Blockchain will work in trucking — but only if these three things happen

Sometimes a buzzword gets so overhyped that it deserves some light-hearted mockery. That seems to be the case with “blockchain.” While it’s true that not every industry can benefit from a distributed-ledger technology, the trucking industry most certainly can. In fact, a new consortium called the Blockchain in Transport Alliance (BiTA) is working to apply blockchain to solve some of the most intransigent problems in trucking.

Trucking is a massive industry that affects virtually every American. Trucks move roughly 70 percent of the nation’s freight by weight, according to the American Trucking Association. The Association also found that in 2015, gross freight revenues from trucking were $726.4 billion, representing 81.5 percent of the nation’s freight bill.

Companies hailing from each piece of the trucking supply chain have joined BiTA, including: UPS, Salesforce, McCleod Software, DAT, Don Hummer Trucking and about 1,000 more applicants. [Full disclosure: Our company,Transfix, is also a member.]

A private blockchain for trucking

Blockchain is a shared, distributed ledger that facilitates the process of recording transactions and tracking assets in a business network. An asset can be tangible like a truck, or intangible like an insurance requirement. The blockchain that supports cryptocurrencies like bitcoin is a public network open to any investor with millions of users around the world. The blockchain we in the U.S. trucking industry foresee is a private one for shippers, carriers and brokers in the BiTA consortium.

As a standards organization, BiTA aims to create a common framework to spur the development of blockchain applications for logistics management, asset tracking, transaction processing and more.

Why do we need blockchain? Because trucking is an inefficient industry.

Why do we need blockchain? Because trucking is an inefficient industry. Manufacturers have a hard time finding trucks to transport their goods. That’s not because there aren’t enough truckers who want the job. In fact, truckers drive more than 29 billion miles with partial or empty truckloads.

According to the American Trucking Association, there are roughly 1.5 million trucking companies employing approximately 3.5 million truck drivers. But 90 percent of these companies have six trucks or fewer. This enormously fragmented industry struggles to match shippers (the demand) with carriers (the supply).

Blockchain as the Holy Grail

Matching shippers with carriers is just one of the problems blockchain could solve. I know because my co-founder at Transfix, Drew McElroy, is a dyed-in-the-wool trucking devotee. Drew was born into the trucking business. His parents, and later Drew, ran a trucking brokerage company with the express aim of matching shippers with carriers. It was brutally inefficient, taking up to three hours of calling and faxing orders to line up a single delivery.

If implemented well, blockchain could be the Holy Grail that makes the entire trucking supply chain more efficient. Imagine a cadre of shippers, carriers and brokers collaborating on a secure, frictionless network.

What three things need to happen?

In my humble opinion as a technologist, I believe three things must happen to make blockchain viable in trucking.

Everyone must trust the blockchain as the single source of truth

Blockchain is a digital ledger using blocks (or bundles of transactions) that are linked and secured by cryptography. As a result, data entered into the blockchain cannot be modified or corrupted. What’s more, because the ledger is distributed, there is no single central authority that’s in charge of certifying the information. That’s the beauty of the system.

But first, we must trust the data being entered into the blockchain. For example, some manufacturers require their carriers to have $250,000 of cargo insurance before they hand-off their goods to be transported. If a carrier enters “yes, we have the insurance” in the blockchain, their customer must trust that to be true. Similarly, carriers must trust the shippers that hire them through the blockchain to pay them for their services.

Because the trucking blockchain will be private, all shippers, carriers and brokers will be vetted, and relationships will likely be built through contracts and agreements. I would also suggest a level of interconnectivity of trustable data sources. For example, to ensure that a carrier has satisfied insurance requirements, the blockchain should connect directly with insurance companies.

Small carriers and shippers must participate en masse

Remember, 90 percent of all trucking companies in the U.S. have six trucks or fewer. These are small businesses. It’s difficult for any small business, not just those in trucking, to have the means to purchase and learn new technology. In order to participate in the blockchain, both carriers and shippers must have access to the software, hardware and knowledge.

This task will prove to be difficult. Just look at the electronic logging device (ELD) rule as a recent effort to get truckers to participate in a shared, technology-driven mission. This was a congressionally mandated rule intended to help create a safer work environment for drivers. The Secretary of Transportation required drivers of commercial motor vehicles involved in interstate commerce to log their miles into a device to make sure they do not drive too many consecutive miles (roughly no more than 11 hours under certain conditions). One month before the December 2017 deadline, only 37 percent of 1,600 fleets were ELD-compliant.

Imagine a cadre of shippers, carriers and brokers collaborating on a secure, frictionless network.

In addition, the costs required to maintain the trucking blockchain system could be substantial (think of the electricity alone that’s needed to power racks and racks of processors).

If a critical mass of small carriers do not participate initially in a trucking blockchain, new carriers must join to replace them. That’s because a lack of supply will drive shipping costs up. Finding more trucking businesses is a tall order because there is already a 48,000 driver shortage.

The entire industry must embrace data standardization

All players in the trucking blockchain must agree on how to characterize their data — e.g. what details must every purchase order or invoice contain. I’m heartened that the BiTA is getting in front of this problem, because they are discussing these standardization questions at the very outset.

Data standardization is not easy. For example, electronic data interchange (EDI) is a standard in the logistics industry. EDI has been around for more than 30 years, but there is no one overall EDI standard. Different companies use different versions of EDI, which results in very meticulous and time-consuming integration and development work so that companies can collaborate.

Blockchain is still in its infancy and holds great promise. But trucking must overcome three challenges for blockchain to take off. Getting one of the nation’s most fragmented and conventional industries to trust a new online network and embrace data standardization will take a lot of time and iteration. If we collectively chart the future with this budding technology and anticipate unintended consequences, I believe blockchain could be more than a buzzword in trucking.