Blockchain in Air Freight: Ready for take-off!
As part of our CEMS program at Ivey Business School, we engaged in a challenging consulting project for R3. The team was eager to work on such an innovative topic as blockchain, and we soon realized that the business applications of this technology are rapidly gaining traction across multiple industries. Specifically, we found the aviation sector an exciting adopter.
We also found that along with aviation, many ecosystems need facilitators to engage in proper blockchain exploration and consequent adoption. The high potential for cross-industry blockchain platforms such as Corda relies on their ability to facilitate discussions for stakeholders that still lack a proactive attitude towards the technology. Today, we’ll share our aviation industry results and convince you to (further) explore blockchain applications in your industry.
By: Gonzalo Romero, Leila Osipova, Ivo Rosero Lalama, Nora Naffa, Tiago de Oliveira & Victor Mortreu
So many opportunities: where to start?
A key objective of our project was the identification and validation of business cases in an industry of choice. We began with a cross-industry examination, which led us to the aviation sector. Multiple problems within the industry could potentially benefit from blockchain. However, we determined that narrower and more focused research around specific cases had to be done to identify the singular satisfactory beachheads to get businesses on board.
We started a macro analysis by identifying the overall economic, legal and technological trends within the aviation industry. Aviation constitutes of many diverse stakeholders that operate complex processes, which are optimized in each individual chain but not as a whole, mainly due to siloed databases.
The next step involved a microanalysis on the different sub-industries that were suitable to kick-off a blockchain platform. Multiple use-cases are gaining popularity and being tested worldwide. Amongst the most promising were loyalty programs, which would benefit from disintermediation, real-time transaction updates and data gathering, and MRO, which has considerable trust and visibility issues with certification of airplane parts in the after-sales market.
Identifying a use case: air cargo
We found considerable opportunities in the fragmented air cargo business. It is a fast-growing sector that lags in technological adoption, and which could act as a strategic sub-industry by being connected to multiple stakeholders that operate in other sub-industries.
The market-to-market model, where different specialized companies are sequentially responsible for freight movement, stands out as an exciting opportunity for blockchain adoption. On a local and global scale, such model currently works with fragmented supply chains that could benefit from blockchain applications in a number of areas.
We identified a high-value case in the import/arrival process of International Freight. It is a perfect beachhead to develop the platform, as all stakeholders would benefit from a single source of truth that would allow them to operate in parallel and verify ownership through pick-up right issuance.
Eventually, the platform could be used as a springboard to develop other applications for the ecosystem. In the long run, we believe Air Cargo will enable the developer to descend into other sub-industries and its international aspect might be exploited to bring in other geographies and sectors.
Developing the beachhead: team-work is key
Why should companies, who are often competitors, collaborate on the Corda platform?
The most important factor for any blockchain-based transaction system to work is trust. Developing through an ad-hoc approach allows for flexible adaptation to the needs of everyone sitting at the table. It falls in reason to understand why firms might not want to transact in a blockchain ecosystem developed and ran entirely by their competitor. Many blockchain initiatives (e.g. TradeLens by IBM and Maersk) have faced scaling issues due to this lack of trust.
Such difficulties might also be prevented with an open source model, which allows users to confirm the veracity of what a system is said to offer. To further enhance trust, blockchain platforms may offer decentralized governance mechanisms, and the ecosystem will grow faster with no one party being in control. For example, consortiums provide lower risk opportunities to experiment before investing heavily in money or effort. Given the recency of blockchain, reducing such frictions for researching and testing is key to attract early developers.
Blockchain is a team sport and requires collaboration and coordination of parties all across the value chain. Engaging new and multiple stakeholders in a parallel manner is an effective way to guarantee such collaboration.
We encountered that for platform providers, it is key to demonstrate legacy, market confidence, and interoperability as part of their partner engaging strategy. Corda open source and Corda Enterprise fit all such characteristics. The ability to offer long-term collaboration contracts, secure funds for operation beyond membership fees, and the ability to exchange and use information from other platforms are attributes that speak well of R3’s ecosystem.
Concluding points: Why blockchain, and how?
Finding and validating cases for blockchain adoption is a stimulating challenge, and one would be surprised by the traction this technology is gaining. Through our project, we noticed a growing interest from all corners; academia, industry adopters, technology experts, and regulators. Blockchain technology may have been placed for the second year in a row as about to enter the Trough of Disillusionment (Gartner, 2018), but we have strong reasons to believe it will leapfrog to the next stages.
To become part of this rising trend, our main suggestion is to collaborate, collaborate, and collaborate! Blockchain platforms have a tremendous potential to solve business challenges in many different industries and real value will be obtained if cross-industry applicability is achieved in the long run. Aligning minimum viable ecosystem partners is vital for building a use case that has broad impact across your industry.
We found that a top-down research approach is an excellent way to gain a holistic picture before diving into the specific use case of your choosing. Whitepapers, conferences, and expert-conversations are resources to pursue and that might inspire your next step. From our enriching experience, we can conclude the similar cross-industry exploration can be made by anyone interested in the sector and provide a win-win for both businesses and academics.
We call to action to explore and do more research in blockchain and consider engaging in conversations with R3 is definitely a good first step.