Last week, I spoke with ShipChain CEO John Monarch. Before the interview, I was really wondering what the company was doing. I usually got my packages without an issue and wasn’t really sure what exactly shoving blockchain into the process would do to improve my experience. It turns out behind every delivery there are price increases, bad handoffs, an insane amount of administrative overhead.
If you want to take a listen to the original interview, check out episode 1 of The Bitcoin Podcast by CCN. The interview starts at 5:31 and continues for the remainder of the episode.
I began the interview by asking what problem it was that ShipChain was trying to solve. After all, tons of packages are delivered every day with no issues. It turns out that there are a few issues within the logistics industry that cost consumers tons of money but are hidden from them that ShipChain solves for. All parties involved have deeply misaligned incentives resulting in poor data handling, endless diversion of blame, and gratuitous markups every step of the way.
The Use Case
Perhaps the best way to demonstrate these issues is to use an example of someone ordering an item off the internet. When the order is placed it’ll notify the “shipper”, that is the business selling the product that they have an order to deliver. This will normally happen through a software platform such as ShipStation or ShipWorks. The order is then prepared and sent out through a 3PL (3rd party logistics operator), also called the broker. Brokers will utilize their relationships in exchange for a high markup (the ShipChain whitepaper estimates 30%) to coordinate movements of packages.
This will often involve using multiple carriers that move the package via trains, cargo ships, and planes. The broker also acts as an insurer of goods and will provide some rudimentary tracking services. These brokers are the beginning of the misaligned incentives that exist throughout the logistics process. These companies must safeguard their relationships with downstream carriers and drivers to prevent customers from working with carriers directly. This often leads to a lack of communication between customers and those handling their packages. This lack of communication is what necessitates the need for insurance in the first place.
After brokers decide on which carriers they’ll be using to transport the freight and take their 30% markup, they set up a pickup with the first carrier of their multi-carrier trip. Heres where the issue gets even worse. Freight that is damaged or stolen needs to be paid for by someone. Across the entire logistics market, over $30 billion is lost every year due to cargo theft resulting in a 20% increase in the prices charged by a logistics company. In order to minimize their chances of getting blamed many carriers purposely keep poor records. This way if a handoff goes bad, or one of their employee’s damages, loses or steals freight the blame is ambiguous and cannot be placed on them. This misalignment of incentives: toward the avoidance of blame rather than the fulfillment of the order results in some of the many headaches which help keep the brokers in business (even though the brokers themselves cause these issues) is one of the core problems ShipChain aims to solve.
ShipChain aims to solve these issues by creating a single “source-of-truth” for where shipments are, whose handling them, and holding payments in escrow until the job is done. This solves several issues. First of all, carriers cannot fail to keep, or blatantly forge records on where shipments are in the supply chain. Because everything is done on an immutable ledger, customers, shippers, carriers, and brokers can tell who has a package at any given time. Once the handoff has been completed, blame for damaged or stolen packages lies solely with the last carrier with the package. Furthermore, this requires every carrier to keep accurate records for the handoff to occur. This single source-of-truth is kept on a side-chain and verified with the main Ethereum blockchain and payments in escrow are distributed upon delivery.
Perhaps the most intriguing part of ShipChain is its potential to completely eliminate brokers. By allowing carriers to find shipments and routing them automatically based on a variety of factors. The potential cost savings for shippers is huge and would likely lead to increased compensation for carriers. ShipChain will also sell a white label version of its software to brokers who wish to stay in the game.
Overall, the platform is promising. After wrapping my head around the concept we discussed the team ShipChain had been able to assemble. The CEO, John Monarch is the CEO of “one of the fastest growing #PL companies in the country”. The rest of the companies C-suite is littered with founders who also have experience at the enterprise level.
More impressive than the C-suite is the companies advisor list. The list includes Chris Perdue, a family owner of Perdue Farms. Perdue does over $6 billion in revenue a year and has a vastly complex supply chain. The list also includes Kevin Harrington a former Shark Tank “shark”, the founder of Entrepreneurs Organization, and the massively successful “As Seen On TV” brand.
Nonetheless, the company is not without problems. Earlier this year, we reported on South Carolina’s Office of the Attorney General issuing an order for ShipChain to cease operations in the state. While certainly a bump in the road, the order has not proved fatal.
Featured image from Shutterstock.
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