What’s Really Wrong with Global Supply Chains?

With the Suez Canal’s recent clogging in Egypt endangering a substantial portion of global trade, critics, thinkers, businesses, and retailers are looking for solutions if it happens again. Classified as one of the world’s most important trade routes, around 12 percent of international trade passes through this narrow body of water. The blockade affected hundreds of ships waiting to pass through and thousands of crew members who will be stranded even more after Covid-19 forced them into sea-based isolation.

While other container vessels could have avoided the traffic by taking a detour through South Africa; however, that would have significantly prolonged their voyage, which is not suitable for distribution schedules, especially if there are perishable goods in the vessel. With clogs in the system, profits are delayed as well. Studies illustrate that the Ever Given incident delayed $9 billion worth of goods from reaching their destinations. Dissecting those rates by the hour amounts to a whopping $400 million worth of goods.

Undoubtedly, it is imminent that the retail setter will be affected by this delay. Especially now when economies are struggling due to the pandemic. Even worse, protective gear like PPEs, face masks, syringes, medical equipment, and vaccines could have been in one of those delayed ships. Considering how critical these items are today, the delay had worsened the market climate. With selling prices going up and shares in the stock market going down, retailers, businesses, and companies fear the next big block.

With the blockade over for good, can we relax and expect supply chains to run smoothly again? Not by a long shot. Unfortunately, supply chain management faces more problems than one blockade. Ethically, it is an industry that exploits cheap labor to make a profit. Consequently, studying the entire chain of operations itself poses a monumental nightmare. Now, how do you implement a system that validates every item in the inventory individually?

Short answer, NFTs.

Non-fungible tokens to the rescue

However, emerging technology may provide a solution for this supply chain nightmare: non-fungible tokens or NFTs. This blockchain asset emerged when a company called Dapper Labs offered CryptoKitties back in 2017. As the name states, you get to buy, sell, and trade digital kittens for a fee and nurture them like Tamagotchis.

What exactly are non-fungible tokens? Non-Fungible tokens or NFTs for short are digital assets based on blockchain technology that digitally represent ownership of an asset. Are they cryptocurrencies? To answer that, we need to understand the difference between Non-fungible and Fungible tokens. Fungible tokens are tokens that can retain their value even after being traded. For example, Users can trade currencies like Bitcoin and Ethereum for each other. Similarly, you can trade Bitcoins for Satoshis. However, on the other hand, non-fungible tokens are assets that can not be traded for each other. All you can do is buy these tokens on marketplaces for a price.

Interestingly, since then, the NFT market has emerged as digital, representing illustrations, music, files, pictures, clothes, and even video highlights. Today, thousands of designers actively sell online clothing that often attracts influencers and celebrities alike. Moreover, with the increasing number of fast fashion and contaminated clothing problems, you can even buy NFTs of yourself wearing these clothes digitally. All you have to do is send in a picture and receive an edited and realistic picture of yourself wearing that attire for an exclusive price.

Moreover, NFT’s can also be a potent tool for addressing supply chain concerns. Each token comes with metadata that proves its authenticity. Coherently, the same system can be used for each item that will pass through the supply chain. Goods that have a corresponding NFT can be tracked easier and prove rightful ownership. That way, buyers are secure that getting real items, and that level of security boosts the trust between supplier and retailer.

If NFTs are used in supply chain management and monitoring, the creation of unique assets can separate the authentic from forged items. This feature is very useful for luxury brands that are often replicated like luxury items. Blockchain also allows the tracking of these goods, and they do not expire even if the product itself is already destroyed.

Louis Vuitton shared similar views back in 2019 when they unveiled their plan to establish NFTs to authenticate their high-value goods. It was a good initiative because they could trace where their products are in the supply chain process. Paper-based systems are a thing of the past because they can be lost or misplaced. However, by using databases through NFTs, more people will have access to critical information and data which can be updated in real-time.

Benefits of NFTs to supply chain management

The COVID pandemic proved that one delay could cause overall disruption. That’s why supply chains need to be more resilient than ever despite potential changes. When things don’t go according to plan, NFTs can respond better than traditional databases because the latter is stored in one location provided by a single cloud provider.

In contrast, blockchain ledgers reside in multiple locations, making it easy to retrieve data when attacks happen. NFTs can also help facilitate smart contracts that will update once the item clears one step of the supply chain. Therefore, everyone who has access to the system can see updates as they happen and easily check where delays and anomalies are coming from.

Aside from data resiliency and analysis through built-in algorithms, NFTs can also maintain the information’s security and privacy. Tesla does have an autopilot that stores information that will help get new services and car parts. However, even their database is susceptible to a security breach. On the other hand, blockchain continuously encrypts data which makes it difficult to shut down completely. A hacker could try to disrupt the system; however, one user will not have much success.

Additionally, falsification of data is not possible either because no one can tamper with NFT metadata once it is saved. Stolen and broken databases are not possible either because another authorized person with access can reverse the errors in data encoding. When not addressed immediately, those errors can lead to widespread damage control with customers when not addressed immediately due to wrong deliveries.

Finally, NFTs promote transparency without creating gateways to user access. For example, the supplier can check that the payment went through without checking with the finance provider. This transparent network will maintain accuracy in every detail involved in inbound and outbound logistics. Besides payments, receiving parties can see the estimated arrival time to adjust their inventory to avoid excess orders and expensive warehouse costs.

There are still wrinkles to iron out with NFTs in terms of usability, transaction speed, and Ethereum’s compatibility with computer systems. Contrarily, these issues are nothing compared to the benefits that the supply chain will gain using NFTs. It is an emerging technology that will help keep suppliers and customers on the same page.

The adjustment period in using this new system will take time. But once all parties involved get the hang of it, the process will run smoothly. It will unclog the usual bottlenecks that logistics companies often face. Hoping that it won’t happen again, but with NFTs, everyone can adjust accordingly when another vessel runs aground the Suez Canal.