st Century Megaproject Port Development & Logistics ...€¦ · proof of shipping, using its DL private password, triggering execution of smart contract conditions (e.g., partial

21st Century Megaproject Port Development & Logistics: Prospects and problems in the use of blockchain

London, 20 November 2019

• Ports and logistics in digital transformation

• Blockchain technology and supply chain use cases

• The Belt and Road Initiative (BRI)

• Blockchain in megaprojects

Agenda

Port development and logistics in digital transformation

• Ecosystems drive higher levels of business value

• Time compressed networks

• Digitally mirrored

• Technologies converged for scale

• New business models cutting across traditional boundaries

• Clean chains have arrived

The future port and logistics industry

2.0 3.0 4.0 5.0

International expansion

Cross-border trade and globalization.

The rise of the container

Specialization and consolidation

Companies specialize in certain fields followed by consolidation efforts;

Emergence of express delivery services, 3rd / 4th party logistics providers (3PL/4PL) and track and trace

Synchronized and integrated

Platforms for certain activities; integration of suppliers

Internet of things systems, marketplaces (5PL), initial warehouse automation and automated port terminals

Intelligent and automated

Data and artificial intelligence supports further automation and decentralization of value chains

Networks of connected vehicles and sustainable platform logistics (6PL)

1.0

Fragmented

Primarily managed locally

“Birth” of the industry post World War II

Logistics (r)evolutions over time

Value Chain and Logistics:

Deep technology will improve decision-making, risk managementand offers

Marketplaces will change the way we expose and access capabilities and how we manage the movement of goods

With synchronization and integration come large scaleautomation and digital dividends

Intelligence and automation correlate with environmentallyfriendly logistics

Physical trade hubs can establish themselves as digital ports,as control points of regional e-commerce

Blockchain technology and selected use cases

• How Technology Can Unlock the Growth Potential along the New Silk Road (2017)

• Trade Tech – A New Age for Trade and Supply Chain Finance (2018)• Inclusive Deployment of Blockchain for Supply Chains: Part 1 – Introduction

(2019)• Inclusive Deployment of Blockchain for Supply Chains Part 2 – Trustworthy

verification of digital identities (2019)• Inclusive Deployment of Blockchain for Supply Chains: Part 3 – Public or Private

Blockchains – Which One Is Right for You? (2019)• Inclusive Deployment of Blockchain for Supply Chains: Part 4 – Protecting Your

Data (2019)

Blockchain work at the World Economic Forum

Different ways to handle trust

Today: Individual ledger - Each party holds their own ledger• You trust known parties and transactions are stored in individually controlled ledger• Direct interactions without middleman• One to one connection

Today: Centralised Ledger - A middleman trusted by both parties bridge trust between parties unknown to each other• The middleman controls the interaction history, identities and interface• The middleman controls the value chain• Great if the business eco-system can agree on a trusted middleman

Blockchain: Distributed ledger - Independent blockchain nodes verifies legitimacy of transaction and stores the transaction in a shared immutable ledger• What I see is what you see - Remove duplication, inconsistency and the need for

reconciliation of records• The “business eco-system” controls the value chain

This is what I think was

done

This is what I think was

done

This is what I think was

done

This is what I think was

done

Everyone sees and trusts the same ledger

This is what I think was

done

This is what I think was

done

Trusted third party

This is the agreement I registered

How Blockchain works

.

Blockchain’s single value proposition is Decentralization• If you are not replacing a trusted

third party or preventing one from emerging do not use blockchain

• But, blockchain is also the incumbents’ protection against disintermedation by digital platforms

Key take away: Blockchain offers a competitively, politically and commercially neutral alternative to centralized platforms

Details on https://medium.com/@henrikhvidjensen/blockchain-do-not-add-additional-security-blockchain-adds-distributed-trust-132991b6e57e

You can get equally security levels on centralized solutions

But, the emergence of blockchain has made it possible to build decentralized solutions with a security level that matches centralized technologies

Blockchain do not offer additional security

Blockchain does hardly offer additional security

Details on https://medium.com/@henrikhvidjensen/blockchain-do-not-add-additional-security-blockchain-adds-distributed-trust-132991b6e57e

Case 1: Blockchain-based letter of credit

Questionable whether Bank B's checking is still

required

Letter of credit (LC) creation and transmission to all participants on the same day

Transmission of shipping proof to all participantsin real time

Simultaneous validation of shipping proofs and payment via distributed ledger platform

INITIATION SHIPPING AND PROCESSING SETTLEMENT

ExporterImporter

• Exporter sends invoice and his account details to the importer

• Importer prompts Bank A to issue LC, via an app or online (confirms with his DL password and exporter's account details)

