Customs NL is always looking for new ways of conducting its supervision and reducing the inspection burden for trade and industry. For this purpose Customs tests groundbreaking technologies, working methods and partnerships. So, for example, at the moment the possibilities of blockchain are being investigated, primarily known from the cryptocurrency bitcoin. What could application of this revolutionary concept mean for the world of transport, logistics and customs?
Getting a grip on the cross-border flow of goods is naturally of vital importance for Dutch Customs. That’s why the service is participating in ambitious EU programmes like CORE, where public and private partners are working intensively together to make logistical chains more transparent. The exchange of information is essential for the success of such initiatives, something that can often be a bottleneck. In general, at the moment the readiness to share data is not of great importance for the players in this market sector. Worries about competition are the culprit: companies are apprehensive that sensitive information will fall into the wrong hands. With blockchain it looks as though there is a new technology available that can alleviate the suspicions of the business sector.
Blockchain is a kind of data management that is fundamentally different in a number of ways from other systems for registering information. The best and simplest way of explaining how it works is with the example of the digital currency bitcoin, which is based on blockchain. When you want to transfer funds in a non-virtual currency to a bank account, this transaction normally goes through a bank. The financial service provider takes care of the transfer and stores it in their database, which the bank alone controls; clients have no access to, or control over, the list of transactions. We consider this completely natural, but in actuality this method demands a lot of trust from citizens in the good intentions and proper functioning of financial institutions.
With the use of the bitcoin, the bank is no longer the lynch-pin in financial transactions. Thanks to blockchain, no intermediary or central authority is required any more to carry out transactions or to guarantee their reliability. Every user is part of a computer network in which payments can be made directly from and to others within the network. The database containing the payments is stored in a de-centralised location and jointly controlled. All the information that enters the database is permanent; it cannot be either altered or deleted. Moreover, this data is particularly well encoded, just as the bitcoin itself. Cracking the encryptions demands an enormous calculating capacity. This makes it practically impossible to manipulate the system for those with bad intentions.
The bitcoin is, up to the present day, the only example of a good application of the blockchain concept operating on a large scale. The phenomenon, however, appeals to the imagination, so that in many areas people are eagerly searching for new and valuable possibilities for its use. So too during the World Port Hackathon 2016, held last September in Rotterdam. During this competition for big brains blockchain emerged as one of the solutions for a number of challenging logistical problems. A trio of second-year students in technical information science got seriously down to business with it within the specific framework of a challenge brought by Dutch Customs: how can we get more insight into supply chains? The team from Delft Technical University came up with a rudimentary system for tracking and tracing containers and their contents that was so promising that the jury awarded it first prize. In consultation with Customs it was decided to develop the concept further with a bit more manpower. And so for several months six programmers have been testing and refining a prototype of a software platform that has received the name PassPort.
The intention is to deliver a usable blockchain system for the long term that is partially open and partially closed. Parties in logistics and the transport sector would feed data into this system from their own source applications about their containers and the goods they contain. Such as: where are they, where did they come from, where are they going? Just as with the bitcoin this creates an endless list of transactions, in this case about the changes in status of the containers and goods. The information about the containers can be viewed by every business registered, but the information about the cargo can only be seen by the companies themselves and Customs. For the average user it therefore looks as if empty containers are being transported around; Customs is the only one who has a total overview of the incoming shipments. In this way, the service gets a much more up-to-date, complete and reliable picture of the flow of goods. An additional advantage is that within PassPort the routes of empty containers can also be monitored, which entails an expansion of current Customs’ supervision. This means earlier detection of containers that have been tampered with – think of double-walled containers concealing smuggled goods, which are removed by criminals during a quiet moment.
Nor would it likely cost trade and industry scarcely any extra work or investment in IT in order to participate in this network. They would not in fact have to do much more than making available to the system data that they already have in their administration. The fear of unauthorised people getting access to the system is unfounded; this information is sent exclusively to Customs, who deal with it in a discrete manner. Thus PassPort technology would later on make declarations by known and trusted Customs’ clients (think of AEO certificate holders) no longer necessary, thereby relieving them of a considerable administrative burden. Because, what reason is there then for submitting separate declarations if the authority has already received all the relevant information about goods via PassPort at an earlier stage?
Who knows, maybe there are more possibilities in store that will make customs formalities simpler and more efficient. Blockchain includes the option of what is called ‘smart contract’: a mechanism whereby (simply put) a number of operations are carried out by full automation as soon as certain conditions have been fulfilled. Imagine for example that a container has been unloaded and is being transported from a terminal. At that moment a smart seal* can inform Customs of what is happening by means of an electronic signal, after which all the relevant taxes (customs duties, VAT, excise taxes) would be submitted immediately without any human mediation. Numerous steps of this kind can be conceived that would increase efficiency by introducing and combining new technologies in the logistical process.
For the time being this all seems some way in the future because the proposed blockchain is still far from operational. First we have to await a practical production model, which will, of course, have to be extensively tested. Whether it will actually be implemented after that stage depends completely on the market. The system devised by the Delft students and Dutch Customs will only be successful if the shipping and logistics business sector is interested.
In any case, there is great interest in the outside world for the innovative work of these young programmers. During the past year they have been invited to several prestigious conferences to present their program, even though this may seem a bit premature. It is one sign that the potential power of the PassPort concept has been recognised in the outside world.
* In Customs inSight number 2 2016, we extensively discussed the possibilities of these smart electronic container seals in this column.