Complexities and costs associated with paper bill of lading are compelling the shipping and logistics sector to adopt paperless processing.
Traditional electronic bill of lading, while being effective, is limited by a closed and centralized system that impedes widespread accessibility and participation.
Blockchain-based bill of lading, owing to its decentralized system and level of transparency, can prove to be a game-changer. However, there are challenges to extensive adoption.
A momentous change in the shipping and logistics industry has been the shift from paper-based processes to digitally enabled operations. A recent survey indicates that USD 1.5 Trillion of digital transformation-led value is at stake for logistics players up until 2025.1 A key step forward in this digital journey has been the adoption of the Electronic Bill of Lading (eBL). The complexity and costs associated with paper bill processing are compelling the sector to intensify its efforts in digitizing the Bill of Lading (BoL). Research shows that paper BoL costs thrice as much as eBL.2 Importantly, even at a 50 percent adoption rate, eBL can help the sector save more than USD 4 Billion every year.
The extensive adoption of eBL has been a challenge, though. According to the Digital Container Shipping Association (DCSA), eBL adoption in 2020 accounted for a mere 0.1 percent of all BoL issuances.3 Traditional eBL, based on the Electronic Data Interchange (EDI) technology, records the transfer of the title of goods in a centralized title registry. However, it is plagued with limitations such as the need for membership in technology platforms and the lack of uniformity in adoption across all parties involved. These challenges have come in the way of the widespread implementation of eBL
Blockchain or distributed ledger technology is the next step in the eBL evolution that democratizes trust while ensuring the highest levels of document integrity and authenticity. Unlike traditional eBL, blockchain eBL is an open, decentralized system that doesn’t necessitate registry or approval, thus making paperless trade more accessible to all participants.
Blockchain can effectively manage and regulate the transfer of BoL across the value chain. It allows the carrier, consignor, consignee, bank and other participants to view, track, complete and supervise the issuing, endorsing and surrendering processes at the same time. The cryptographic techniques maintain the uniqueness of each BoL, similar to its physical form. Moreover, the availability of permissioned and permissionless blockchain platforms means stakeholders can determine the extent of accessibility – bringing in an extra layer of security and authentication, where necessary.
Though handful, existing blockchain-based eBL solutions offer several benefits, including:
Reduced administrative costs that are typically associated with paper trails and physical delivery. Peer-to-peer documentation transfer ensures that stakeholders are not required to pay transportation fees
Accelerated document transfer within minutes. eBLs stored on blockchain can be readily accessed, enabling uninterrupted trade flow
Enhanced security and information exchange driven through immutable transaction records. Advanced encryption prevents the tampering and theft of confidential data, and provides a safe environment for stakeholders to transact
Complete transparency and traceability help build a high level of trust among business partners
Automated digital transfer and elimination of inefficiencies related to time, duplicate work and delays
Real-time exchange of information and documents that allows shippers, consignees and banks to work collaboratively
Decentralized ledger that eliminates unnecessary intermediaries from the value chain and allows all the players to transact directly with one another
While blockchain-based BoL has gained traction in the wake of the COVID-19 pandemic, it is quite a distance away from making a significant impact. Here are a few key challenges that are hindering its widespread acceptance:
Although the mechanism of data storage is decentralized or distributed, the operation and regulation of blockchain platforms (permissionless or permissioned) are centralized. It raises concerns regarding trust, scalability and a potential single point of failure.
Smart contracts and self-executing instruments within the blocks are plus points of the blockchain technology. However, they can become a challenge in the real world. Readability can be an issue since most smart contracts are written in programming languages.
Key among the barriers to the adoption of blockchain is the absence of an enabling legislative framework. The majority of the existing frameworks support the use of paper documents. For instance, the Hague-Visby Rules, a regulatory framework, are ambiguous when it comes to treating eBL at par with paper BoL. Moreover, a distributed ledger is such that data is divided across multiple jurisdictions, with each country governed by its laws around data protection. This creates a barrier to the transnational nature of maritime trade. Due to the existing geopolitical situation, this trend will intensify with countries preferring to have their system instead of relying on one platform. For instance, Alibaba, COSCO and Ant Finance are collaborating to develop their blockchain platforms.4
The lack of common standards for a blockchain-based BoL can cause incompatibility and interoperability issues. Typically, tech providers employ different approaches and data standards, which exist in isolation and do not integrate with other platforms.
Though blockchain BoL is secure, it can potentially experience malfunctions and breaches that can result in huge losses. Furthermore, in a scenario where losses are incurred, given the decentralized nature of the technology, deciding where the liability lies can be tricky.
The slow progress notwithstanding, it’s clear that the benefits of blockchain outweigh the obstacles. The future of blockchain adoption, to a large extent, depends on the surrounding regulations. The transnational nature of blockchain platforms and the internationality of BoL require that rules are harmonized internationally.
Currently, Rotterdam Rules and the Model Law on Electronic Transferable Records (MLETR) provide a legal framework for electronic documents. However, these have their limitations. MLETR is a ‘soft law’ and it is left to the countries to adopt it. Only a handful of countries have ratified Rotterdam Rules and a few countries have adopted MLETR domestically. Secondly, these two instruments have not been designed for blockchain, and have hence not been able to boost consensus in the utilization of blockchain BoL and enhance mutual trust among industry actors.
In the absence of a regulatory framework, self-regulation is the way forward. The responsibility now shifts to private actors. But self-regulation is not self-contained and relies on the existence of international and domestic institutions. Hence, companies involved in the design, development and maintenance of platforms, along with shipping companies using those, must step up to create a framework.
International agencies such as Baltic and International Maritime Conference (BIMCO) and Comite Maritime International (CMI) have a role to play in drafting standard contracts and clauses that could be used across the shipping industry. Over time, these will form the base for establishing and setting international trade standards.
These steps could be instrumental in helping the shipping industry reach a consensus on the necessity for blockchain-based BoL and reap the benefits of its revolutionizing technology.
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