Following years of incremental improvements, the last 18 months have seen a decisive shift towards trade digitisation. One document in particular – the electronic bill of lading – is getting an outsized amount of attention. Eleanor Wragg reports on why.
A year and a half into the Covid-19 pandemic, and any lasting objections to taking trade paperless appear to have dissipated entirely.
As lockdowns paralysed in-person interactions and prevented the processing and transportation of documents, trade digitisation – efforts towards which have been underway for three decades to limited effect – suddenly became imbued with the kind of political capital its proponents could hitherto only have dreamed of.
The adoption by Asian trading hub Singapore of the UNCITRAL Model Law on Electronic Transferable Records (MLETR) was swiftly followed by a ministerial declaration from the G7 nations that they would set to work on legal reforms to sweep away impediments to electronic instruments in trade.
Meanwhile, standardisation – a key barrier to the wider adoption of digital documents – gained serious momentum, as stakeholders from various corners of the industry sat down together to thrash out common terms.
“Covid was the spark that ignited everything,” says Thomas Bagge, CEO of the Digital Container Shipping Association (DCSA), a body made up of nine of the largest container shipping companies covering 70% of global containerised trade. “There is a significant number of stakeholders now motivated to change the opaque and antiquated processes that are still common in international trade. I expect a lot of change is now underway.”
From invoices to packing lists, letters of credit, bills of exchange, insurance policies and certificates of origin, trade transactions are nothing if not paper-heavy. With a trade finance deal for a single cargo by sea said to require up to 36 original documents and 240 copies from as many as 27 parties, the ships crossing the world’s oceans leave a paper trail at least as long as the vessels themselves.
One of the first forays into turning these physical documents into ones and zeros focused on the bill of lading (BL), which is arguably the most important piece of paper in seaborne trade. The BL has three main functions: it provides evidence of the agreement between the shipper and carrier for the movement of cargo, it is a receipt for the goods, and it is a document of title to the goods. If an original bill of lading is lost, delayed, or stolen, the recipient cannot take possession of the goods, and with around 90% of traded goods being carried over the waves, making the BL digital would have far-reaching impacts.
The first commercial attempt at creating an electronic bill of lading (eBL) was the Bolero project. Started as a joint venture between the Through Transport Club (TTC) and Swift, the Bolero bill of lading was launched onto the market in 1999.
“We focused on the eBL because it is the hardest to dematerialise. It is used by parties other than the contracting party, in completely different industries. Banks use it for financing, it is used in certain cases by regulatory authorities, and it is cross-industry: it is an essential document in both the physical supply chain and the financial supply chain,” Paul Mallon, director of legal affairs and co-founder at Bolero, tells GTR.
Six years later, in 2005, Bolero’s first competitor arrived on the scene in the shape of essDocs, which became operational with its eBL in 2010.
“Our view when we started this was, if you can do an electronic bill of lading, you can do any other document,” explains Alexander Goulandris, co-CEO of essDocs. “Once you have the security and the infrastructure to digitise a title document, any other document is easy.”
Nonetheless, take-up of both solutions was slow. In the years that followed, a handful of other solution providers joined the fray, each offering slightly different value propositions and targeting different subsections of clients. By February 2020, the International Group of P&I Clubs (IGP&I), which as a whole provides marine liability cover for approximately 90% of the world’s ocean-going tonnage, had agreed to cover liabilities in respect of the carriage of cargo under six electronic systems: Bolero, essDocs, Singapore-based eTitle, and blockchain-based newcomers edoxOnline, CargoX and Wave.
Despite this growing number of actors, and the advent of new technology, eBLs still remained somewhat of a niche option, with research from the DCSA last year putting the proportion of BLs issued in electronic format in containerised trade at a measly 0.1%.
An uphill struggle
Part of the reluctance to adopt eBLs stems from uncertainty around their legal validity. Only a very small number of jurisdictions give electronic trade documents the same standing as their paper counterparts, which means commercial eBL solutions have had to get around this using contract law – whereby all parties essentially agree that the eBL is equivalent to a paper BL.
“The problem is, in international trade, you don’t generally have point-to-point parties. While I ship from A to B, the chances are that the ship owner is from C, the contract of carriage is under law D, and financing is via jurisdictions E and F. When you have gaps in legislation recognising edocs, and today there are massive gaps, you are going to need a multipartite agreement,” says Goulandris.
Another stumbling block has been around interoperability. With different, competing systems on the market, it’s difficult for stakeholders to know where to commit themselves, and with each solution being based on a different format and technological set-up, the change management process and costs involved in switching horses midway through the race has dissuaded many from taking up the eBL.
The outbreak of Covid, however, changed attitudes entirely.
“The greatest competitor of Bolero since conception has been inertia. Covid has brought it up to the top of the agenda,” says Mallon.
