Risks in blockchain-integrated container shipping systems

This research investigates the situation of Container Shipping Operational Risk (CSOR) upon the application of blockchain technology by the process of risk identification to risk assessment. It develops and validates novel quantitative tools for risk analysis, such as multiple-event risk scenarios analysis and uncertainty quantification analysis.

To the container shipping industry, not only the identified single-event risk scenarios but also their causal connections, likelihood, consequences, and uncertainty are crucial data for CSOR mitigation and prevention activities.

Container shipping operational risk is the existence of potential hazardous events that might lead to actual negative consequences to the ability of the container shipping services providers (e.g. shipping companies, port operators, freight forwarders) to maintain their services at a certain level of quality, quantity or profitability.

Blockchain, or Distributed Ledger, is mentioned by advocates as a solution to prevent multiple CSORs by improving the efficiency and security of the industry’s information flow. However, the uncertainty in implementation and operation, as well as the immaturity of the technology, creates a favourable environment for new CSORs to develop, hindering the application of the technology.

Participants

• • University of Tasmania

Project background

Container shipping operational risks (CSORs) exist in the logistics operations related to the use of standardised containers for transportation. CSOR is defined in this project as the existence of potential hazardous events (HEs) in operations related to container transportation that may negatively affect the shipping service providers’ ability to maintain their services at a certain level of quality, quantity, and profitability.

Information CSORs were estimated in previous studies to have lower criticality than physical CSORs. The involvement of information CSORs as causal factors in physical or financial HEs, however, has not been investigated rigorously. For example, cyberattacks on the transport system of ports and shipping companies highlighted the relationship between information risks and actual damages in the physical and financial flows.

In recent years, the potential and impact of blockchain technology are increasingly mentioned in both industry and academic communications. Various trials, prototypes, and even commercialisations of this technology have been observed in the industry. There are hopes, promises, advertisements, and demonstrations that blockchain applications could reduce or even eliminate certain types of CSORs. However, there are also sceptical views of stakeholders regarding the current true state of the technology and the solutions developed from it.

These observations suggest the necessity of a deeper, up-to-date, and anticipative CSOR understanding, which cannot be offered by the current state-of-the-art. To maintain a level of service quality, manufacturing, and profitability, parties in the container shipping industry must cope with CSORs by a regime of risk management. A core of risk management is being aware of the risk situation through risk analysis.

Consider container shipping. Multiple factors are nurturing the formation of new operational risks in container shipping systems, which are becoming more connected under the effects of digitalisation and will be even more connected with higher extent of blockchain integration.

These factors include unestablished legal frameworks, lacklustre technology understandings, risk accumulation – multiple-event scenarios with unreliable insurability, the increasing potential of cyberattacks, dependence and fixation on legacy systems, and low interoperability between blockchain applications. They suggest the possibility of CSORs associated with container shipping systems that have blockchain integration. However, this possibility has not been confirmed nor investigated in the literature.

The aim of the project is to investigate the situation of CSOR upon the application of blockchain technology in the industry. Investigating and understanding the risk situation requires conducting a risk analysis, which includes risk identification – description of potential scenarios, and risk assessment – description of these scenarios’ magnitude. For risk assessment, a risk quantitative analysis model is also developed to consider the characteristics of CSOR.

Project objectives

1. Obtaining the perspective and insights of the container shipping service providers (i.e., port operators, container shipping companies, freight forwarders) about the application of blockchain in the industry (e.g. settings, functions, connections with existing systems).
2. Identification of potential operational risks in container shipping systems with the application of blockchain technology.
3. Identification of multiple-event risk scenarios in which an initial HE can cause other consequential HEs that cause cumulative consequences.
4. Development of a risk analysis model to assess the identified risks considering the characteristics of the identified CSORs and risk general characteristics (i.e., uncertainty, ambiguity, and complexity).
5. Prioritisation of the identified CSORs reflecting the situation of risk in the perspective of container shipping service providers.

Profile of researcher, Son Nguyen

Find out more about this project’s researcher, including what questions the research will answer, the obstacles Son has overcome, what comes next after his PhD, and also hear from his supervisor, Associate Professor Peggy Shu-Ling Chen. Read the profile at: Son Nguyen – iMOVE PhD student.

PhD completed

The student has submitted his thesis and has completed his iMOVE project and scholarship.