As with the road freight market, the shipping industry is bogged down with numerous conventional practices which are on the brink of being phased out - and the legal document called the bill of lading could be next.
A bill of lading (BOL) is a document that was developed in the seventeenth century by merchants who needed an official agreement that could be considered tangible evidence to the parties entitled for receiving goods at the destination.
Fast forward four centuries, and we still see the existence of the old form of legal trade. Over the years, there have been minimal disruptions in that stead, and the process has been blighted with issues regarding parties’ rights and liabilities. This is primarily due to the growth in the shipping industry, which makes operations a lot more complicated - so much so that domestic conventions that attempt to mitigate problems have been rendered inadequate.
One of the practical problems concerning BOL occurs when the cargo reaches its destination ahead of the document itself. This is usually because of unexpected hold-ups with bank procedures and unreliable postal networks. Faced with such a scenario, the carrier is left with two options - hold the cargo until he is presented with the physical document or deliver the cargo based on good faith.
But then again, there are complications that might arise because of such decisions. For one, holding back a shipment is not resourceful for the carrier, because cargo detention wastes precious time that could be spent hauling the next load. Or further worse, it could be detrimental to the brand of the charterer in the case of delay and cargo detentions.
Unintended consequences could arise in regard to delivering on good faith as well if there was a discrepancy with cargo being delivered to a wrong party. This could potentially land the carrier in a lot of trouble, since its P&I cover would be rendered void against the lack of proper evidence.
Nonetheless, these problems have been recognized, and reforms are being conceived to address them. Certain markets like the grain trade accept standard GAFTA 100 forms which allow buyers to produce alternative documents if the BOL does not reach on time.
The Rotterdam Rules have introduced a convention which has made the use of electronic transport records acceptable. Yet, the overall safety and transparency of these transactions are still debatable. Electronic records are prone to hacking, and if the BOL falls into wrong hands, it could be a recipe for disaster.
This is a scenario where blockchain could make a significant difference. A bill of lading through blockchain would be decentralized and automated, storing transaction information between involved parties in its system.
Blockchain evokes greater transparency and accountability, since no single party can completely validate a transaction. First off, the participants in the blockchain need to be permitted into the system by existing members, thus making it inaccessible to the general public. And then, the transactions can only be validated with the collective approval of all the parties involved. This negates the chances of fraud or double spending since the encrypted data would be impossible to be modified by an individual.
Due to the potential of blockchain to revolutionize the traditional bill of lading process, a lot of companies are vying for market share in this space. WAVE is one of the prominent players in the segment, having introduced a paperless bill of lading with a decentralized network at its core. Its application manages ownership of documents on blockchain and allows a direct exchange of information.
R3 consortium is a league of over 80 financial institutions looking to make a difference by building an operating system with a distributed ledger platform powered by blockchain.
Recently, an Israeli shipping company ZIM conducted a pilot for a paperless bill of lading trade by transporting freight between China and Canada. The transaction was run through the WAVE application, and the documents were issued, transferred, and received through the platform. Notably, Maersk had partnered with IBM early this year to create a blockchain ledger that could smooth transactions in the shipping industry.
All this being said, the use of blockchain is still in its nascent stages, and phasing out the traditional bill of lading needs an explicit approval from the banking institutions as well. The R3 consortium is a good start, where major banking systems have joined in to create the platform. Though predicting a highly successful outcome for such ventures would be too early, it would still be prudent to say that the future does look bright for the shipping industry with regard to seamless transactions.
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