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The long road to electronic bill of lading adoption

Oct. 6, 2020, 11:16 a.m.

Vjeran Ortynski,
Chief Business Development Officer

The maritime and shipping industry, which serves trillions worth of trade globally, still relies on the almost ancient processing of paper documents. The core document is called a bill of lading, and it is a more than 600-year-old concept. The exporter endorses it and sends it through courier services, independently of the actual cargo ship, to the buyer, who uses it to claim the goods at the port of destination. If the document gets lost, it might cause extremely high costs in demurrage and damages, even bankruptcies.

New digitalization needs

New digital solutions for these issues have emerged with the rise of blockchain technology, while the recent Covid-19 pandemics has forced shipping companies, freight forwarders, exporters, importers, manufacturers, banks, governmental, customs, and regulatory agencies to look into options on how to digitalize these last remaining paper-based documents of title processes. 

From paper to sending a document over a cryptographic blockchain

CargoX has built the CargoX Platform for Blockchain Document Transfer (BDT) to enable fast, simple, efficient, and most of all highly secure registration and ownership transfer of digital versions of Bills of Lading, or other valuable documents in electronic forms. It is built with the neutral, public Ethereum blockchain network. 

In reality, this means that military-grade encryption is used to secure the confidential content of both documents and owner identities, while the transfer of ownership is validated in a distributed, global, immutable transactional environment where blockchain provides an impeccable system of validation and auditing transactions of the highest possible value. 

Perfect foundation

The CargoX Platform has even acquired confirmation from the International Group of Protection & Indemnity Clubs, which provides liability cover for approximately 90% of the world's ocean-going tonnage, and it includes 22 of the 25 top global reinsurers. They only approved six electronic B/L providers in the past 10 years (and none before that), of those only three providers use blockchain technology and have all been approved in the last year. Besides, G2 Ocean, which operates the largest fleet of open hatch vessels worldwide (more than 130), has partnered with our platform, as well as the swiss cargo specialist Fracht AG, among other partners. 

The largest obstacle to adoption

For providers such as CargoX, the main question is - why, in these hyper-digital times of the 21st century, does the shipping industry still use paper documents of titles to transfer ownership of goods? Where is the adoption of digital solutions? 

The answer is simple - it is not the most agile of industries, and until now physical paper, with signatures and stamps, seemed the most trustworthy medium for transferring the enormous value of the shipped goods. Even if it can take weeks for the document to arrive, and millions if it gets stolen, lost, or damaged. 

In many ways, this stage of adoption of electronic Bills of Lading resembles the times 30 years ago, when email was entering business spheres and many people's private lives. Some people laughed at it, and some people started using it in much the same way they still use it today. 

Slow build-up of digitalization critical mass

How will all the participants overcome the hurdles that keep them from putting digital processing into place? 

The most prevalent issue is that to be able to send, transfer, receive and process the electronic, blockchain Bill of Lading, all four participating companies in the process (shipping line, exporter, importer, release agent) must adopt the digital technology - they need to register on the platform and start using it. 

Because the technology is still new, the fear factor of taking on a big digitizing agenda to completely overhaul how they confirm, deliver, take into possession, and transfer titles to the goods is still strong. Decades, even centuries of emphasizing the importance of a paper document cannot just vanish when somebody says, “Hey, there is a new technology in town!”. Large companies, who are just now handling reconsolidation in the market, are wary of taking on the digitization challenge - but they are very aware of the benefits, and they mostly all have conducted tests and pilot projects to study the new opportunity. 

Global frameworks coming into place

On the other hand, there are legal frameworks that must be in place. Luckily, the majority of the global effort has already been completed or is close to completion, with the United Nations Commission on International Trade Law (UNCITRAL) drafting the Model Law on Electronic Transferable Records (MLETR), and the International Chamber of Commerce (ICC) providing the UCP600 rules on documentary credits for the financial sector. At the same time the Digital Container Shipping Association (DCSA), assembled from the largest shipping companies in the world - MSC, Maersk, CMA CGM, Hapag-Lloyd, ONE, Evergreen, Yang Ming, HMM, and ZIM, and the Digital Transport and Logistics Forum (DTLF), an initiative forum to the Directorate-General of the European Commission for Mobility and Transport, is working on standardization, interoperability, and interconnectivity issues in digital maritime shipping platforms to power the truly global digital evolution of the maritime shipping ways of the old times. 

It will take some time to really implement global legal, organizational, and technical interoperability among different platforms, but the majority of work has already been done or started. 

India exploring this new ocean

Among the countries at the forefront of this digital evolution, India is one of the few that have really committed to digitalizing all its shipping documentation. The Indian company Portall Infosystem, which built and promoted the Port Community System 1x platform, together with the Indian Port Association, has integrated the CargoX Platform for Blockchain Document Transfer (BDT) to enable all Indian ports and shipping operators and companies with the new blockchain-based document transfer. Recently, the Government of India has started drafting a new Logistics Law that would connect all the modalities of logistics - sea, land, road, air. 

But in reality …! 

Even if simple platforms, such as the CargoX Platform, and others, exist, where companies only need to log in and they can start sending and processing documents with the highest level of reliability and security, while slashing costs - the mass adoption is not happening yet.

However, there are indications that it is inevitable, and it only depends on the movement of the larger actors in the market. Maybe we can even say that resisting progress is futile. 

 

Read more about the CargoX Platform for Transport & Logistics Request a demo

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