeb61b4fadafffa028b258bec57f294a6d.png) Source: https://cargoledger.nl/what-we-do/ The process has significantly fewer manual intersections. There are digital updates encoded on the blockchain via their smart contract functionality. These updates are recorded via the user interfaces at various intervals in the delivery process. ### 3/ZIM (Bill of Lading) [ZIM (Ocean carrier company) is digitizing the bill of lading](https://www.zim.com/news/press-releases/zims-groundbreaking-blockchain-based-bill-of-lading), which is essential for ocean shipping logistics. It acts as a receipt and a contract for the goods being shipped. The information stored on a bill of lading is critical as it contains the shipment description, quantity and destination, as well as how the goods must be handled and billed. ![Source: ZIM](https://storage.googleapis.com/papyrus_images/251f79883c2122b3a25d61927c73b3241e923a49a7d8d53f737c22db1585c8e1.png) Source: ZIM During the trial of a blockchain-based system developed by [Wave](https://wavebl.com/), ZIM participants issued, transferred, and received original electronic documents successfully through the decentralized network. Risk Considerations ------------------- * There is currently insufficient education on the new technology. Legal counsel with experience in blockchain technology may be required to resolve contract disputes, albeit with lesser involvement due to smart contract automation efficiencies. Companies will need to up skill their staff on the various [Web3.0](https://www.investopedia.com/web-20-web-30-5208698) applications and protocols before mass adoption can occur. * The international nature of the logistics industry means there are many touch points with government authorities across multiple nation states. Having each of these nations adopt the tech may be a challenge. The private sector adoption may be less of a challenge than the public sector, although may require the larger logistics companies to pull together to instigate this process. Similar to BiTA consortium and the initiative they are currently driving. * The logistics industry currently has several intermediaries that would be displaced by blockchain tech - they thrive on the sector inefficiencies. As such, disintermediation will not be palatable for these entities and hence the tech adoption may receive resistance. * Much of the logistics, particularly road freight or trucking, is still a long way away from using digital logs for the goods being transited. There are still many drivers that will not be familiar with the digital tracking, let alone implementation of blockchain tech and hence may be resistant to change. The user interfaces would need to facilitate a seamless experience for the end user. * The infrastructure can be costly to implement. There would be significant global infrastructure that will need to be implemented in order for logistics companies to harmoniously use the blockchain tech. There may be a lead time for this to be embedded, at an up front investment cost, before the benefits come to fruition. * If the shipments/logistic contracts were linked to a digital asset and traded as an NFT, then secondary market places would need to be established to facilitate this. * There is still a lack of education around the new technology. As it becomes more established awareness will grow and users will become more familiar with how to navigate the complex environment. The bridge between the current Web2.0 interface and blockchain tech will likely need to be more seamless for mass adoption to happen. * There are new risks associated with the tech, for example smart contract failure, that did not exist previously. Having an understanding on what this is an implementing appropriate insurance cover can help mitigate this. We touched on [NFT insurance in another OriginsNFT article](https://mirror.xyz/origins-research.eth/eUQdzkuc17TtuWFHaEfj5dh-7FEX4tnXOeVd5w5a8SE). * There is a lack of a legal framework in place for these digital assets and hence will take time for this to become established. Although we can see progress is being made in the courts with [High Courts recently permitting service by NFT as a legal first](https://www.lawgazette.co.uk/news/high-court-permits-service-by-nft-in-english-legal-first/5113106.article). * The adverse macro economic conditions will likely cut logistics tech budgets so innovation may be put on hold while strategies focus on the most profitable outcomes in the short term. Those investments with longer lead times may not be viable until the conditions shift to being more favourable. * Sharing data with other parties in the supply chain will enable more fluid trade. However the amount of data shared should be restricted so as not to lose their competitive advantage. Establishing a means of harnessing this new verified data to inform those in positions of authority will also be required to maximize its use. Closing Remarks --------------- Blockchain and NFTs have several use cases within the Logistics industry, particularly in improving the efficiency and effectiveness of supply chains. The proof of authenticity, the immutability and the transparency of record keeping permits all parties to verify the status of any given delivery within the ecosystem. But the use cases don’t stop there - the ability to use these assets within typical BAU operations further reduces the need for manual processes and trusted intermediaries. The new form of digital asset offers numerous beneficial properties and will inevitably permeate across multiple industries to varying degrees - it will be interesting to see how it offers solutions to existing industry challenges over the coming years. 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