Blockchain and Smart Contracts in the Logistic and Transportation Industry: The Demurrage Use Case.

Blockchain and Smart Contracts in the Logistic and Transportation Industry: The Demurrage Use Case.

Digital technologies have played a key role in the development of modern financial services (Collomb and Sok 2016). The rise of breakthrough technologies such as the blockchain promises even greater impact in the financial sector particularly in payment and cash recovery.  Blockchain has the power to disintermediate many work layers in traditional banking processes (Collomb and Sok 2016). It can also change the logistic process of the physical commodity delivery as we know it. Among the challenges of this process is the cash claim of demurrage which is the penalty for exceeding the laytime allowed for taking delivery of a shipment from the shipping or transporting company’s warehouse.

Blockchain is a decentralized and distributed digital ledger of transactions that is cryptographically enabled and tamper-proof. It is the underlying technology enabling cryptocurrencies such as Bitcoin (Fowler and Fytatzi 2016). Blockchain creates trust by enabling users and organizations to perform a transaction without having to go through a neutral central authority to ensure its integrity (Schwab 2016). Blockchain 2.0 Frameworks, such as Ethereum, add smart contracts on top of the distributed ledger (Bussmann 2017). A smart contract is a bundle of coded logic and procedures that self-execute when certain conditions are met (Gibson and Kirk 2016).

In this paper, we suggest that blockchain and smart contracts are well suited to automate the demurrage process in the logistic industry. The objective is to develop a promising use case of the demurrage process based on these technologies. Such automation is expected to improve reliability, auditability, and time of execution.

In the remainder of this paper, we provide a succinct overview of the blockchain and smart contract technologies. After that, we describe the demurrage process and we propose a promising use case for running the process on a smart contract. We conclude the paper by presenting the practical implications of the research.

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