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From beans to bananas, and from rice to wine, the amount and complexity of paperwork involved in shipping foodstuffs around the world means the ships travel almost as fast as the documents.
So when a bulk shipment of soyabeans left Argentina for Malaysia this year, the use of blockchain technology to shake up the centuries-old system of trade finance transactions caused a stir. HSBC and ING handled a letter of credit backing the shipment for US food group Cargill relying on blockchain technology developed by software company R3. This cut the time needed to exchange documentation to 24 hours instead of the traditional five to 10 days.
It was billed as the first commercially viable trade-finance transaction using blockchain, an electronic distributed ledger of transactions that records data in digital blocks. Blockchain promises to save time and money for the shipping industry, which still relies heavily on paper documents such as bills of lading, cargo insurance and invoices, as well as letters of credit.
Alisa DiCaprio, head of global trade strategy and research at R3, says the sheer extent of paperwork involved in a typical shipping transaction frequently produces some kind of query or discrepancy.
“The packing list might say this is a cargo of ‘soyabean’ not ‘soyabean meal’, and so the documents would have to go back and forth to confirm what was being shipped,” she says. “With blockchain, both sides have to confirm simultaneously, so that catches any problems or discrepancies straight away.”
The food industry has also been quick to adopt blockchain technology, in part to improve food safety after a series of scandals. In China, six babies died and thousands were ill in 2008 after drinking milk laced with a harmful chemical, melamine. In the UK and Ireland in 2013, consumers learnt they might have eaten horsemeat after it was mislabelled as beef in frozen burgers and ready meals.
Food companies are now using blockchain platforms to track their supply chain. One use is to help prove to consumers that the free-range egg they had for breakfast did not originate from a factory farm and that palm oil in their biscuits is not produced by child labour.
Use of blockchain means retailers can trace back in detail to where a particular crop was grown. “A baby food retailer of a sweet potato and pumpkin meal, for example, can see in the system which farm the sweet potato came from. So if there is any problem . . . they can find the farm and even which batch it came from,” says Ramesh Gopinath, vice-president of supply chain solutions at IBM.
Such detailed information can help companies quickly identify and recall batches of goods if contamination is suspected.
It also helps demonstrate ethical credentials to consumers concerned about the sourcing of products.
In Wyoming, some cattle ranches log the identities of calves via blockchain so the ultimate buyer can prove these are open-range cattle, which command a higher price.
Olinga Taeed, visiting professor in blockchain at Birmingham City Business School, says consumers are demanding more transparency. “Where [blockchain] has been adopted by businesses like food and logistics, that’s where businesses can use it to improve the bottom line and differentiate themselves,” he says.
Some technology start-ups, such as Provenance, help food and drink companies track the origin of their supplies using blockchain. Jessi Baker founded the business while working on her computer science doctorate. The idea was inspired by her upbringing in the rural English county of Wiltshire, where her mother grew garden vegetables and bought local produce.
“The information helps businesses themselves know where their products are coming from, and also consumers who want more and more information,” she says. “It could be for quality reasons or because of allergies or diet issues or because of their personal values.”
Provenance recently took part in an international pilot tracking tuna from Maluku in Indonesia through the south-east Asian fishing industry and works with companies such as the UK’s Co-operative Group.
Use of blockchain to verify the supply chain in other industries such as mining is also driven by growing ethical concerns among consumers and investors. Investment manager Hermes recently called for carmakers to adopt blockchain technology to help prove where the cobalt in their batteries comes from. More than half the world’s cobalt comes from the Democratic Republic of Congo, where Amnesty International recently claimed child labour was being used in its extraction.
De Beers, the world’s largest diamond producer, is trialling digital tracking to ensure the diamonds it sells are sourced ethically from small miners in Sierra Leone.
Lord Hodge, a justice of the UK’s Supreme Court, said in a speech last month that blockchain’s distributed ledger technology could provide a record of who owns what, stamping out illegal trading in conflict diamonds. Another advantage was that it provides a permanent record. “The preservation of an accurate historical record would be an important weapon in holding people accountable for the performance of their fiduciary and other duties,” he said.
The data stored on blockchain cannot be changed and some believe this could lead to fewer legal disputes. However, Christina Blacklaws, president of the UK’s Law Society, says there could still be litigation. “It may lead to fewer disputes or to different types of disputes — perhaps ones about expectations of a contract rather than the execution of a contract.”
Others point out that blockchain relies on information entered by people. “Blockchain is dependent on a human being for information and if you have a human being taking a bribe to put information on the blockchain, that could potentially happen,” warns IBM’s Mr Gopinath.
