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Bills of Lading – Electronic / Blockchain or Traditional methods?


Jagan - May 27, 2020 - 3 comments

Given the present lockdown in place due to N Covid19, cargo interests involved in international transport are facing difficulties due to the requirement of paper documents to facilitate cargo transfer. While some quick fixes have been worked out by Carriers such as release of cargoes against Letter of Indemnities, Guarantees, or release of Bills of Lading (“Bs/L”) at destination to the consignee upon specific authorisation of the Shipper, this does not go far enough to be a permanent solution. This article will discuss the possible long term and short solutions to deal with the issues at hand.

  1. Bs/L not only facilitate transfer of cargo between the various parties involved in trade but also ensure that the Carriers deliver the cargo to the correct holders of the original documents. The traditional method is to use paper Bs/L and which has stood the test of time for many centuries. However, it has now been found wanting, particularly, in the N Covid 19 pandemic, given that lockdowns have prevented the working of both domestic and international courier companies involved in the movement of documents. Stop gap measures such as use of Surrender / Telex Release, Seaway and / or Letter of Indemnities to release cargo to consignee’s are not a permanent solution given that they have attendant risks and may not facilitate the trade transaction, particularly, when the sale is being funded by a financial institutioni.
  2. There has been increased interests in both Electronic Bills of Lading and Block Chains and they have been bandied about as a panacea to resolve the issues listed above. The fact is that Electronic Bills of Lading were in existence for quite some time but only now do they appear to have caught the attention of small and medium size Shippers and Consignee. While there are advantages to migrate to an electronic platform, problems do remain when the parties involved in the sale transaction are either technologically challenged and / or there are legal issues and which need to be surmountedii. This being the case, we believe that while the development of the Electronic Bills of Lading is indeed welcome, more needs to be done to ensure that they could be used universally in conjunction with other technological innovations such as Blockchains / trading software’s to facilitate the international trade transaction. In an article on “The beginning of the end of the Paper Bill of Lading” by Hariesh Manaadiar, he mentions that much more needs to be done to have common standards to facilitate the use of Electronic Bills of Lading. He also mentions that the Digital Container Shipping Association believes that if the B/L standardization can be started now, the industry can achieve an adoption rate of 50% by 2030. Accordingly, it appears to us that wide use of Electronic Bills of Lading would still take time.
  3. The other development is the use of Block Chains and which promises to revolutionize supply chains by giving end to end visibility. Basically, a blockchain is an open distributed ledger that can record transactions between parties efficiently and in a verifiable and permanent way. We  contacted TradeLensiii at Singapore and who answered our various queries and which we thank them for. In particular,  we enquired whether TradeLens could communicate with  other Blockchains (Interoperability). We were advised that their architecture does provide for interoperability and could work with other Blockchains and Electronic Bills of Lading platforms. However, more needs to be done to work out the modalities with the other Blockchain operators for actual transfer of information between other Blockchain operators.
  4. It therefore appear to us that both eBs/L and Blockchains, although being important developments, are yet to be an immediate solution to the present problems.
  5. We recall having approached a domestic courier company some years back to discuss the potential of working as a common agent for the issue of both Bs/L and Delivery Orders for various Carriers in Singapore. Our thoughts were that, in any event, the documents were collected from the various Carriers by various couriers – perhaps, they could provide value addition by providing printing and collection services (collection of freight payments by cheques and depositing the same to banks) which would lead not only to increased efficiencies but also reduction in costs. Unfortunately, nothing came up from our discussions and perhaps, the idea was not of age at that time.
  6. We believe that use of a 3rd party service provider, say a courier or a national postal companyiv, could be engaged to facilitate the issue and delivery of various shipping documents. In particular, we submit that it would be possible.
    1. for a Carrier to issue Bs/L and deliver directly to the consignee’s at destination, through a service provider (who may be issuing and signing the paper Bs/L on the Carrier’s behalf as their agents), subject to receipt of say an authorisation letter (which may be in paper or in electronic form where electronic documents are valid) from the Shipper requesting for Bs/L to be issued and delivered to the Consignee.
    2. if the Bs/L needs to be endorsed (if the Bs/L is made “To Order” and not a named consignee), then a separate paper document (and where applicable, an electronic document) could be taken from the Shipper (or a party in the chain who becomes the holder of the Bs/L by virtue of being endorsed to) confirming the Bs/L is now being endorsed to a specific party with a request that the Carrier proceed to deliver the Bs/L’s to the specific party endorsed to. This party (whom the Bs/L is endorsed to) can either decide to take delivery by surrendering the Bs/L to the Carrier  or can in turn pass similar “endorsement” instructions to the Carrier to the next party in chain.
    3. If the documents are transacted through banks, the Bs/L could be delivered to the buyers bank and who in turn could “endorse” it to the final buyer on the document or by giving an instruction to the Carrier that they have endorsed the Bs/L to the buyer and with a request to deliver the “endorsed” Bs/L. While this could easily be accomplished in simple sales, complexity may indeed arise in string sales. However, we believe that these issues are not unsurmountable and could be dealt by mirroring the processes used for paper documents.
  7. Our intention to point this alternative method is to simply suggest that there are other possible solutions which could be adopted in the immediate future to deal with the movement of documents to facilitate trade. Obviously, it would have to be refined further keeping in mind the jurisdictions where the documents would be used either to transfer or effect delivery of cargo. The particular advantage of this method is that the Carriers, most of them having extensive own offices or long term agents, could implement this by themselves or engage an appropriate service provider to act as their agent to deliver printed Bs/L and / or accept the letter of “endorsement” on their behalf.
  8.  Conclusion: While we indeed welcome the development of electronic Bs/L and Block Chains, issues still remain at this point of time for easy adoption. Accordingly, it would be best to also look at short term solutions till such time Electronic Bs/L and Block Chains become a common reality.

