Blockchain makes first commercial appearance in the maritime industry

Blockchain bunkering solution is set to revolutionise the industry. Credit: Southern Cross Maritime.

A consortium led by a subsidiary of Blockchain Labs for Open Collaboration (BLOC) has launched the first industry-wide and industry-led blockchain application in the shipping sector, in a move that could transform the bunkering process.

BLOC subsidiary Maritime Blockchain Labs (MBL) and its industry partners unveiled a bunkering application on 26 July that will link fuel oil suppliers with barge operators and shipping lines and provide links to fuel quality assurance testing agencies and local regulatory authorities.

In the initial testing phase of the project, BLOC will have administrative access to the system, but this function can be devolved to a steering group that will decide how the administrative rights will be shared.

This solution will shift the quality assurance element upstream to fuel suppliers so vessel operators can make more informed purchase decisions, based on validated and trusted data, before they load fuel. This extends the responsibility to the fuel suppliers, as well as the buyers, to provide consistent and traceable data on the quality of fuel provided and received.

Fuel quality data will be gathered from the laboratory test results carried out by suppliers and buyers and will then be linked together in an immutable chain of custody within the blockchain. This offers a more uniform, tamper-evident, and accessible data point on the sulphur limits of marine fuel to be used in the bunker delivery note.

BLOC said, “The proposed system will make test result data pertaining to the content of a given bunkering barge available to the chief engineer of the vessel purchasing the bunker oil prior to connecting with this barge for bunkering.” Essentially the system will offer transparency and accountability in a bunkering supply chain that owners often see as opaque.

BLOC CEO and co-founder Deanna MacDonald told Fairplay, “This will inform the reputation system, which eventually, after enough data inputs and aggregation, will serve to give a better overview of compliant and trusted providers and encourage providers to find alternative fuel sources to become compliant.”

There is a reciprocal responsibility on suppliers, which will be required to supply high quality fuel, and buyers, which must drive demand for safer, more sustainable fuels. With the blockchain reputation system, non-compliance becomes an immutable stain on the reputation of the fuel oil provider, to be avoided at all costs. And as the number of transactions increases, the fuel oil buyer will have increasing information available for enabling compliant fuel purchases. Information will not, however, be made public. “This is not a permissionless blockchain; information will only be visible to those who have the administrative rights to see it,” explained MacDonald.

The solution is being built and tested in Singapore, as it is a port that regulates fuel oil suppliers, said MacDonald. However, the consortium’s strategy could link ports globally to share fuel quality information and best practice for enforcement of the International Maritime Organization regulations once the blockchain system is up and running, she added.

Khalid Hashim, MD of Precious Shipping, said, “As an off-taker of marine fuels, it’s vital for us to ensure that the fuel we use is compliant – particularly when we think about the market post-2020 and the need to ensure the quality of blended products coming in to meet the 0.5% sulphur limit. Blockchain is ideally placed to create the reliable chain of custody we need to do this.”

Fuel requirements will change on 1 January 2020 when the sulphur regulation, reducing sulphur in bunker fuel to 0.5% globally, comes into force. And with it comes a risk to crew safety and engines because of the requirement to blend fuels to achieve the sulphur limits under the new rules.

In the long term, the blockchain system will allow owners greater traceability of fuel quality and, as the system matures, significantly greater transparency will be afforded where emissions are concerned, according to BLOC.

To achieve these levels of transparency, MBL looked at the marine fuel supply chain in collaboration with industry players and created a consortium that covers the entire fuel oil supply chain from the fuel terminal operators within ports to the barge operators and their customers, testing agencies, and regulators.

The MBL consortium was built in Singapore and includes supplier GoodFuels and vessel operators Precious Shipping and Bostomar, while BIMCO has offered contracting expertise and Lloyd’s Register Fobas has shared its fuel testing expertise. The International Bunker Industry Association (IBIA) has had an advisory role to MBL. Eventually the port authorities will be given ‘full read access’ for visibility of the bunkering supply chain to inform enforcement and compliance. Each partner represents an element of the bunkering value chain that will be operated following the initial system launch.

Grant Hunter, head of contracts and clauses at BIMCO, added, “Blockchain ‘smart contracts’ based on harmonised terms and conditions, such as the BIMCO Bunker Terms 2018, could be a stepping stone for the industry to achieve greater transparency and efficiency.”

The bunker blockchain solution will use the Hyperledger Sawtooth open source blockchain system and it will be able to communicate with the various systems in the maritime sector. Each player will have access to the blockchain, but once each element of the process is agreed and signed off, the ledger will record it and cannot be changed.

Once the call for bunkers is accepted and the offer from a supplier is approved by an owner, the system requires each party to sign electronically, ensuring the deal is agreed and payment is made when the process is complete. Each player in the system has a profile that is pre-validated, bringing an element of trust to the transactions.

“The solution is industry-led from the bottom up, not top down, so we’re bringing industry with us by making sure [it] has a role in helping to define these solutions and is an integral part of the process,” said MacDonald, “It allows us to design the solutions with best practice in place.” 

The testing of the system with the 'first demonstrator' is currently taking place and will be rolled out to the wider industry by about September, said MacDonald.

Contact Nick Savvides and follow him on Twitter: @nnsavvides