Case studies: supply chains
Flex and Elementum
Electronics manufacturer Flex decided to create its own private supply chain visualisation software, known as Flex Pulse, in 2015. Lawyers, supply chain specialists and data scientists created the software and Pulse centres that provide Flex with a real-time view of its 14,000 or so suppliers. This has greatly increased the speed at which goods travel around its supply chain, reducing movement times by an average 11.7 days a year.
With the help of Elementum’s data on anything from a tsunami to an industrial strike, the supply chain can be viewed on mobile devices as well as at an increasing number of physical Pulse Centers. Flex Pulse alerted the company to the 2015 Tianjin port explosion and the 2016 Kumamoto earthquake moments after they happened, allowing the company to activate contingency plans that saved an estimated $55m in disruption costs.
After its 2016 takeover of SABMiller, global drinks company AB InBev set out to pinpoint risk with vendors such as fraud, money-laundering and supply-side bribery. The compliance and technology teams use data analysis to assess which vendors have the highest risk of government collusion. The programme predicts with 85 per cent-plus accuracy irregular contacts with government.
Influencing supplier behaviours
Lawyers at mining company BHP rolled out a global contract management system this year to transform the way it works with its suppliers. Use of the platform will soon be mandatory for all suppliers.
The global contract management system includes a due diligence process, mechanisms for monitoring supplier activity and automation tools that integrate with BHP’s systems. This also allows BHP to reinforce its charter values and code of conduct by influencing supplier behaviour.
Until recently, bills of lading — the document a carrier issues to acknowledge the receipt of a cargo to be shipped — were mainly done on paper. If lost, paper bills could not be replaced and had to be publicly declared void, leading to costs and delays. Slovenian company CargoX began offering a bill of lading based on blockchain technology, which enables ownership to be transferred instantly on receipt of funds. This cuts the risk of loss in transit and fees. CargoX’s first shipment using the “smart” bill of lading arrived in Slovenia from Shanghai in August.
Diamond company De Beers developed Tracr in 2017 to track the path of a diamond from mine to consumer. The platform is based on blockchain and uses artificial intelligence to detect anomalies and leverages the internet of things — appliances and industrial equipment connected to the internet — to capture sensor data through the supply chain. Each diamond is assigned a unique number, which is entered every time it moves to a new stage, from mining to cutting to shop. By May, De Beers had developed a secure digital trail for all of its rough diamonds above 10.8 carats, with the ability to track any diamond above five carats.
Hyundai Motor Europe
The Hyundai Motor Europe legal team has developed a way to ensure customers who buy cars from unauthorised dealers can still qualify for a manufacturer’s warranty. When customers go to authorised dealers to have their cars serviced, the dealer uses a new IT system that tracks the vehicle identification number to verify the original point of sale. If it was sold by an unauthorised dealer, the system helps the owner enrol in the goodwill warranty programme. Hyundai can use the data to choose which unauthorised dealers to pursue.
Kenco and Smart Gladiator
Retailers can make up to 10 per cent of their income from charging manufacturers for goods damaged in transit, a percentage that is increasing as compliance rules expand. To protect their manufacturing clients, Kenco, a logistics company, developed LoadProof in 2017. LoadProof is an app that uploads images, times, dates and shipment details at every stage of the supply chain, making it possible to detect where merchandise was damaged. Kenco worked with technology company Smart Gladiator to protect its customers from the financial penalties charged by retailers. In one instance, it reduced a single client’s retail customer complaints by 95 per cent.
Nestlé and Starling
After global food and drink company Nestlé was criticised for not doing enough to prevent deforestation in its supply chain, it partnered with Starling, a satellite-based service, created by Airbus, The Forest Trust and SarVision. Starling, implemented in September, allows Nestlé to map and monitor its suppliers.
The service tracks changes in the vegetation surrounding the plantations of certain suppliers across the global palm oil supply chain. When Starling alerts Nestlé to signs of deforestation, Nestlé works with the supplier and NGOs to ensure compliance with its standards on responsible sourcing.
Blockchain technology company Provenance works with UK businesses including the Co-op, Unilever and J Sainsbury to track goods from source to shelf. Each product is assigned a digital footprint to help verify marketing claims. This helps them comply with consumer protection laws and build trust with a new generation of consumers concerned about sustainable sourcing.
To help the business maintain ethical sourcing, Unilever’s legal team mapped the social footprint, a measurement of the impact on people, of its tea supply chain in 2016. The year-long pilot project was aimed at encouraging sustainable farming projects and enabled Unilever to assess the potential for human rights abuse in each location. Its data, technology and analytics cut quality problems by 20 per cent across the company.
With the introduction of plain language and visual contracts, or contracts that use simpler language and images to communicate, the legal team is working to improve relationships with its suppliers.
Case studies research: RSG Consulting
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