INSIGHT: Blockchain Can Ease Costs From New Maritime Fuel Regulations

The International Maritime Organization enacted new regulations in January that will require seagoing shippers to use a higher-grade fuel with lower sulfur emissions.

This common sense, but rarely covered, change will not simply mean filling container ships with a new fuel; it will require actors at every step of the global supply chain to take a fundamental look at how they do business.

The goal of this new regulation is simple: increase sustainability and improve environmental conditions along the global shipping routes. Currently, ships contribute approximately 3% of the global pollution, and this regulation, which is projected to lower sulfur emissions by over 80%, will surely reduce that amount.

New maritime fuel standards will be disruptive to the global economy—in 2020 and beyond. But technology generally, and blockchain specifically, can calm the waves of this disruption and help shippers go full steam ahead.

$50 Billion in New Fuel Costs

But switching to lower-sulfur fuel options also means using a more expensive fuel. In fact, the regulation will require the maritime industry, which uses upwards of five million barrels of fuel a day, now will experience a similar supply and price crunch that American truckers faced when Ultra Low Sulfur Diesel regulations first came into force just over a decade ago. Shippers could pay approximately $20 more per barrel under the new regulations, depending on the specific fuel used.

Of course, higher fuel costs mean higher overall shipping costs. The Wall Street Journal estimates that this regulation will add upwards of $50 billion in new fuel costs over the next three-to-four years. That estimate does not include enforcement challenges, market inefficiencies due to jurisdictional discrepancies, and even limited refining capacities that will ultimately create a bottleneck.

All of this could lead to higher prices on businesses and consumers. Logistics companies, therefore, face a choice: either eat these higher costs and see their bottom lines shrink or pass them onto consumers in the form of higher prices. Neither is enviable.

Blockchain Can Cut Costs

But there’s a third option. Businesses can modernize and streamline their supply chains. New technology, such as blockchain, while not a cure-all, can remove many of the expensive friction points—and thereby much of the cost—required in both enforcement and certification.

In any supply chain, the number of human touch-points before a shipment arrives at its final destination is staggering. Take a simple piece of fruit grown in South America and shipped to Europe. The fruit must be picked and loaded into trucks, weighed at warehouses and stacked in shipping containers - and all before it finally reaches its port of destination and is inspected, carted, trucked, and stacked for consumers.

Every point of contact carries the risk of something going awry—and a cost.

But blockchain and modern tracking technology can reduce and even eliminate these transportation costs and delays. Blockchain’s decentralized digital ledger inherently creates a system whereby all transactions are recorded and time-stamped in an immutable environment. Nothing on the blockchain can be changed retroactively, so anything that you see is verified to be true. This increases accountability, which, in turn, lessens the instances of fraud and theft. Additionally, a more efficient supply chain is a more profitable one, as fewer resources are tied up in figuring out where and when things went wrong.

Blockchain’s Impacts on Shipping

Here are a few immediate impacts that integrating blockchain technology could have on the shipping world.

1. Create an accountable list of goods. Believe it or not, many of today’s shippers are still using pen and paper to track when goods are placed on ships or arrive in ports. This system is incredibly inefficient and not transferable or accountable. What’s worse, the lack of accountability leads to widespread theft, graft, and loss. The National Cargo Security Council estimates that loss and theft cost the shipping industry more than $50 billion annually. But with blockchain, instead of depending on unreliable written documents that can be lost or altered, companies along the supply chain can verify when goods arrive or are shipped out.
2. Reduce container detention times and costs. Ask any shipper or receiver if they know exactly where their container load of inventory is sitting at all times, and most will respond with a resounding “no.” Shipments often sit at or near ports or in warehouses much longer than necessary. To add insult to injury, many of these shipments accrue detention fees for staying too long at a warehouse - a hefty bill for goods just sitting idle. Blockchain, with its immutable digital ledger, adds crucial visibility to provide shippers information about where shipments are. While basic, it’s a crucial step in increasing efficiency and reducing detention costs.
3. Fewer empty shipments. Empty shipments are much more common than you might think. Typically done to reposition an asset, like getting a truck or container in the right place for another shipment, or simply due to a lack of a shipment in the other direction, moving empty containers around the globe is both costly and environmentally unfriendly. Using blockchain for smarter asset management and pooling, better asset visibility, and smarter backhaul management, can kill two birds with one stone.

To be clear, new technology and the blockchain isn’t going to cure all of the shipping world’s ills. And many container ship companies will simply pass these new costs onto consumers and move on with their businesses.

But the future is won by companies who identify and take advantage of opportunities to modernize. Case in point: wood sailboats, steered by humans, no longer deliver cargo. Today, mega-container ships use global GPS tracking technology to steer precise, fuel-efficient routes that, in many cases, avoid storms en route and arrive at the port as quickly as possible.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

John Monarchis CEO and co-founder of ShipChain, a logistics platform utilizing blockchain to provide increased visibility, traceability, and efficiency. His previous experience in logisitics has helped numerous startups and e-commerce businesses grow effectively, manage their supply chain, and cut costs.