• Bank A checks importer's credit worthiness and creates an LC as a smart contract on the DL, linked to both the importer and exporter via their account details

• Both exporter and Bank B are notified when the LC is created on the DL

DL

1

2

3

5

1

2

3

54

Importer

ShipCo D

Exporter

ShipCo C

DL

6

7

11

4DL

10 9

• Exporter sends goods via ShipCo D, providing exporter’s account details

• ShipCo D updates LC on DL with validated proof of shipping, using its DL private password, triggering execution of smart contract conditions (e.g., partial payment)

• ShipCo C triggers DL status update when goods arrive

6

7

8

12

8

• Bank A and Bank B instantly receive shipping proof update from the DL, and LC's status is automatically updated based on smart contract conditions

• Importer, confirms payment on app or online account via his DL password

• Seller gets notified that he has received the payment on his account

• ShipCo C releases good to Importer, once status on DL states importer has fulfilled all obligations (e.g. payments)

910

12

13

11

ShipCo C13

Importer Exporter

Bank BBank ABank BBank A

Note: Account details refer to DL user's public key and password refers to DL user's private keySource: Bain & Company

Deep technology is transforming trade finance

Source:Bain & Company

New technologies

Pre-transaction Transaction processing After transaction

Product selection

Data entry

Workflowmanagement

Document check

Compliance check

Problemresolution

Client mgmt. information system

Opticalcharacter

recognition (OCR)

Artificial intelligence (AI)

Advancedanalytics (AA)

Robotic process

automation(RPA)

Internet of things (IoT)

Distributed ledger

technology (DLT)

Create smart letter of credit as smart

contract on distributed ledger - auto notifications

Real time verification and reconciliation; workflow executed as per smart contract conditions;

replace payment and funds transfer with cryptocurrency

Text recognition from trade documents to minimize data entry

Reports enable enhanced operational

and strategic decisions

Efficient process and productivity monitoring, and predictive analytics to detect patterns

Ease of tracking goods and documents; dynamic pricing and financing triggered by

shipment events; automated payments release based on “smart contracts”

Bridge data flow and communication:Integrate data from different systems into single interface

Populate fields with text extracted from

documents (integrate OCR withtransaction process)

Intelligent and personalized

marketing: Offer new product sales or client promotions based on

insights on clients’ needs and behaviors

Intelligentproblem resolution: Track

individual error rates and flag users in need

of remediation

Contextual filtering: Identify suspicious or unusual activity and

block suspicious transactions based on predictive indicatorsEnhanced KYC (e.g.,

web scrape)

Check for completeness of

documents based on transaction/ product

type

Scrape documents for AML keyword hit

Validate/remed-iate data with cross-

references, machine learning

Replace documentation,

checks, data entry, validation, with single

digital record

Track document locations:Track goods (location, volume,

quality)

Reducing trade barriers through competitively, commercially and politically neutral interoperabilityinfrastructures that enable a “connect once to share with everyone” scenario and a reliable and efficient identity management system on a global level

Problems needing solutions• How to achieve an effectively digitize cross border interoperability on a global scale?

• How to achieve a global digital infrastructure that is competitively, commercially and politically neutral?

• How to establish global collaboration that realizes an infrastructure that supports the digitization of traders’ business networks?

Solutions and recommended activities• Realize a shared digital Global Trade Identity (GTID): Where businesses and governments can instantaneously validate the trustworthiness of any

legal entity, which they intend to engage with in a business interaction

• Drive realization of global interoperability across national trade single windows: In order to maximize the benefits from national trade single windows (TSW), the coverage should be extended to include the cross-border electronic data exchange of all information

• Investigate platform systems for global shipping

• Investigate blockchain’s potential as a technology that can offer a neutral global digital interoperability infrastructure

Contact [email protected]; [email protected]; [email protected]

Case 2: The global trade identity (GTID)

Digital global trade identity (GTID)Reducing waste through eliminating thousands of entries to be maintained in different systems and countries

Global trade single window (TSW) interoperability platform Leverage existing national TSWs by including cross-border electronic data exchange of all information at limited costPlatform system for global shippingA system that brings end-to-end supply chain visibility and helps to digitize and automate paperwork filings for imports/exports

Blockchain/Distributed Ledger TechnologyThe technology offers neutrality opportunities but its feasibility for global interoperability requires validation

1

2

4

3

Ecosystem platforms

Several components can drive digitization across the supply chain ecosystem following the concept of the GTID

