Posted: 06/03/2023
In many respects, commercial shipping is advancing technologically like any other industry. Artificial intelligence is helping with route optimization and safe decision-making. The manual inspection of equipment is being replaced with sensor technology and industrial robots are performing tasks ranging from packing to firefighting. In 2022, the Suzaka, a completely autonomous cargo ship, completed the first 500-mile voyage without human intervention.
But the industry is a stickler for tradition when it comes to bills of lading. Paper bills have been in common use since the sixteenth century and make up almost 99% of commercial bills of lading issued today. The use of paper bills is supported by centuries-old mercantile usage, deeply entrenched into state legal systems all over the world. A signed set of paper bills is also unique, universally negotiable, and possessable by only one party at a time – a combination of characteristics that technology is struggling to replicate. Clearly, the invention of paper was years ahead of its time.
Modern ships are fast, however, and paper bills are no longer keeping up. Although the financing that drives modern shipping has been pushing for modernisation and change for many years, parties to an international sale of goods are still relying on couriers to convey paper bills and other supporting documents along the documentary chain. Frequently, the paper bill of lading fails to arrive at the port of delivery in time to meet the ship, potentially exposing the parties to the contract of carriage to a delay they cannot afford to bear.
Although the carrier’s liability for mis-delivery is strict, in the absence of the bills, goods are often released to their alleged buyers against uninsured promises of indemnity. This undermines the integrity of the documentary sale, dissolving the bill of lading holder’s security over real goods into mere rights of action against the carrier in contract and the recipient in tort.
Paper documents are also a costly way to do business. The financing of an internationally traded cargo by sea has been said to involve as many as 27 parties circulating up to 36 original and 240 copy documents. Proponents of electronic bills of lading observe that there is an incredible transactional cost saving to be made on a global scale by removing the manual inspection element from the documentary review process.
Indeed, many financing institutions have developed automated software capable of verifying whether the documents conform to the terms of the letter of credit, although the debate as to who ‘takes the benefit’ has not yet been settled. The bill of lading’s successful transition to electronic form is crucial to attaining this new world efficiency, enabling users to let go of the paper interface. It is a fundamental document in every international trade by sea. The bill of lading is literally title to the goods.
A few leading states, including the US and Singapore, have already legislated to recognise electronic bills. The UN Commission on International Trade Law has also published a model law facilitating the use of e-bills, which state legislatures may choose to adopt as their own. An Electronic Trade Documents Bill proceeding through the UK parliament is soon expected to become part of English law. The new legislation will give electronic bills equivalent standing to paper bills - a significant step in view of the governing law of choice for most bills of lading being English law.
Beyond these incremental developments, however, e-bills are beset with legal uncertainty. There is no international consensus recognising e-bills as possessable property or documents of title.
To date, electronic bills have been made to work through what are known as ‘club systems’. These are private contractual networks in which the parties to the bill of lading sign up to an e-bill of lading platform provider and agree to a set of bye-laws on how the e-bill is to operate. Such bye-laws ought to be comprehensive enough to properly function between the contracting parties, but e-bill users may be more vulnerable at law when pursuing a third party who misappropriates the goods. Of course, they may be less vulnerable to such misappropriation occurring in the first place, as e-bill platforms, often implementing blockchain technology, are surely less susceptible to fraud.
There is however no shared membership access between the various club system networks. If a goods owner wishes to trade with somebody who is not a member of their chosen platform, the e-bill must be substituted with a paper bill, perhaps undermining the purpose of going electronic in the first place. Naturally, if it were only possible to correspond from a personal email account, such as Gmail or Hotmail, with people using that same email provider, a great many more of us would still be corresponding by paper. E-bills are currently trapped at this stage, effectively restricting their usefulness to container and liner operators servicing closed-party trades where, admittedly, club systems are being utilised with success.
The attention of industry bodies has accordingly turned to pioneering digital standards for common application, with a view to facilitating interoperability between platforms. The Digital Container Shipping Association was formed to this end in 2019 and the FIT (Future of International Trade) Alliance, comprising institutions such as BIMCO, SWIFT and the ICC, in 2022. The International Trade and Forfaiting Association’s manual on digital negotiable instruments, incorporating the dDOC specifications and the electronic Payment Undertaking (ePU), is already in its second edition. Thanks to these efforts, there now exist respective digital standards for container, bulker and tanker bills of lading and related financing terms.
It is hoped the development of such standards will help e-bills to compete with the open-market negotiability of paper documents of title. It is hoped the eagerly awaited recognition of e-bills under English law will serve as a catalyst prompting further sovereign states to legislate for a digital future. A recent report on behalf of the Commonwealth observes that widespread uptake of digital trade documents could increase Commonwealth trade by USD 1.2 trillion within four years and ameliorate the economic drag of the Covid-19 pandemic. With so much money to be made, the digitisation of international trade documents is surely inevitable. Change is clearly afoot, but when and how precisely a tipping point might come about remains to be seen.
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