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Enhancing Supply Chains Using NFTs
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Enhancing Supply Chains Using NFTs

September 27, 2021

Let’s consider two seemingly incongruous concepts for just a moment. 

First, the transportation of goods across international waters. 

Container ships sail across the planet’s shipping lanes moving millions of tons of cargo every day. From cars to mineral ore, open trade routes keep the world supplied. And all this stuff requires manifests, paperwork, supervision, care, and of course a computerized infrastructure to register and track everything. No easy feat, considering the industry’s sheer scale, and the fragmentation of the international supply chain. Every country features different laws and regulations, which may hamper the movement of goods between territories. This fragmentation creates a lot of friction and inefficiencies.

And second, non-fungible tokens (NFTs), those chimeric digital artifacts that have made so many headlines over recent months.

These two concepts appear as dissimilar as night and day, as far away from each other as the points on a compass. But are they? Is there a confluence point where international supply chains and NFTs meet to create a ground zero of innovation? 

Let’s find out.

The crucial importance of the supply chain

Shipping logistics is a rather complex affair, often involving multiple agencies, organizations, and methods of transportation. The scope is huge. According to Statista, around 80 percent of all goods are transported by sea. In 2019, the shipping industry was valued at around $14tn. That is a lot of cheddar, and there’s a lot at stake. The world’s supply depends on an uninterrupted and reliable supply chain. And when the supply chain is disrupted, the world knows about it. On March 23, the Ever Given, one of the world’s largest container ships, became wedged sideways in the Suez Canal, completely blocking it to maritime traffic. By day 5, a queue of almost 400 ships had formed, holding up almost $10bn worth of goods. The Ever Given was finally dislodged on March 29, and the Suez Canal, one of the main arteries for international shipping, reopened to traffic. This six-day event caused significant disruption to supply in Europe, Asia, and the Middle East. This is just one recent example of how crucial it is to maintain the world’s shipping routes open all the time.

Another major problem affecting the global supply chain is trust (or lack of it, depending on one’s point of view.) This issue manifests itself in two ways: one, luxury goods being transported need to be certified as authentic. And two, perishable stuff requires assurance that the goods are still within their use-by date. Tampering with this could lead to serious health problems, for example. 

Luxury goods

The luxury merchandise market attracts a great deal of nefarious activity, for obvious reasons. There is a lot of demand for high-end watches, bags, shoes, etc., and international gangs know this. And they also know that, in most cases, the layman person cannot really tell whether a particular item is legitimate or counterfeit. The person just wants to have the item. 

According to the Global Brand Counterfeiting Report of 2018, the volume of international trade in counterfeit goods reached $1.2tn in 2017, and this cost was expected to rise to $1.82 trillion in 2020. The trend is only likely to continue. 

Perishable goods

When we go to the supermarket, we all want to see fresh produce. Fruits, poultry, beef, etc., the food we eat is key to our health. Freshness is, in fact, the deciding factor for most of us when deciding which foods to purchase 

The process to get that fresh produce from grower or producer to the shelf is long and complicated. Some goods might be sourced locally. Others, hundreds, even thousands of miles away. Think fish, for instance. It is of crucial importance for retailers and suppliers to know where fish (and any other perishable produce) comes from.

How NFTs can become an asset in the global supply chain

Counterfeiting does far more than just financial damage. It can cause a huge reputational problem for the firms involved. Tokenizing the supply chain would have the immediate effect of certifying the provenance and authenticity of a particular item. 

For example, a luxury handbag. The manufacturer tokenizes the item at origin and registers it onto the blockchain. Then, at every stage that the handbag goes through, the token is checked, all the way to the retailer. Because of blockchain’s inherent immutability, the data cannot be tampered with, so when a customer purchases the handbag, they know they’re acquiring a legitimate piece of merchandise. 

The same tokenization principle can be applied to other aspects of the supply chain. Aircraft parts, for example. These are critically important to ensure that an aircraft only includes certified parts. Car parts, too. Or indeed, any other vehicles or machinery that requires the assembly of multiple parts. By determining the provenance of these parts, we can ensure the safety of the ultimate product.

Perishable goods would follow a similar process. Following on with the fish example, the crew of the fishing boat could create a token for every crate. That token would be checked all the way to the fishmonger, or wherever the fish ends up, for everyone’s peace of mind.

Conclusion

The above use cases remain largely theoretical for now. While there are blockchain products (IBM Blockchain, for example) specifically targeting the supply chain industry, the infrastructure currently isn’t there to support end-to-end tokenization. But then again, NFTs are relatively new, as far as the application to fields outside of art and gaming at least, so we might see new and novel use cases for NFTs over the coming months and years, including, of course, the supply chain.


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