Source: Trustworks

GTID requires global collaboration, based on principles designed for neutrality and inclusivityThe World Economic Forum GTID White Paper recommends a model that supports these principles. A neutral partner such as the Forum can ensure

A digital Global Trade Identity infrastructure where business and governments can manage their own identity without relying on a third party

A system that allows each party to present the verifiable identity credentials they prefer, while the receiving party can use its own internal business rules and regulations for validating the trustworthiness of the presented identity credentials

A GTID that supports businesses of any size to enable inclusive global trade

That no single entity controls important components of the GTID, protecting it from political influenceCountry investments are assumed to be very limitedGTID supports also countries with a low digitization level

21.Details on https://www.weforum.org/agenda/2019/06/trust-links-up-supply-chains-how-do-you-establish-it-in-the-digital-era/

Principles for an inclusive digital global trade identity (GTID)

Validate global trade identity

Build a simple proof of concept (PoC) solution for GTID –Using the model of the World Economic ForumValidate and demonstrate the G2G benefits with 3-5 countries. 6 months projectEngage the global trade community through World Economic Forum or similar institutionsResult: Validated technology and documented G2G benefits

Validate feasibility ofglobal interoperability among national trade single windows (TSW)Build a simple PoC TSW-interoperability – Can be built upon existing integration platforms as a service (iPaaS)Validate and demonstrate the G2G benefits by piloting 3-5 countries TSW on the infrastructure6 months projectResult: Validated technology and documented G2G interoperability benefits

Investigate global visibility solutions

Maersk Tradelens and similar solutions will enable shared global visibility.Result: understand the risks and opportunities involved

Investigate blockchain’s ability to deliver interoperability infrastructureSolution can be implemented on non-blockchain technologies, but blockchain offers some interesting neutrality opportunities, while adding governance complexityResult: Propose or discard blockchain as appropriate technology for global digital G2G interoperability

The technically feasible neutral reliable government to government (G2G) infrastructure with full visibility, trustworthy digital signatures and immediate sharing of permits, licenses and certificates requires a PoC

Potential project workstreams

23

Ambition: Bringing to market a platform system for global shipping connecting the entire supply chain ecosystem

Shipping information pipelineWill provide end-to-end supply chain visibility that enables all actors involved in a global shipping transaction to securely and seamlessly exchange shipment events in real time

Paperless trade Will digitize and automate paperwork filings for the import and export of goods by enabling end users to securely submit, stamp and approve documents across national and organizational boundaries

1

2 Logistic actors internal systems

Ports and Terminals

Customs Systems

Ocean Carriers

Inland Transportation

Shippers / Supply Chain Actors

Supply Chain Visibility Systems

Trade Associations

Supply Chain / Transportation Management Systems

Authorities

Port Community Systems; Terminal Operating Systems

???

Freight Forwarders

Case 3: Platform system for global shipping

The Belt and Road Initiative (BRI)

Belt and Road Initiative (BRI)

The Belt and Road Initiative aims to promote the connectivity of Asian, European and African continents and their adjacent seas, establish and strengthen partnerships among the countries along the Belt and Road, set up all-dimensional, multi-tiered and composite connectivity networks, and realize diversified, independent, balanced and sustainable development in these countries.

Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road

2015/03/28

BRI in geographic coverage

Silk Road Economic Belt

Maritime Silk Road Nairobi

Athens

Venice

RotterdamDuisburg

Istanbul

Gwadar PortKolkata

BeihaiHaikou

Guangzhou Quanzhou

Xi’anLanzhou

UrumqiKhorgos

Alma-AtaBishkek

SamarkandBeijing

Kuala Lumpur

China

SE Asia

South Asia

Central AsiaWest

Asia

Europe

Source: Bain & Company)

BRI in numbers

Trade

24% of global

ExportsEconomy

55% of global GDP

Countries

60+

People

70% of global

Population

Source: Bain & Company)

2000+ China-Europe Cargo Train departured from 16 cities in China

15 new airports built

28 existing airport expanded

40+ infrastructure projects in progress including power station, oil and gas transportation, telecommunication services

Note: Latest data as of Sep. 2016Source: Lit research

Status of progress

Technology can eliminate pain points along the value chain to improve logistics performance

Paperless

Mirrored

Integrated

Intelligent

Costs incurred by

manual labour; lack

of data

Human error/fraud

and safety risk;labour costs,

delays

Lack of visibility; costs and error due

to re-processing

Limited leverage of advanced

technologiesEliminatingpain points

Pain points

Prerequisite 4.0 5.0

BRI pain points

• Speed: Even though advances have improved the time it takes to move goods between multiple points in China and Europe, there are still major drawbacks

