18 Oct TEU by 300bits – Shipping Industry meets the Blockchain
The freight shipping industry is a huge driver in global economics. Most goods transported are carried out by large ships called container liners. There are approximately 400 liner services, most sailing weekly, in operation today. Liner vessels, primarily in the form of containerships and roll-on/roll-off ships, carry about 60% of the goods by value moved internationally by sea each year. Such a massive scale of operations is always on the lookout for new innovative means to maximize efficiency and reduce cost.
TEU is an industry acronym for Twenty-foot Equivalent Unit, a standard unit for containers. A TEU token is an ERC20 compliant digital token, and users can use them to reduce counterparty risk of default of a cargo shipping agreement, i.e., booking. The TEU tokens are provided by both counterparties during shipment booking process and will act as a form of digital collateral/ booking deposit, payable per agreed-upon terms by the defaulting party.
It is notable that the proposed solution does not require the exchange or safe-keeping of cash. This is confusing because if the TEU token is going to be used as digital collateral, the value of the token will be considered a form of currency.
One of the biggest problems within the industry involves ghost booking, or defaults. Default is described as the occurrence in which the customer does not turn up with the cargo according to the confirmed booking, or the container liner does not load the cargo delivered by the customer to the loading port. Because there are no associated fees/fines with these instances of ghost booking, the industry reports a lack of trust between the customers and providers.
Another issue has been the industry’s inability to accurately forecast its own cyclicality. It was the assumption in 2007 that shipment growth would stay at 10% CAGR, as it was at the time. However, growth in the 10 years previous was only about 3% per year on average. Other mishaps contributed to the industry’s cost of operation and loss. Given as an example in TEU’s whitepaper, 2011 and the period between 2013 and 2015 was when it was predicted that large container ships were the best long-term investment. Once delivered, those large ships created a capacity glut that led to massive exits and bankruptcies among the container liners starting in 2016.
Figure 1: Container Shipping Cycle
To better utilize crowd wisdom and to be able to automate the handling of agreements of these contracts, the TEU team has turned to the Ethereum blockchain for its smart contract features; hence the ERC20 token. It is TEU’s goal to provide TEU token as a one-stop solution for the industry. TEU notes: “We believe a booking deposit in the form of cryptocurrency is the solution to one of the biggest pain points in the container shipping industry – trust, or its lack thereof.”
Using Ethereum, the smart contracts governing TEU are coded with conditions. Once committed, neither party can alter what has been agreed upon. Both the container liners and their customers will “be given valuable TEU tokens that will be held as deposits with conditions, and paid out later upon the execution of the shipment booking.” The container liners will be compensated with the TEU tokens if the customers fail to honor their contract and vice versa.
Figure 2: Shipment Booking’s TEU Token Rewards
300cubits/TEU will act as an intermediary between the two parties and serve as a form of insurance for the execution of the agreed-upon contract. The use of TEU tokens is “nearly” free except for the gas payment in ETH for miners in the network who ensure the integrity of the public ledger. 300cubits is expected to generate revenue through their ecosystem, providing services such as:
- The Market Place Module, a web and mobile based Dapp platform that provides a marketplace for the users to trade the TEU tokens.
- Positive Credit Agency Module, a rating system based on past booking performance where credible users stand out.
- TEU token trading, value of the TEU tokens will rise and fall with freight rates and market reactions can form a crowd prediction platform.
- Booking Module, a web and mobile based Dapp (decentralized application) platform, much like the existing on-line services of the container liners but will be an aggregator website that collects all schedules, quotations and shipment status from the container liners who use the TEU tokens.
- Smart Contract Builder Module is a web-based Dapp that allows corporations or persons without any prior blockchain or smart contract coding knowledge to tailor a smart contract using the TEU
Figure 3: Modules in DApps & Apps
Except for the Positive Credit Agency Module, all modules will be deployed to execute smart contracts at different stages of the booking cycle, during which some TEU tokens will automatically be exchanged into ETH to cover the gas fees. It is not explicitly stated what percentages or how the fees will be calculated.
The TEU ecosystem is meant for growth. As an open source product, source code, blueprint, etc., will be made available to the container liners who intend to develop their own blockchain based systems to use the TEU tokens. 300cubits means to provide programming and consulting services to help develop these liners’ proprietary systems.
The detailed mechanism for use of the TEU tokens as a long-term pledge for new ship investment has yet to be solidified but is being considered. Theoretically, “a container liner could make an agreement off-chain with a customer on the incremental volume and continuing volume to which the customer could commit with varying levels of confidence. The aggregated gradient of these commitments could provide a basis for capital allocation decisions with respect to additional capacity and renewal capacity. Those terms could be written into a smart contract, which would then be actualized through TEU tokens agreed with the customers. Over time, the pledge tokens would gradually return to customers much like an amortization schedule. If a customer provides sufficient bookings as per the agreement over the lifespan of a ship, all pledge tokens would be returned to the customer.”
With a strong concept and an experienced team, it’s hard not to look at this project without optimism. But without a working product, it’s equally difficult to determine the true value of it. It’s even mentioned that there is no guarantee for this project in the whitepaper: “ We cannot guarantee the future performance of the TEU tokens nor could we guarantee that the TEU tokens could hold any value in the future despite our belief that the cryptocurrency community will accept and assign value for the TEU tokens and the container shipping industry will adopt the TEU token first as their booking deposit.”
- Enrique (@Syndicate.Enrique) – Editor
- Duy (@Syndicate.Duy) – Research, Authorship
- Evan (@Syndicate.Evan) – Editor
- Adam (@Stun) – Syndicate Research Lab, Contributor
- Mike O’Connell (@mike_oconnell) – Syndicate Research Lab, Reviewer