Evaluating the factors that influence blockchain adoption in the freight logistics industry

Highlights

• Blockchain adoption is influenced by technological, organizational and environmental factors.

• An analytic network process (ANP) modeling framework is proposed.

• Blockchain adoption factors are prioritized based on computed relative weights.

• Organizations should focus on the critical blockchain adoption factors to ensure long- term success.

Abstract

This study proposes a technology- organization- environment (TOE) theoretical framework of critical factors that influence the successful adoption of blockchain technologies in the freight logistics industry and prioritize them using the analytic network process (ANP). The research findings indicate that ‘availability of specific blockchain tools’, ‘infrastructural facility’, and ‘government policy and support’ are the three topmost ranked significant factors that influence the adoption of blockchains in the freight logistics industry. These findings will aid government agencies, freight logistics firms and blockchain service providers in strategizing for the advancement and successful adoption of blockchain and improvement of overall organizational competitiveness.

Introduction

Digitalization of all economic activities is happening at a fast pace and it has been expected that the pace will be faster in the coming years. Digital economy accounted for 22.5% of the global GDP in 2015 and is expected to increase to 25.5% by 2020 (Brilliantova and Thurner, 2019). Most part of existing digital resources (e.g., servers, data bases, services or even smart objects, from smart watches to last generation cars) are connected to the internet due to the ever-increasing coverage of internet connectivity (Maesa et al., 2019). The digitization phenomenon is leveraging new relationship models throughout the entire supply chain network (Queiroz and Wamba, 2019). Business operations in the supply chain network have been transformed from manual operations into electronic communication and processing using information and communication technology systems (Chang et al., 2019). Moreover, the freight logistics industry is undergoing a transformation from the conventional freight logistics system into a decentralized and digitized freight logistics system. The digitized freight logistics system builds on complex interrelated hardware systems and requires novel technologies that support exchange of financial transactions and related data. The decentralized and digitalized logistics systems can form distributed freight logistics markets, which promise financial transparency and facilitates mature supply chain networks. These distributed freight logistics markets require a nascent distributed ledger technology, blockchain technology, that supports peer-to- peer exchange thereby assisting in overcoming the hurdles faced by decentralized and digitized freight logistics systems (Schuetz and Venkatesh, 2019).

A blockchain can be defined as a shared digital ledger, which is maintained by a group of nodes that are not fully trusted by each other (Huimin et al., 2019) and allows one to build upon cryptographic algorithms to ensure data integrity, standardized auditing, and some formalized contracts for data access (Chen et al., 2019). It can also be defined as a secure record of historical transactions, collected into blocks, chained in chronological order, and distributed across a number of different servers to create reliable provenance (Angelis and da Silva, 2019). More importantly, blockchains allow for the automated execution of smart contracts in peer-to-peer networks (Andoni et al., 2019). Smart contract is a computer protocol that can control digital assets and formulate the participant’s rights and obligations thereby reducing ‘third party costs’, simplifies the supply chain management process and also reduce risks (Helo and Hao, 2019). This has, in turn ensured that the flow of information and currency may rely on the consensus of participating nodes without the need for a third trusted party, such as banks and clearing houses (Chang et al., 2019). In fact, hacking attacks that commonly impact large centralized intermediaries like banks would be nearly impossible as blockchain can keep track of all transactions (Min, 2019). Additionally, blockchain technology makes it more possible to maintain immutable information of products and producers as they flow through the supply chain from extraction to end-of-life management and governing supply chain activities and its financial flow with smart contracts (Saberi et al., 2018). Similar to other emerging technologies, blockchains regularly serve as enabling forces for economic, social and business transformation and are predicted to challenge existing business models and offer opportunities for new value creation (Morkunas et al., 2019). The core innovation of blockchain lies in its ability to validate record and distribute transactions in immutable, encrypted ledgers (Wang et al., 2019). The validation process in blockchains can be done either by authorized users with permissioned access in private blockchains or implemented by unauthorized users with rewarding computer utilization in public blockchain technologies (Helo and Hao, 2019). Hyperledger is an example of a permissioned/ private blockchain while hyperledge and Ethereum are amongst the private blockchain platforms. The public blockchains usually allows virtually anybody to freely interact during transactions, with or without prior knowledge of the identity of the interacting parties. On the other hand, there is sufficient prior knowledge of the identities of interacting parties in private blockchain systems during transactions. The public blockchains can also be differentiated from private blockchains in terms of selling dispositions; public blockchains can assist firms to save cost and time while private blockchains can aid in the disintermediation of traditional intermediaries (e.g. banks) during business transactions. The freight logistics sector can utilize private blockchain systems for more transaction privacy critical for sensitive data while using the public ledger for data that require a high trust level and a substantial amount of computational power that is necessary to maintain distributed ledger on a larger scale (Morkunas et al., 2019). Blockchains accelerates the transfer of data streams between parties, thereby reducing the transit time of products, improving inventory management and reducing waste and cost (Bedell, 2016). Having the potential of being transparent, secure and decentralized, blockchain is considered useful for dealing with operational and business issues including financial transactions. Blockchains has the characteristics of high reliability, data integrity, decentralization and distrust and can realize the transmission and transaction of information between any nodes (Leng et al., 2018). Organizations are demonstrating increasing interest in blockchain technology evidenced by the increasing number of blockchain- based solutions in a broad range of fields (Zhu et al., 2019) due to the number of significant benefits it offers to businesses (Hughes et al., 2019). Two prominent benefits of blockchain technology are that, it provides a permanent transaction records which are grouped into individual blocks and cannot be tampered with; and replaces those traditional paper tracking and manual monitoring systems which prevent the traditional way of doing business, characterize by inaccuracies (Zhao et al., 2019). Moreover, blockchain is likely to affect supply chain management objectives such as cost, quality, speed, dependability, risk reduction, sustainability and flexibility (Kshetri, 2018). Therefore, it is imperative for supply chain managers to adopt blockchain for their operations because all transactions with blockchain are safer, more transparent, traceable and efficient and leads to increased cooperation between supply chain members (Queiroz and Wamba, 2019).

