A few weeks ago, I bought a shirt from a popular e-commerce platform which just so happens to share its name with a river in South America. When the package arrived, I discovered dark smudges on the fabric. No big deal. A few clicks later, my order was refunded and I received a message saying that I didn’t even have to return the shirt. Someone goofed, but thanks to smart customer service, I got my refund and a free rag to boot. That should have been the end of the story, but since I’m a supply chain nerd, I wanted to know who was eating the cost of that shirt. Was it the retailer, the e-commerce platform, or the shipping company that in all likelihood was responsible for this particular mishap?

Spoiler alert – it was the retailer – and while it’s easy to write off the cost of one singular shirt, what happens when it’s thousands of shirts? Especially considering that the retailer wasn’t even responsible for the mishap. Plus, what happens when it’s an entire shipment that could be worth millions of dollars? And what happens if it's not shirts, but something more valuable and perishable, like pharmaceuticals?

This problem has confounded the shipping industry ever since the internal combustion engine made it possible to load thousands of pounds into the beds of trucks and move them hundreds of miles per day. That’s because by the time that shirt arrives on your front porch – or those pallets of shirts arrive at your warehouse – dozens of different actors have handled the shipment. For the owners of that shipment, there isn’t any way to establish who was in control at any given point and time, and when the damage occurred. That means that the proper party can’t be held responsible, and so it falls on them.

They just ate the cost.

Over the years, those small one-off costs have added up to billions of dollars. What makes this dilemma even more frustrating is the fact that those costs were often passed on to parties that weren’t responsible – the owners.

That’s not how it works in other parts of the economy. When I find an unordered item on my bill at a restaurant, I do what most of us would do. I call the waiter over and explain that I don’t want to pay for something I didn’t order. Sounds logical right? But depending on the arrangement, for shippers and carriers, not paying for those additional costs is often not an option.

When it comes to logistics - you’re paying for that chocolate cake whether you ordered it or not.

Anyone that’s worked in logistics would agree that “shit happens.” It’s the nature of the business. The problem is when something happens with a shipment, it's often not the fault of the person who discovers it, yet it is a potential insurance liability, and the occurrence alone can damage their reputation. That’s all changing now. Finally, there is a way to verify who is liable, what actually happened, and when and where it all took place. It’s called blockchain.

Blockchain saves the day by showing and verifying where, when and how the damage actually happened so operators can reduce the claims that are made. Moreover, all of this transit-related data is available to privileged parties, and they are able to use it and analyze it to prevent the same damage from occurring in the future.

Here's how it works.

Blockchain tracking allows supply chain companies to aggregate and view information such as price, date, location, quality, certification, and other relevant details to manage shipments moving through the supply chain. The availability of this data on a blockchain-based shipping platform increases traceability throughout the supply chain because it’s all stored in one place, which makes it easy to query.

This has immediate implications when it comes to trucking. Drivers are often blamed for things they didn't do. But with blockchain tracking, privileged parties have access to a record of all events such as a door sensor being triggered, a temperature alarm going off, and waypoint tracking, all of which could exonerate the driver.

Perhaps the reefer unit malfunctioned or thieves broke into the truck when the driver was sleeping. It’s entirely possible that the damage happened at the warehouse, and the shipment wasn’t even in the carrier’s hands at the time the incident occurred. But how do we know for sure? Once shipments are consistently tracked by a blockchain based platform, these sorts of unfortunate incidents will be resolved because managers will have access to data that will outline patterns and problem areas that need addressing.

So how exactly does blockchain mitigate losses and pinpoint where the losses occur?

It comes down to the number of sensors on board. You can easily and reliably validate what the sensors are recording and have that information posted to where the receiver and the shipper can both see. For example, if a delivery experiences a temperature excursion, the carrier can check the blockchain record to ensure that nothing out of the ordinary happened in transit. Once that’s established, the owner of the shipment can look further upstream to pinpoint the incident. The driver is cleared of wrongdoing, and since these mistakes are usually not intentional, the offender has a chance to improve his or her protocols to avoid future damage.

This is great news for drivers because, in addition to temperature and security readings, blockchain platforms can also log driving quality. That means truckers can prove that there was no hard braking. When that damaged pallet arrives at the warehouse, privileged parties can check the record to verify that the damage must have occurred prior to the driver taking ownership of the shipment. Perhaps there was an incident during the loading process. Either way, blockchain will provide visibility so that the appropriate party can be held responsible.

It’s clear that we’ve got a problem in shipping right now. There’s too much opacity. And when you factor in how easy it is to damage a shipment, it’s a recipe for an expensive disaster that no one wants to pick up the tab for. Let’s embrace the solution at hand.

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John Monarch

John Monarch is the CEO and co-founder of ShipChain the blockchain startup focused on the freight and logistics industry. He is a serial entrepreneur with multiple previous ventures, with a background in physics and computer science.

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