Application of Blockchain and Smart Contracts in Red Sea Shipping
1. Introduction
1.1. Background
1.2. Objectives
1.3. Scope
2. Blockchain Technology
2.1. Definition and Features
2.2. Benefits and Limitations
2.3. Use Cases in Shipping Industry
3. Smart Contracts
3.1. Definition and Functionality
3.2. Advantages and Challenges
3.3. Application in Red Sea Shipping
4. Digitization of Documentation and Transparency
4.1. Current Challenges
4.2. Blockchain Solutions
4.3. Impacts and Potential Benefits
Application of Blockchain and Smart Contracts in Red Sea Shipping
1. Introduction
Currently, the majority of global shipping business processes are carried out manually and often rely on paper-based transactions since many different entities and actors are involved and digitalization of the shipping industry continues to be a big challenge. Furthermore, the cross-border nature of the shipping world, where different legislation and legal practices are the norm, makes things even more complicated. This creates a problem where all parties have to trust a single controlling body, such as a shipping line or a port. The consequences of this are a lack of transparency and even suspicion of possible fraud that has led to the idea of implementing a fully transparent and unforgeable digital ledger where all participating parties can inspect the chain of transactions. Blockchain is best known for being the underlying technology for digital currency, such as Bitcoin. However, blockchain has a wide range of applications and has the potential to improve the way that data and transactions are managed digitally. Smart contracts are small scripts that are executed when predefined terms or conditions are met, serving as an innovative way for digital agreements. They are executed in a decentralized fashion, eliminating the requirement for complex and expensive arbitration in case of disputes. Both technologies are currently under great focus within the maritime sector and have the potential to increase the level of transparency within the supply chain. This report will address the application of blockchain and smart contracts, focusing on the Red Sea shipping industry. The Red Sea has an essential geographical location connecting a number of different countries and hosts major trade routes, such as trade between Europe and East Asia. Additionally, the shipping industry has been growing in the region over the years, with more and more ships calling at ports in the Red Sea. However, it is found that the shipping industry in the Red Sea is still facing many challenges: delays in port calls, long waiting times to pass through the Suez Canal, and paper-based transactions are the norm. Such phenomena bring both financial loss for shipping companies and potential customer dissatisfaction. As a result, there is an increasing interest in employing digital solutions using the latest technologies in order to optimize shipping business in the region. This report will propose blockchain solutions for transparency and security in the digitalization of documentation and discuss how blockchain technology can optimize shipping processes and provide proof of its potential benefits when applied to Red Sea shipping.
1.1. Background
The emergence of information technology has fundamentally transformed the business operations of various industries. Whilst the shipping industry remains heavily reliant on traditional paperwork and communication methods, the potential of digitization is starting to become a reality. Blockchain technology, in particular, has been advocated as a solution to the current challenges of ensuring security, traceability, and immutability of transactions and data within the supply chain. In tandem, smart contracts are observed as another emerging technology which can offer automated and efficient solutions for complex, multiparty contracts, such as bill of lading. Meanwhile, the Red Sea shipping industry is of particular interest to technologists and industry experts due to the multi-country and multi-jurisdictional activities within the region. With the recent success of establishing a single customs and free trade agreement among the ports in the Red Sea, there is an opportunity to explore how blockchain and smart contracts can facilitate and accelerate the digital transformation of the shipping industry in the region. Specifically, Sudan and Saudi Arabia, two of the largest countries along the Red Sea, have committed to the digitalization of trade and shipping activities by integrating their port logistics and customs systems into the blockchain network. Moreover, the recently announced Jeddah Economic City, as a major hub for innovation in the region…
1.2. Objectives
The objectives of this research project are to understand the principles and mechanisms of blockchain technology, assess its potential uses and impacts in the shipping industry, analyze the concept and functionality of smart contracts, and explore the possibility of applying smart contracts into particular shipping practices and operations in the Red Sea. Secondly, it aims to investigate the current challenges and issues facing the shipping documentation and contractual processes and how to improve with the latest technology. Thirdly, the research explores not only the technology and system evolution but also the impact on maritime law and regulation in the Red Sea region. Last but not least, by critically analyzing the technological features and legal challenges of using blockchain and smart contracts in the shipping industry, this research provides some suggestions and solutions to the industry innovation in the Red Sea. This not only involves in improving the technology infrastructure of the shipping industry, but also may lead to legislative and regulatory changes to recognize and optimize the application of blockchain and smart contracts. The most significant impact of adopting blockchain technology in the shipping industry lies in the possibility of replacing traditional paper-based processes with digitalized and automated workflow. This facilitates unprecedented levels of information transparency and security, which in turn may lead to immense cost savings and substantial reduction in time and complexity of traditional processes. Also, the elimination of tremendous amount of paperwork will facilitate the customs procedures and provide a smoother and more efficient logistics operation for global trade in the Red Sea. On the other hand, the potential of smart contracts in the shipping business is to revolutionize and streamline the complex contractual processes. By incorporating codes and rules directly into the digital forms, the use of smart contracts will automatically execute and enforce the performance of the agreement, which greatly reduces the possibility of disputes and litigation. It is believed that smart contracts can make a difference in many different aspects of shipping practices, ranging from cargo handling to freight forwarding, and bring the whole industry into a new era of digitalized, automated and intelligent contractual approaches. Under this global trend of applying advanced technology in the business world, it is important and crucial for legal developments to keep paces with the demands for regulating and providing proper guidance to the applications of blockchain and smart contracts, particularly in the maritime field. This research is also significant for the Red Sea shipping community as it offers an intensive analysis and insights into the potential technological modernization of the current shipping practices and legal environment in the region. By identifying and evaluating the benefits of using blockchain and smart contracts and dealing with the legal challenges in advance, it provides a valuable reference and reference for technology developers, policy makers and industry professionals in planning and implementing future changes and projects in the Red Sea.
1.3. Scope
This report will present the current state of the research on blockchain and smart contracts technology in the Red Sea shipping industry, which has been done in pursuit of achieving the objectives of the report. The study has a wide scope covering a number of areas in the field of shipping industry and it includes both primary and secondary research. However, because of time and resource constraints, it is not possible to cover all the issues related to the industry but where it is possible, the study has attempted to use the most sophisticated technology, that is, blockchain and smart contracts in the context of the industry and the opportunities these technologies could bring in the future. With the current, rapidly evolving technological landscape, this report also aims to provide key stakeholders in the shipping industry with an up-to-date resource that not only highlights the latest technological advancement in the industry but also highlights the potential of the blockchain technology to bring about major disruptions in the industry. Such stakeholders particularly include governments, port authorities, shipping companies and many others. Also, future research is also proposed in the conclusion, particularly on how blockchain technology can be used in bringing about more efficiencies in the processes related to insurance and claims in the shipping industry. It is believed by many in the industry that the technology has the potential to revolutionize the way claims are made and validated in the industry because of the integrity and trust this technology provides in protecting the provenance of any transaction. Under scope, the research paper will inform prospective students who wish to pursue master level studies in the area of blockchain technology with a case study and also graphically, it is expected that with the implementation of the study, a typical workflow for goods shipment would look like one below.
2. Blockchain Technology
