Japan is introducing standardized freight contracts; blockchain can do the same thing, but with more flexibility

Commentary

A push to increase detention pay has been gaining momentum in recent years in the U.S., yet detention remains a significant problem for carriers. Drivers who are forced to wait for hours lose valuable driving time and deliveries are sometimes delayed, causing additional penalties for carriers to absorb.

The result is frustrated drivers and higher costs. While detention has been acknowledged as an industry problem, solutions to date are elusive. Even shipping contracts that include detention fees are not always enforced. If a shipper refuses to pay detention, what alternatives does a carrier have? Not many if they want to keep that shipper’s business.

In Japan, the country is trying to put an end to such practices. According to the Japan News, the Land, Infrastructure, Transport and Tourism Ministry has instituted “standardized contracts” for truck drivers. These contracts are aimed at compensating drivers who are forced to wait for hours when loads are not ready to be picked up, or to ensure drivers are paid when they must load and unload their cargo.

Currently, most contracts in Japan include some of these costs, but because they are incorporated into the “freight charges” portion of the bill, many believe drivers are not appropriately compensated. Going forward, all contracts between shippers and carriers will specify related charges as separate items, including a “standby time charge” for drivers forced to wait and specific loading and unloading charges.

The belief is that by calling out these charges separately, working conditions will change and wait times shortened as shippers will now have to pay for these items separately. Drivers who are affected by these items, in turn, will see increased compensation.

Could a government-backed system work in the U.S.? It’s doubtful the federal government would create such a system, especially with a Republican administration in power that is looking to get rid of government regulations. That leaves it up to industry to solve these issues, which has not happened to this point.

In early 2016, DAT conducted a poll on detention and found that 26% of drivers were detained more than 2 hours at least 25% of the time. Thirty percent had that happen at least 50% of the time. In all, only 6% of those polled said they were rarely detained at least 2 hours.

That same survey found that 41% of the time, the carrier never collected a fee for that detention, and only 28% collected a fee at least 25% of the time.

The problem with detention is “getting the shipper or receiver to acknowledge that they had a problem at the dock,” DAT’s Mark Montague wrote. “Any trucker will tell you that being paid for detention isn’t the goal. The goal is to be loaded and unloaded promptly, so the driver and equipment can be deployed efficiently.”

The mandate to require electronic logging devices (ELDs) on Dec. 18, though, is one step closer to making this happen. No longer can a shipper pressure a driver to just “change the log” to cover detention time. The ELD will record those hours regardless, and do so in a digital manner. Combined with software, it can also create a digital roadmap of when the truck arrived at the facility, when it left, and much time it spend in motion, leaving no interpretation of how long the truck was there.

“If we can get those delays recognized, they can become part of the negotiation,” Montague said. “Then, in order to get the best rates, the shipper or receiver actually has to do something to mitigate those delays. Freight brokers can take advantage of ELD data to advocate on behalf of the carrier. The most responsive brokers and shippers will win the loyalty of their preferred carriers when capacity becomes scarce again, as it inevitably will.”

Blockchain and smart contracts

In addition to ELDs, the hopes of creating a standardized system for charging of detention and other accessorial charges – and of the carrier and driver being properly compensated for these items – is being buoyed by blockchain technology and smart contracts.

Smart contracts are digital contracts that can reside on a blockchain. They are executable contracts that include clauses that trigger events, such as payments. The ELD indicates the driver arrives on time for a 2 p.m. pickup, but is not loaded until 4 p.m., that data, inputted automatically into the smart contract, would trigger the penalty and could potentially even deduct that penalty from the shipper’s account, ensuring collection. This would incentivize shippers to meet scheduled loading and unloading times.

The smart contract would also protect shippers and brokers. A late-arriving driver could no longer manipulate his paper log to make it appear as those he arrived on time. This data, inputted into the smart contract automatically by the ELD, now would trigger an escape clause in the detention portion of the contract, exempting the shipper from paying detention time.

Built on the blockchain, which does not allow previous blocks or nodes to be changed, these smart contracts become the equivalent of the government-mandated standardized contracts Japan is instituting, without government involvement. By working outside a specific government mandate, the contracts are then customizable to specific situations, allowing carriers and shippers to negotiate their own terms, and once agreed upon, cement them in the contract.

As Japan takes a more formal government approach to addressing detention and related issues, it’s technologies like ELDs and blockchain that will likely do the same here in the U.S.

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