• Inconsistency: Inefficient customs clearance procedures cause irregular and slow service

• Cost: Government subsidies have reduced railway costs by 10%-20%, but this is not sustainable

• Visibility: no real-time tracking information- Information scattered and unstructured- Information not transmitted along with the cargo

Source: Bain & Company)

Speed• Installing state-of-the-art handling technology and supply

chain management systems

1

Consistency• Standardize customs clearance processes through

robotics process automation

2

Cost• Automating loading and unloading and reducing manual

labour

3

Visibility• Enable real-time tracking through distributed ledger

technology

4

How digitization can help

Source: Bain & Company)

New market opportunity Sharing economy FDI opportunitiesTalent demand

in digitization

• Digitization helps SMEs to access new markets and expect to boost GDP in BRI region by ~4%-7%

• SMEs will use real-time market data to create market intelligence

• Blockchain (DLT) has the potential to reduce counterparty risk and minimize fraud

• Digitization brings more sharing economy opportunities in knowledge and assets

• Blockchain (DLT) will provide improved visibilityinto assets /liabilities and reduce information asymmetry

• Up to ~0.5 Mn new employment opportunities will be created along BRI routes due to digital skills demand

• New career paths for young people will emerge especially for countries that suffer with high unemployment

• Information/IT services is the fastest growing segment in China’s outward FDI flow in 2010-15

• Increased FDI will promote greater financial transparency and economic stability

2 31 4

Positive economic effects

Source: Bain & Company)

Blockchain in megaprojects

Where success depends on mobilizing resources across enterprise boundaries and the ecosystem; where identities, contracts, and payments must be audited and protected; where the provenance and ownership of assets must be tracked. Some ideas for this are:

• A reputation ledger that tracks subcontractors’ deliverables can help to identify reliable subcontractors for a project - storing a recognised single version of the truth, subject of course to the limitations imposed by data privacy

• Blockchain-enabled applications that aggregate data into a shared project management dashboard to better manage the workflow in fragmented construction supply chains

• Smart contracts that identify accountabilities and trigger milestone-based payments to automate agreements and transactional processes

• A distributed ledger that keeps an end-to-end chronicle of the construction process to record all building inputs and assets, including warranties and maintenance checkpoints

• Blockchain-enabled apps that track materials, testing, and results against building codes and standards to streamline inspections

Areas for blockchain adoption in construction

Source: Construction: A Blockchain Use Case https://theblockchainland.com/2019/08/14/construction-blockchain-use-case/

• A business ecosystem typically consists of companies with separate ownership allowing them to offer products or services that they would otherwise not have the technological expertise to deliver nor the end-customer understanding to imagine

• Managers need to think beyond company boundaries about ecosystem achievability when considering which value levers to pursue and consequently which stakeholders to involve

• Blockchain allows to building a shared platform

• Ecosystems can derive value from blockchain in 3 categories with multiple underpinning levers; cost efficiency, product sustaining innovation and market creation

The rise of the ecosystem

Source: World Economic Forum Blockchain Toolkit (not yet launched)

• Digital business will be having a profound impact on shifting the focus to business ecosystems • The next wave of innovation will come from turning attention outward

into the business ecosystem• A business ecosystem enables various parties to expose their

capabilities and leverage the capabilities of others, driving higher levels of business value

• Optimizing the business ecosystem is the central philosophy behind digitization• Giving everyone in the ecosystem access to

the information needed to make the right decisions to the benefit of the complete ecosystem

• Allow any business ecosystem globally to be adjusted fluidly and dynamically without compromising the quality and timeliness of information received.

• Mitigate the increased complexity the business ecosystem will face as number of interconnections increase dramatically.

Optimizing the ecosystem

Source: Trustworks

• Creating a recognised single version of the truth, subject of privacy laws

• DLT ensures that the project data can be trusted, e.g. how much time is spent on tasks, to capture benefits

• Although the same can be achieved with a centralized cloud-based project management suite, there is a risk of losing some of that data due to downtime from the cloud host or tampering

• Blockchain creates data redundancy thanks to the availability of multiple nodes — in case your node is temporarily down as a result of transitioning your software and data

Decentralized project management

Source: https://www.ibm.com/blogs/blockchain/2019/06/using-blockchain-as-a-project-management-device/

• A smart contract is a code that runs atop of a blockchain. It contains specific condition parties agreed. Once those conditions are met, the smart contract will automatically execute or implement itself

• The project owner could set smart contracts that will only notify the construction crew to come on the scheduled date after the concrete is delivered to the site. Of course payments are executed as well