 

i. A financial institution would wish to retain the “title” by retaining the Original Bs/L till such time they have been paid by their clients or have a funding arrangement in place.

ii. One of the issues is the validity of the electronic documents as they may not fall within the definition of acceptable documents in some domestic laws. One way to get around this issue is to contractually provide for the same – however, whether this would suffice would depend on whether the courts would be willing to recognize on this basis.

iii. We thank Manu Khanna and Alan K H Lim of TradeLens Singapore for their assistance.

iv. Postal companies in some jurisdictions provide other services such as printing of bills and delivery to the customers of their clients. Given their extensive reach and availability or resources, we believe that they could be approached as a common intermediary to facilitate the movement of documents, as may be required, the intention being that the printing of documents should be done nearest to the party whom it is being delivered (something akin to postponement strategy employed say by Benetton )

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3 comments

  1. T.R.Gopalakrishnan

    The bill of lading is a document which has evolved out of a historical process. From being a receipt for goods received by the carrier, other characteristics like a document of title and negotiability, etc. tacked on to it en route. The basic qualities, however, remain unchanged. The present circumstances call for a sea change. Tinkering with the document piecemeal may not serve the purpose. As a document serving international trade, a new document, taking into consideration e-trade practices, ownership of cargo, negotiability, etc. will have to be produced.

    • admin

      Thank you for your comments. While we admit that it would be best to relook to find the best fit in the circumstances, given the numerous parties and the various jurisdictions, it may indeed take time to reach common ground and take this forward.

  2. Adv (Dr) P.V. Sasikumar

    Dear Jagannath sab,
    Really, a very thought provoking and a very relevant news letter especially in the present and likely to be continued situation.

    Application of Block chain technology in the shipping business is not a new thing. But the international acceptance of the block chain in eB/l is yet to be materialised., As I understand, the ICC Banking Commission had done some interesting survey through the Clyde & Co who had considered 10 countries for their studies and had brought out many points about the legal issues (jurisdictional issues especially) for the implementation and acceptance of the eB/l- block chain technologies by the various concerned parties in place of the traditionally accepted paper B/l. Points given under 6(c) of your news letter are notable.

    With kind regards,
    Adv. (Dr.) P.V.Sasikumar

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