Turning the tide: creating a new digital logistics future
At first glance, the Covid-led acceleration of digitalisation across most industries seems to have left shipping in its wake. The industry’s manual processes have in many cases resisted the onset of cloud technology, big data and artificial intelligence in helping to cut costs, time, delays and emissions.
But change is coming. Bills of Lading (BoLs), the key contracts that underpin global trade, are making important progress towards going digital at last.
This will add much-needed transparency to the international shipping industry. In turn, this will reduce the inefficiencies, errors and delays that negatively impact revenue. At the same time, it will save costs. Key benefits for all participants in the supply chain include proof of authenticity and provenance, an in a secure way that is integrated and accessed by each participating entity.
Singapore is leading the way. In fitting with its status as the world’s busiest port in terms of shipping tonnage, the city-state recently created a new roadmap for the global logistics sector by moving a step closer to establishing a workable electronic version of the traditional BoL via an eBoL.
More specifically, the country adopted the UNCITRAL1 Model Law on Electronic Transferable Records (MLETR) when it passed the Electronic Transactions Act (Amendment) on 1 February 2021.2 This legislation gives eBoLs a legal status that is equal to that of existing paper versions of a BoL.3
What is an eBoL and how does it work?
A traditional BoL is a legal document issued by a carrier to a shipper. It is one of the most important documents in international trade, with three main functions:
The platform used for the storage and transmission of the electronic documents can vary, from blockchain-based platforms to core trade third-party platform providers like Bolero.
“For the parties in a trade to be comfortable with electronic bills of lading, they require confidence that the electronic form is legally valid, binding and enforceable in all jurisdictions where they may need to enforce their rights,” said Sofia Hammoucha, head of transaction banking, South-east Asia at BNP Paribas. “The legislation [in Singapore] adds this legal certainty – an important step in digitalising global maritime trade finance.”
Just the beginning
Singapore is only the second country globally to adopt the MLETR, which means that in the early stages of eBoL adoption, BoLs will need to be transferrable between physical and digital formats. “Singapore’s decision to embrace digitalisation of this critical form of business documentation will spur other nations to follow suit,” predicted Hammoucha. “From a global trade finance provider’s point of view, this is a welcome development that brings huge efficiencies for our clients.”
There are also initiatives underway to leverage distributed ledger technology – or blockchain – to house and update eBoLs in a secure and traceable manner.4 “Digitalisation can deliver benefits to even the most entrenched and complicated processes,” said Hammoucha. “When the value proposition is as strong as it is for eBoLs, it just takes a few early adopters to trigger a wave of positive change across a large and far-reaching industry.”
The timing is good, too. The impacts of Covid-19 are expected to dramatically impact global trade in the short-to-medium term. The OECD reports that the price of cargo shipping has risen significantly over important routes, putting cost pressures on traders, suppliers and consumers alike.5
Singapore’s Minister-in-charge of Trade Relations, S. Iswaran, said in a recent parliamentary speech that up to $4 billion could be saved annually if half of today’s container shipping journeys adopted eBoLs. Ultimately, Iswaran noted, the consumer will benefit from these lower costs when they buy online goods and have them shipped to their homes.6
It is notable that eBoLs are already used by counterparties through restricted networks in maritime trade, facilitated by technology partners such as Bolero.
To date, though, widespread adoption has been slowed by trade’s international scope and the large number of participants involved in each transaction. These factors create a high level of complexity: cargos are likely to travel across multiple borders while the companies buying and selling – and those providing shipping, financing and insurance – are often also located in different jurisdictions.
This intricate chain of legal relationships, each with its accompanying duties and liabilities, generates a complex document. The BoL serves as a receipt for the shipment’s contents, noting where and when they were loaded. It is also the title document for the goods, which confers ownership on the BoL holder. And it is a contract that sets out the cargo’s condition, destination and quantity.
Eliminating doubt and confusion
Certainty comes with standardisation. The MLETR sets out standards for data formats and communications protocols to promote seamless transmission of the electronic document between all parties. “Satisfying the range of stakeholders involved in transporting goods by sea requires a language that’s common to them all,” says Hammoucha. “Codifying the means of conveying this essential information puts all parties on the same page, which goes a long way toward eliminating doubt and confusion.”
Creating a viable eBoL would generate more than just certainty. Ryan Sequeira, head of global trade solutions product management, Asia Pacific, at BNP Paribas, said: “Sending paperwork back and forth means significant administrative costs, including time delays. Seamless, end-to-end electronic transmission of documentation eliminates the costs generated by manual processing and time lost in transit leading to faster goods clearance and related settlement.”
In addition, costly delays due to demurrage – problems with unloading a cargo at the destination port – would be reduced because an eBoL can be transmitted between parties while the goods are still in transit, ensuring details are up-to-date when it is time for the cargo to be unloaded. Changes of ownership, effectively facilitating trading of the cargo before it reaches its destination, are also possible while the cargo is at sea.
Another benefit of going digital is reducing the risk of fraud. “Digitisation promotes greater security,” said Sequeira. “Paper documents are easy to amend or fake, while digital formats are harder to tamper with and offer the possibility of enhancing security as well as compliance with encryption and integration into vigilance systems.”
With all industries taking measures to reduce their carbon footprint, digitalisation provides a substantial opportunity for them to do so. “Printing out lengthy documents and having them couriered around the world adds significantly to the logistics industry’s emissions output,” he added. “The more we can rely on electronic means to transfer and update bills of lading, the better we can manage the impact of maritime trade on the environment.”
At the forefront of digital trade and financial platform solutions
In 2018, BNP Paribas and HSBC Singapore successfully completed Singapore’s first fully digitised end-to-end letter of credit transaction between two different companies.The transaction involved Rio Tinto selling a bulk shipment of iron ore originating from Australia to China for its customer Cargill. As part of the transaction, BNP Paribas issued a letter of credit (LC) over the blockchain on behalf of Cargill to HSBC Singapore acting on behalf of Rio Tinto.
In September 2020, BNP Paribas announced its collaboration with China’s Ant Group to launch a blockchain-powered trade finance platform, known as Trusple.Trusple is designed to make international trade more reliable, more transparent, as well as more efficient for SMEs. Trusple manages orders digitally, doing away with much of the paperwork involved in traditional trade while enabling better shipping management and payment processes. The transparent and traceable nature of blockchain technology ensures the authenticity of entries and order, strengthening record-keeping and risk management for financial institutions and SMEs around the world.
1 - https://uncitral.un.org/
2 - https://www.imda.gov.sg/news-and-events/Media-Room/Media-Releases/2021/Electronic-Transactions-Act-Amended-To-Facilitate-Electronic-Transactions-Providing-Convenience-And-Strengthening-Singapores-Trade-Competitiveness
3 - https://www.mpa.gov.sg/web/portal/home/maritime-singapore/introduction-to-maritime-singapore/premier-hub-port
4 - https://theloadstar.com/india-gives-the-green-light-for-use-of-blockchain-based-bills-of-lading/
5 - http://www.oecd.org/coronavirus/policy-responses/covid-19-and-international-trade-issues-and-actions-494da2fa/
6 - https://www.straitstimes.com/singapore/politics/new-law-to-allow-e-documents-for-cross-border-trade-lpas