• If the concrete is not delivered, then the crew subcontractor would not need to commit to that scheduled date. This reduces idle labor and, in turn, help control the budget of the project. Likewise, the subcontractor can deploy resources elsewhere

Automation through smart contracts

Source: https://www.ibm.com/blogs/blockchain/2019/06/using-blockchain-as-a-project-management-device/

• Based on a report by McKinsey & Co large capital projects typically cost 80% more than budgeted and run 20 months late. Little is know about whether they hit the other (policy) objectives. Applying blockchain to a large-scale commercial real-estate development project in the Amsterdam’s harbour

• Blockchain-enabled project management system to make the building development life cycle more efficient- focussing on registering transactions at legally binding moments, where accuracy and an audit trail are essential

• This includes timely information, unambiguous communication, and fewer mistakes

• Discipline is ensured through evenly distributed incentive to register facts on-chain: Either you won’t get what you ordered, or you won’t get paid

• Stakeholders have more time to spend on discussing creative design and building method options

Case 1: HerenBouw harbour real estate project

Source: HBR, How Blockchain Will Change Construction https://hbr.org/2019/07/how-blockchain-will-change-construction

• Capture and secure a construction project’s documentation in a blockchain ledger that parties can navigate and hand over to the owner as a deliverable

• “Digital twin” of a new office construction, with a room-by-room inventory of every asset so that each product or specification can be found in a building

• This includes paint colours, ceiling fixtures, LED bulbs, door hardware — plus manuals, warranties, and service life in a countdown clock that building owners can monitor

• 95% of building construction data gets lost on handover to the first owner.• Any improvements and refurbishments to the building can be documented

building owners get a living ledger of everything that has happened with the building – from a construction standpoint

Case 2: Briq secure construction documentation

Source: HBR, How Blockchain Will Change Construction https://hbr.org/2019/07/how-blockchain-will-change-construction

Repeated analyses have highlighted the slow take-up of technology solutions by businesses in construction and the built environment. The reason include:

• Low capitalisation and low profitability of the industry. Less than 1% of revenues is invested in up-front contracting and technology infrastructure for managing complex construction projects. Compared to 3.5%–4.5% in aerospace and automotive

• The blockchain ledger relies on its nodes, but if the nodes are inundated with too much data, they may become slow. In projects with significant metadata, such as construction, scaling could therefore be a challenge

• The volume of transactions that take place on a construction project will place a huge burden on a DLT unless some hybrid combination of blockchain and database is adopted

• Until the costs of blockchain transactions fall, there will be little opportunity for the technology to add value

The uptake might be slow

Industry 4.0 policies, strategies initiatives

Logistics Strategies

Common standards

Broadband Plan

E-commerceStrategy

Digital AgendaFinancial

regulation

Inboundlogis,cs Manufacturing

Outboundlogis,cs

Logis,csServiceProviders

MANUFACTURER

GatewayOperators/Infrastructure

Tier1suppliers

Tier2suppliers

Retailers

Wholesalers

SUPPLIERS

eCommerceplaKorms

DISTRIBUTIONCHANNELS

SUPPLYCHAINENABLERS

CUSTO

MERS

CustomsAgencies

Carriers

FinancialServices

Technologyproviders

Source: IDB World Economic Forum, Supply Chain 4.0 - Global Practices and Lessons Learned for Latin America and the Caribbean

Best Practices Lessons Learned• Integrated 4.0 strategy: industry,

logistics, infrastructure and economic agenda

• Development of supply chain standards

• Promotion of technologicial innovation in the traditional industries

• Programs for small and medium-sized enterprises (SME)

• Prepare integrated 4.0 strategy• Initiate strandardization projects• Launch digitization programs for

traditional industries• Develop innovation programs and

consider subsidies for SME• Establish technology centers to

support SME in their efforts to participate in the 4.0 strategy implementation

• Ensure communication and alignment across ministries in the 4.0 strategy development and implementation phase

• Include private sector in the 4.0 strategy development

• Eliminate choke points in the logistics industry, such as infrastructure and talent

Source: IDB World Economic Forum, Supply Chain 4.0 - Global Practices and Lessons Learned for Latin America and the Caribbean

Generally

• Blockchain is a nascent technology• The technology enables a new form of decentralization and

collaboration• Blockchain allows to leverage and optimize the ecosystem• There is a need for a holistic policy framework 4.0

For megaprojects

• Project management can benefit from blockchain but scaling may be a challenge

• Digital repository of improvements and refurbishments etc.• Smart contracts can support automation

Takeaways on blockchain for construction

Thank you