Global trade involves several processes with up to 20+ documents being interchanged for a single shipment between various stakeholders in the chain.
For years, global trade documentation has been characterized by physical documents that were issued, released, handed over, and exchanged personally or using postal and courier services evolving to certain documents being transmitted and being accepted by fax or emails.
However, certain documents like the bill of lading are still required in physical hard copy form in up to 40% of all trade transactions in shipping.
Remembering that the Bill of Lading is one of the most important commercial documents in supply chain fulfilling 3 functions, i.e. it is a document of title, it provides evidence of the contract of carriage and acts as a receipt of goods, is many times issued also as a negotiable document, is quite an arduous task to issue, release, endorse and transfer in a paper format.
As per analysis and research by McKinsey, physical bill of lading costs accounts for between 10-30% of total trade documentation costs.
Digitalisation of trade documents
Digitalising trade documentation has come about as an important step to reduce costs, save time, and enhance trade transactions while also improving supply-chain resilience and helping mitigate future disruptions.
While there are several software and technology available currently for the digitalisation of trade documentation, due importance must be given to the legal angle in implementing and using electronic trade documentation over physical paper documentation.
“If we take the bill of lading as an example, in the electronic world, we have at least two problems from the legal perspective. One is the originality and the second one is the uniqueness of the document.”
From a legal perspective with a paper document, it is not really hard to establish whether it is an original or not (it will be signed and endorsed in original) and whether it’s the only one.
With an electronic document you can have all different kinds of the same document on different mediums, computers, storage disks, etc., so from a legal perspective, there needs to be a mechanism to prove that this is the only document in circulation and that it has not been changed since it was issued.
Although the work on electronic bills of lading started with Bolero in the late 90s with many companies working with different systems to ensure the originality and uniqueness of the document, as of 2021, as of today, less than 2% of all bills of lading issued were electronic.
From a technology perspective, until a few years ago, companies were not able to offer users something cozy and simplified as the workflow was quite complicated. Aside from simplifying the process for the users, the other big legal challenge facing electronic documents was the ‘validity of the electronic document’.
Apart from this, an electronic bill of lading has to also ensure that all the functionalities of the tried and tested paper bill of lading are fulfilled.
Interoperability was identified as an issue in the widespread adoption of electronic trade documents because for years, paper was the most interoperable medium as it only depended on the language (commonly English) and how the documents were worded.
The terms and conditions of carriers were covered under different international carrier regimens, rules, and standards covering definitions of shipper, consignee, notify details, port of delivery, payment, cargo description, weight, and measurement details.
Electronic trade documents, on the other hand, are much more versatile, and diverse, but complex in their structure. And rightfully so, as they provide much better speed, many more processing options, as well as numerous additional benefits for all the parties involved.
Interoperability among service providers
With electronic trade documents, interoperability between electronic bills of lading service providers and their systems was an issue.
An “electronic bill of lading service provider” is a company that maintains the system with a ledger of events of creation and transfer of documents of title between registered users using a technology platform or a portal.
A legal transfer of the document from one entity to another happens when the document is electronically transferred and recorded through the use of an electronic ledger which could be a computer database or a blockchain.
A bill of lading, whether paper or electronic, is a document of title (depending on how it is issued) and therefore related to possession of the title.
The terms’ possession and title are slightly different in the world of digital documents because here the term exclusive control is becoming increasingly relevant, and it performs some of the functions that are similar to possession; however not all.
“It is important to understand that legal validity recognition can be defined at different levels. It may be accepted as a contractual solution between users of the same digital platform, as mandatory law through an international treaty that solves open legal questions, as a widely recognized international instrument, or as simply a domestic law based on MLETR”.
Progress of electronic trade documentation in 2022
Fast forward to 2022, many of the doubts and concerns relating to the issue, release, and transmission of electronic bills of lading have been allayed by the improvements in the technology and the testing of interoperability between service providers.
There is enhanced activity by organisations such as the International Chamber of Commerce, World Trade Organisation, Digital Container Shipping Association (DCSA), UNCITRAL, and others to push the set up of fundamental legal frameworks for electronic trade document adoption and standards for electronic trade document transfers.
Some countries have already implemented their own solutions and legislated electronic trade documents making it equivalent to paper trade documents, while many are just now making a concerted effort for a global digitalisation breakthrough.
Shipping and logistics bodies such as the International Federation of Freight Forwarders Associations (FIATA), also known as ‘the global voice of freight logistics’ are already conducting live tests of eBL platform interoperability with major banks, and CargoX is one of the major electronic bill of lading service providers collaborating with these bodies.
Apart from this, alliances such as Future International Trade Alliance (FIT Alliance) which is a collaboration between DCSA, BIMCO, ICC, and SWIFT have signed MOUs to standardize the digitalisation of international trade.
The ICC’s Banking Commission recently published its Uniform Rules for Digital Trade Transactions (URDTT) Version 1.0, a collective understanding of terms and definitions to make it possible for trade transactions to be fully conducted digitally.
As it stands, the use of electronic trade documents, such as electronic Bills of Lading, is already safe, secure, and foremost legal with countries like Singapore successfully issuing electronic bills of lading as part of their adoption of the Model Law on Electronic Transferable Records (MLETR) by The United Nations Commission on International Trade Law (UNCITRAL).
The concept can be used for various other trade documents legally if all the parties agree to such an exchange of documents electronically.
About the Author
Patrick Vlacic is the Legal Advisor for CargoX. He is a legal expert in the fields of Transport Law, Maritime Law, Insurance Law, Obligations Law, and Air Law.
Patrick is an Associate Professor at the University of Ljubljana, Faculty of Maritime Studies and Transport, and also the former Minister of transport in the Government of the Republic of Slovenia.