Proving the Business Case for the Internet of Things

China moves to embed Blockchain in logistics

William Payne
January 19, 2017

China's main logistics industry body has set up a group to promote the use of blockchain technologies in Chinese logistics and provide education about its benefits and applications. The China Federation of Logistics and Purchasing (CFLP) announced the establishment of a blockchain application sub-committee at the 2016 Fintech Global Summit held in December in Shenzhen. The committee will also establish standards and rules on blockchain for the China logistics and supply chain industry.

Among the committee members, Shenzhen based blockchain technology specialist Shenzhen Digital Singularity Ltd is credited with initiating the committee's establishment, and will provide technical advice to the group. Other members of the group include logistics companies and financial institutions.

Recent years have seen a growth in logistics supply-chains across China, with accelerating competition and supply chain company mergers.

The CFLP believes that the number of logistics companies in China with sound supply-chain management capabilities is rising, along with improving third-party supply-chain management capabilities.

However, the up-stream of the supply chain in China has many small and medium sized companies with low credit ratings and difficulties getting bank funding. This is affecting growth and development of up-stream supply chain services as these firms lack funding to develop and implement new services. Both the Chinese Government and the CFLP has demanded that banks address this need in their business lending. However, this has yet to translate into greater funding for small and medium sized companies in the logistics sector.

Shenzen Digital Security chief executive Liu Yang believes that blockchain technology can be the cure for this lack of funding and development on the part of smaller and middle sized companies within the Chinese supply chain sector. Yang argues that blockchain can serve to tag and anchor the credit rating of smaller supply chain companies with cooperation from upper and lower stream participants.

While at the moment, according to Yang, the focus is on traceability and efficiency, blockchain can also help with challenges over on-credit orders, which are a big concern for the industry. Up stream companies suffer from delays in payments, with one month for payments being common. With layered re-contracting, drivers often suffer. Chinese banks look for collateral in the shape of property or assets, such as factories and warehouses: as the business flow for up stream logistics companies is not transparent to them. With blockchain, Yang believes that the smaller companies can make their business operations transparent so that banks can comprehend their business status and operations, and not require asset based collateral.