The adoption of blockchains refers to its replicative uptake, incorporation or use of technology for private, public or individual purposes (Tob- Ogu et al., 2018). Currently, the adoption of blockchains by the freight logistics industry is still at its nascent stage (Wang et al., 2019), although research on the adoption of information technology is one of the most mature streams of IS research (Venkatesh et al., 2016). Researchers have studied the adoption of blockchains in supply chain management, hospital records management, government transparent voting and other areas (Kamble et al., 2018, Laaper et al., 2017, Makhdoom et al., 2019; Min, 2019, Olnes et al., 2017, Roehrs et al., 2017, Schuetz and Venkatesh, 2019), yet it is unclear how freight logistics managers would adopt blockchains. There is potentially great need for freight logistics sector to use digital innovations because its operations typically spread across regions and entities, and such management of information flows is critical to operational efficiency (Nguyen, 2013). Lately, with the advent of digital technologies (such as sensor technologies, blockchains and big data), the operational landscape of the freight logistics industry is changing. The blockchains differs from other digital innovations by four key characteristics including; decentralization, security, auditability and smart execution (Saberi et al., 2019). The application of blockchains in the logistics sector is expected to have far- reaching implications with some logistics experts considering blockchains to offer enormous potential to transform the supply chains (Dobrovnik et al., 2018). Although it can be expected that blockchains deliver significant benefits that could provide a thrust in technology adoption (Hughes et al., 2019), it is typical in freight logistics firms to utilize simple and established technologies rather than advanced technologies (Janjevic et al., 2019).

The scantily available literature on the adoption of blockchains in the freight logistics sector suggests that adoption will more likely be a complex undertaking (Andoni et al., 2019), holding its own contextual opportunities that have not been understood. Blockchains can assist freight logistics companies in a real- time tracking of material flows, improve transport handling as well as an accurate risk management (Morkunas et al., 2019). Moreover, freight logistics might be one of the most promising applications for a combination of IoTs and blockchains; IoTs sensors gather various data from the real world, thus the locations of products, packages and freight vehicles can easily be tracked at intervals (Helo and Hao, 2019). IoT, AI and smart contracts has been applied in the logistics domain to cause a major transformation particularly in sensitive pharmaceutical shipments. Blockchain- enabled IoT sensors, SkyCell was used by a Swiss company to create air freight containers for refrigerated biopharmaceuticals that monitor temperature, humidity, and location, thereby reducing the temperature deviation to less than 0.1 percent (Dobrovnik et al., 2018). Blockchains can use smart contracts to deliver considerable savings in the context of operational efficiencies and reduced transaction costs within freight logistics (Hughes et al., 2019). For instance, a proof of delivery model for physical assets in the logistics sector has been built with Etherum based smart contracts to allow for traceability of the products as well as rewarding and payment process for the buyers and transporters (Meyer et al., 2019). However, most logistics professionals misunderstand the concept of blockchain and tend to not know how to utilize the technology for the benefit of their companies (Min, 2019). It becomes highly expedient to provide practical insights and in-depth understanding on the significant factors which can facilitate the successful adoption of blockchains by the freight logistics industry.

