Circulair chains, powered by blockchain

Saving the world with sustainable transport is like saving the Apollo 13. How do we make a square to fit the circle? With the Paris agreement on climate change and the UN Global Sustainable Transport Conference (26–27 November 2016) fresh in our minds, sustainable transport is perceived as a key enabler for inclusive economic and social growth.

The reality on the ground is quite the contrary. Ports like Rotterdam and Amsterdam do not aim to be the biggest port, they’re aiming to be the smartest. Their quest to tackle the painstaking issues surrounding them has led them into unknown territories, the internet of things, blockchain and the circular economy. These words are buzzing nowadays, but are far from integrated solutions.

How can we close supply chains full circle?

In order to address these questions, let’s first understand what is driving ports to become circular? Ports are – more often than not – associated with the old economy: a place known by the public where multinationals cluster together and pollute and waste the environment with toxic gases and greenhouse gases, where megastructures determine the skyline and trucks dominate the roads. Last year’s Climate Change agreement in Paris can now be seen as the tipping point we all needed. There are already initiatives (a.o. ecoports, world port climate initiative) to become a more sustainable port, but these only make incremental changes. What ports need is a transition to what is called in Rotterdam the ‘Next Economy’. The ambition is clear: an inclusive society with an economy based on zero marginal costs, zero CO2 emissions, zero waste, using entrepreneurship to explore new ways to enhance productivity.

Whereas in most strategies the pathway is clear, this time the transition towards the Next Economy is not. Firstly, ports will have to redefine themselves. At present, ports are a necessary node in linear supply chains. In my previous article “the circular chain upside down (in Dutch)”, I explained why we will have to get rid of this definition and move towards circular chains wherein information and monetary flows are digitalised and where manufacturers, suppliers, retailers and traders will have to connect their enterprise resource planning systems to allow sharing of real-time information over the goods within the supply chain, irrespective of the phase of conversion in which they are in.

“Breakthrough the traditional accounting principles where firms write off assets to zero”

The other mental shift is to break through the accounting principles and make accounting circular as well. In the traditional accounting system, there is a counterproductive incentive for firms to write off assets to zero, whereas the goods remain to have value in itself. Economists often call these zero value goods externalities. Economist reasoning does not allow to take zero value goods into the equation, which leads companies to burn residue products into the air, scrap them to waste or pollute the environment, instead of reversing the value by bringing them into the eco(nomical) system again.

I admit that there was a lot of wishful thinking behind this line of thought of paradigm shifts. In second thought, I was not that far off. It only needs some paradoxical thinking, like rescuing the Apollo 13: how to make a square to fit the circle?

Blockchain to the rescue! Block chain is a revolutionary new way to make transactions transparent yet sharing digital tags that travel along with the goods in its journey from raw materials to finished product, without having to open up accounting systems.

In Australia, an entrepreneurial company called Provenance has put a business proposition in place that is based on full traceability of the custody trail, as an answer to give end consumers – and governments and NGOs on their behalf – complete information where products come from and who have been involved in the conversion process. Until recently, only retailers were able to give consumers this kind of information, but scandals in a.o. the textiles chain and dairy chain disclosed how weak and in transparent this system is.

Whereas blockchain was initially approached with a lot of scepticism, as its use was associated with internet currency bitcoin, nowadays it is perceived as the holy grail. Not in the least the financial institutions are spending huge amounts of money and blockchain is now jumping over to the physical world of supply chains, without having to have a trusted third party or supervisory body.

“Traceability of the custody trail from catch to can”

To illustrate the way the blockchain works in the supply chain from catch to can, the following fishing chain explains (source: Provenance):

• Registration of fisherman by NGO, using traditional pole and line as fish catching tool;
• Fish caught by fisherman, issued by fisherman via mobile;
• Fisherman transfers item to supplier;
• Supplier receives the item and checks item’s history into blockchain;
• A unique ID in the system takes the form of an address, a tag that can be retrieved from that address by any supply chain partner involved;
• Process contracts will be given to the item while it is converted from a whole fish into piece meals, thereby checked against the exact amounts of ingredients used in the transformation. The details of this calculation travel along during the conversion process from catch to can;
• Scanning labels at the end of the process are attached to the finished item trigger the transfer of that item to the next actor in the chain;
• At the end of the line, shopping people scan the smart sticker on the packaging which gives them the full trail back to the original fisherman, filling the gap that modern long distance supply chains have created.

Have we rescued the world now? Not quite, the above illustration is in its pilot stage. Just like in the early days of the internet, what is required is a set of global standards and protocols – like the TCP/IP that we still use today to identify servers – based on open source, open data. The biggest threat at this moment for blockchains to have inclusive value for all, is the drive by consortia to make their own blockchains to create a source of truth within business processes, industries or companies.

Secondly, by making supply chains transparent may make them more sustainable, but it doesn’t make them more circular. For circular chains, blockchain may need to evolve beyond attaching value only in the conversion process from catch to can. It has to go the reverse as well. If we follow the logic that products – at the end of its life cycle – still bears the identifier tag, it is still possible to link back the societal impact the product on its origin. Bringing the residuals of the product back to life would create a visualisation of a person’s footprint on the world. When giving this footprint a value, it would become an incentive to give it back to the eco(nomical) system. This in turn could even lead to reverse opportunities for enterpreneurs that reuse, recycle and reconfigure residual products into something new, again using blockchain technology, an incentive that does not exist today.

“Apollo 13, this is recovery over”

The question how to close the circle of today’s supply chains may lie in the use of blockchain. The role for ports is to set standard protocols that make this technology fit for thousands of supply chains that pass through, securing ways to have public rather than private block chains. Secondly, an entrepreneurial climate has to be fostered to not only make current supply chains more transparent. The real holy grail lies in forming closed loops, as this will become the new breeding ground for circular economy.

Lastly, it is the mindset. If we can fly to the moon and back, fix a spacecraft along the way with some tape and plastic, we can make the impossible possible.

About the author

Maurice Jansen works at at STC-Group at the Innovation, Research & Development department. He lectures at Netherlands Maritime University and is a visiting researcher at Erasmus University Rotterdam.