Analyst Perspectives

Maersk is closing its TradeLens joint venture with IBM that began in 2018. It was intended to enable port operators, customs authorities, freight forwarders and importers to track containers and their contents. The system was designed to substantially reduce the inefficiencies and delays created by paper-based systems used for customs, trade finance, tariffs and taxes as well as supply chain and logistics management. The initiative was designed to cut supply chain latency by reducing the time for cargo to clear customs from hours to seconds or minutes. Plus, providing deeper visibility and simpler access to accurate shipping data would make supply chain management easier. Our Dynamic Insights research into Sales and Operations Planning found that 38% of organizations identified an inability to access data as an important issue hampering sales and operations planning.

At the time of its inception, TradeLens appeared to be a model use case for blockchain technology outside of the finance services industry because the technology is capable of exchanging trade-related data connecting disparate systems via a loosely coupled architecture that supports many-to-many relationships. In computing, a loosely coupled system is one in which each of its components has little or no knowledge of the details of other components. When two such systems connect, the sender communicates a message in its native form and format with the expectation that the receiver will be able to fully and accurately understand the contents of that message. This objective is achieved through semantic standardization —the data format and protocol used to structure the data makes it possible for disparate systems to correctly process it. Such standardization is feasible in a system with a limited number of tasks, where it’s relatively easy for the participants to agree on data structures and protocols. This is especially true if a blockchain replicates existing forms or commercial documents.

It’s not that TradeLens truly failed – it was able to sign up trading partners, ports and service providers around the world, tracking almost 4 billion events and publishing more than 36 million documents while processing over 70 million containers. At the same time, it didn’t meet its business case objectives from Maersk’s perspective. When dealing with a venture that didn’t completely fail but just wasn’t successful enough, it’s hard to find lessons that are useful for the future, since utility is measured by its ability to avoid similar reversals in the future. In the case of TradeLens, it is a reminder that the diffusion of technology adoption usually depends on multiple factors, not all of which were in place or structurally possible to allow TradeLens to achieve its objectives.

Addressing the issue of limited visibility across networks and supply chains as well as streamlining and simplifying documentation flows is regarded as a good thing, but success in making this happen depends on everyone having ready access to the information they need and – crucially – that every participant wants to share their information. Although TradeLens brought a lot of top-down heft, the worldwide shipping industry is highly fragmented, and in some respects the share of entities participating counts as much as the percentage of volume. Whether justified or rational or not, there appears to have been a lack of trust on the part of smaller organizations in a system established and run by the dominant players. Just as some retailers will not touch Amazon Web Services because they see it as putting money in the pocket of a competitor, there could have been a similar animus toward and unwillingness to participate in TradeLens.

As to the technology, conceptually a blockchain is the right architecture for this sort of information-sharing because of its transparency – anyone that is on the blockchain can view and verify the information that they are entitled to see. Security and immutability were also a good match – transaction records are kept in synchronized ledgers that cannot be altered or deleted. These considerations promote trust in the system and streamline dispute resolution when issues arise. A permissioned, consortium blockchain such as TradeLens also does away with the resource-intensive proof-of-work consensus necessary for a public, unpermissioned blockchain, which makes this arrangement more efficient, allowing it to exchange data at a low cost and in real time with, however, some loss of the decentralized security of a purely public structure.

Notwithstanding the above advantages, some organizations raised issues about the system’s transactional throughput and the cost and complexity of integrating TradeLens with their systems, which would be an impediment with some shippers, ports and service providers, especially smaller ones. Another issue that might have been a factor is that blockchain and data integration technology has evolved considerably over the past five years, and what might have been the right choice then may not be seen as the best choice today.

Blockchain isn’t the only means of connecting systems for interconnecting processes and data. Another approach to data interoperability was undertaken in 2019 with the establishment of the Digital Container Shipping Association, a non-profit formed by global shipping companies including CMA CGM, Evergreen Line, Hapag-Lloyd, HMM, Maersk, Mediterranean Shipping Company, Ocean Network Express, Yang Ming and ZIM. This neutral authority is tasked with establishing data standards in international shipping and make them freely available to all, including shippers, ports, terminals and freight forwarders. Rather than using a blockchain, the objective is to expose an entity’s data through application programming interfaces. This initiative is still in its infancy, as is the development of other standards by the United Nations and World Customs Organization that may be part of a comprehensive digitization of trade documentation.

Alas, although an inclusive, multilateral approach to creating standards may succeed where TradeLens couldn’t, it’s also likely to take time because of the nature of such bureaucratic undertakings. Ventana Research asserts that through 2025, less than one-third of trade documentation will be managed digitally, contributing to higher costs and less resiliency in supply chains.

Future historians are likely to deem 2020 as the start of the 21st century, as the pandemic upended daily life and challenged the status quo on many fronts. In so doing, it profoundly affected the adoption of new technology that enabled organizations and individuals to adapt in the new environment, especially in the least obvious and most everyday aspects of work and commerce. The digitization of world trade and the interconnection and orchestration of virtually all players in it will take the rest of this decade to go mainstream, but the trend is irreversible. All organizations involved in international trade should be mapping out strategic plans for the infrastructure necessary to support this digitization as well as the changes in processes, personnel and training necessary to support this new environment.

Regards,

Robert Kugel