While blockchain has seen many discussions in the literature as a technology that can offer many advantages, and have many success stories from the financial, supply chain and public sectors, yet, little is known about its disruption in transport and logistics, including the freight and passenger industries (Koh et al., 2020). Therefore, blockchain adoption in the freight logistics industry is one of the most important areas that require urgent investigation. This suggests that, more efforts are required to understand the adoption of blockchain and to identify factors that influence blockchain adoption decision. The technology-organization-environment (TOE) framework is therefore identified as a suitable theoretical lens for investigating blockchain adoption at the organizational level (Tornatzky et al., 1990, Ramdani et al., 2013). Utilizing the TOE framework, this paper proposes a list of factors that may influence the adoption of blockchain in the freight logistics industry. The decision to adopt technological innovation is based on internal organizational and external environmental factors in addition to the technology itself (Tornatzky et al., 1990). Thus, a threefold context framework is envisioning for the adoption of technological innovations – technological, organizational and environmental contexts. The adoption of the TOE theoretical framework for our study was motivated by the heavy application of the framework in many organizational technology adoption studies (see Lin, 2014, Mohammad et al., 2019, Pool et al., 2015, Ramdani et al., 2013, Safari et al., 2015, Wang et al., 2016). Thus, the use of the TOE framework in explaining and investigating technological adoption is a good framework supported by the literature.

Against this backdrop, this study proposes a research agenda that raises questions that, if addressed, will provide clarity on how blockchain technologies can be successfully adopted in the freight logistics sector. By drawing from existing adoption research, the research agenda in this paper highlights the gaps that broadly relate to the critical factors of adoption in the specific context of blockchain and Nigeria. The freight logistics industry in Nigeria can apply the insights on the critical factors to the adoption of blockchains to build effective strategies for increased competitiveness. Investigating new contexts, especially in developing countries and more so Nigeria, has been recognized as an important research direction for future studies in the technology adoption research (Brilliantova and Thurner, 2019). Moreover, the Nigerian freight logistics industry has significant socio- economic implications for the country and remains under researched (Tob- Ogu et al., 2018). The socio- economic costs associated with the freight logistics sector is high due to the huge demand for transportation which constitutes a key UN sustainable development indicator (UN, 2016). Also, the unprecedented economic growth in developing countries especially Nigeria caused by global investment expansion, increases production and consumption, leads to a huge demand for freight transportation as well as its development (Kin et al., 2017, Wanke et al., 2016). To that end, this study serves the dual outcomes of (a) highlighting the significant factors that influences the adoption of blockchain technologies as they relate to technological, organizational and external environmental aspects of the freight logistics sector and (b) proposing research implications that will serve as a foundation for research on the adoption of blockchains in developing countries, especially Nigeria.

To realize these study outcomes, an extensive review of relevant available literature was carried out to identify the critical factors, and evaluate these factors using the opinions of managers in the Nigerian freight logistics sector. The opinions of these managers were sourced using Analytic Network Process (ANP) designed questionnaires and feedbacks analyzed using ANP-based Super- Decisions software (https://www.superdecisions.com/) (Kusi-Sarpong et al., 2016) to prioritize the significant factors that influence blockchain adoption in the freight logistics sector. The ANP is a multi- criteria decision model that makes possible the prioritization of improvements in the system while considering the interdependence and feedback among elements (Farias et al., 2019). The ANP method is adopted in this study because of its ability to model and capture more complex interrelationships among factors when computing the relative weights (priority weights) of the factors (Kusi-Sarpong et al., 2016), of which this study is involved. The ANP has been successfully applied in various real world decision making scenarios (Choi, 2016, Hosseini et al., 2019, Hu et al., 2019, Supeekit et al., 2016).

The rest of this paper is structured as follows; the literature is reviewed on the relevant adoption factors of blockchains and application of ANP in Section 2. In Section 3, the research methodology is explained and results of the analysis presented in Section 4 together with the research implications. The conclusion of the study in addition to the limitations and future research directions are presented in Section 5.