Does IBM and Maersk Block Chain Joint Venture Make Sense?

The Announcement:

IBM and Maersk announced a joint venture applying Blockchain to improve global trade and digitize supply chains. This comes at a time when companies and vendors are trying to legitimize the use cases for the promising capabilities of Blockchain.

 

Maersk, a global leader in container logistics, recently reported that nearly 80% of its operating revenues were generated by its transport and logistics division (Note: In 2016, 57% of Maersk's $36.4 billion in operating revenue was generated by Maersk Line).

 

IBM and Maersk’s technology is built on Hyperledger Fabric 1.0, a blockchain first developed by IBM that is now maintained by the Linux Foundation’s Hyperledger group. However, IBM and Maersk began a collaboration in June 2016 to build new blockchain- and cloud-based technologies. Since then, multiple parties have piloted the platform including DuPont, Dow Chemical, Tetra Pak, Port Houston, Rotterdam Port Community System Portbase, the Customs Administration of the Netherlands, U.S. Customs and Border Protection.

 

The joint venture will now enable IBM and Maersk to commercialize and scale their solutions to a broader group of global corporations, many of whom have already expressed interest in the capabilities and are exploring ways to use the new platform, including: General Motors and Procter and Gamble to streamline the complex supply chains they operate; and freight forwarder and logistic company, Agility Logistics, to provide improved customer services including customs clearance brokerage.

 

Our Opinion:

Blockchain has been on a marketing rampage for some time now, and finding justifiable use cases has not been easy. Here are some reasons:

Deploying Blockchain into commercial environments will require IT departments to consider how to truly support a compute intensive distributed application linked back to critical business systems. Creating a high volume transaction based system outside the confines and security of the enterprise is not easy. To that point Blockchain isn’t suited to all commercial applications that vendors and customers would hope for.

 

Many people have tried to link together  IoT and Blockchain as a solution to IoT’s security challenges. IoT sensors attached to assets create the data that could feed a Blockchain application. While this sounds good in theory, it is an incredibly difficult real time infrastructure challenge. The distributed ledger framework that Blockchain is built upon is very compute intensive, while the IoT ‘edge’ computing capabilities are still in an embryonic stage. With this situation, Blockchain solutions will probably have to be integrated into a cloud/network solution to present the data to enterprise-grade platforms.

 

With this as a backdrop, assets such as ships and containers are good use cases for using Blockchain. Firstly, the assets are typically slow moving, easy to locate, easy to record their information, and don’t necessarily need high speed, real time financial trading desk infrastructure attributes. This would enable a centrally managed, but a disturbed Blockchain environment to be built. This could deliver some of the key business functions in international supply chain management where Maersk’s core business plays such an important part  (e.g. according to a 2013 study by the World Economic Forum, reducing the friction around information-sharing and border administration when it comes to international trade “could increase GDP by nearly 5% and trade by 15%”—a boost that amounts to trillions of dollars).

 

Our conclusion is that IBM and Maersk have a solid Blockchain use case that has the potential to create significant economic improvements, while not overstretching the capabilities of a Blockchain technology eco-system to the point of making it vulnerable or non-supportive in a scalable production environment.