“What Covid has proven is that physical and financial supply chains that are built on paper have fragility and can break,” adds Goulandris. “The risks of paper were considered theoretical in the past. Now, it’s no longer a risk that can be left unaddressed.”
In recent months, every eBL solution provider has reported increased demand from clients – albeit from a low base.
“We have some trade lanes where customers are nearing 100% digital. There is now almost no paper at all,” says Goulandris. He says that barge bills of lading in domestic US agribusiness have already reached critical mass in certain agri commodities, as have certain bulk metals and minerals flows. “This has happened in a very short time, and we are now expanding into more markets and more commodities and into new trade lanes. Covid has had a massive impact on accelerating uptake in all routes.”
“We are under unbelievable pressure,” adds Gadi Ruschin, CEO of Wave. “Our team has more than doubled in the past six months, and every week additional people are joining. The carriers are now taking the lead, and they are bombarding their networks. We expect to see additional declarations and additional rollouts very quickly, and I believe that this will take us from fractions of a percent of penetration to far larger amounts.”
On top of Covid-related forced digitisation, increasingly positive signals from large jurisdictions that they may soon accept eBLs as being equivalent to their paper counterparts have, according to some, created the perfect conditions for the eBL to thrive.
“The G7 announcement was in my view the most significant statement that has come through,” says Bolero’s Mallon. “All of this together is creating an environment where the stars are beginning to align in a way that they haven’t before, and that is why there is such a flurry of activity.”
But, just as they have the demand issue all but resolved, eBL solution providers now have a new, more competitive environment to navigate.
As acceptance of the eBL grows among shippers and regulators alike, numerous new actors are entering the space, mirroring the hype cycle that other trade digitisation processes have already begun to experience.
Earlier this year, blockchain firm R3 – which is behind the technology powering several digital trade platforms such as Contour – started the testing process for its own eBL solution. Meanwhile, Singapore’s TradeTrust project, led by the Infocomm Media Development Authority (IMDA), said in May that it had successfully completed a trial with the Port of Rotterdam to demonstrate that an eBL issued by one platform could be verified and processed by another digital trade platform.
“After Singapore approved the Electronic Transactions Act and allowed for the use of eBLs, there was an explosion of opportunities. That helped bring more awareness, as well as funding,” says Henry Roxas, head of trade finance at R3. “The government is looking to invest more, so people are looking to innovate and work with solution providers.”
For its part, the IGP&I has also approved another system, that of TradeLens, which was jointly developed by Danish shipping firm Maersk and technology giant IBM, and counts among its ocean carrier members Alianca, CMA CGM, Hamburg-Sud, MSC, Safmarine, Seaboard, Sealand, SPL and Zim – which is also an investor in Wave.
“The world has woken up to shipping and trade as an interesting investment opportunity, and fintech and tradetech have become red hot,” says essDocs’ Goulandris. “Two decades ago, you would never see a single article about shipping on the front page of any broadsheet. It was almost an invisible industry. This has completely changed.”
Standardisation: threat or opportunity?
But it isn’t just solution providers who are getting in on the act.
In December last year, following a six-month consultation process, the DCSA published eBL standards for the containerised shipping industry. The organisation hopes that the standards, which comprise an outline of the end-to-end documentation process, process maps related to preparing and issuing a bill of lading, general definitions of terms, and data field definitions aligned with the United Nations Centre for Trade Facilitation and Electronic Business multimodal transport reference data model, will pave the way for greater eBL adoption by ensuring there is one standardised way of doing things, rather than various permutations.
“What is required on the documents is 95% identical, yet the bills of lading and the underlying data standards are not standardised,” says Bagge. This is problematic, particularly given that the top six container lines currently support five different eBL systems and essentially find themselves having to do the same thing in a slightly different way depending on what system their customers – or their customers’ banks – are using.
“We want to take all of the different bills of lading and come up with a syndicated electronic version that we can then go out and present to all the providers in the industry, and hopefully drive greater adoption,” says Bagge.
The DCSA has since been joined by the Baltic and International Maritime Council (Bimco) – the world’s largest international shipping association, which is now developing eBL standards for the dry and liquid bulk sectors, and the International Federation of Freight Forwarders Associations (Fiata), which is creating an eBL standard for multimodal transport.
While Bolero, essDocs and Wave have all told GTR in the past that they are supportive of standardisation work, one industry source cautions that moves to create a single standard version of the eBL could dilute – or destroy entirely – the competitive advantage of any one provider. “This takes away the power from the fintechs, and effectively democratises the eBL,” the source says.
“I do recognise that there are business models that might be challenged by what we do,” says the DCSA’s Bagge. “Experience from other industries shows that if your business model is built around inefficiencies in another system, then you should expect those inefficiencies to disappear. International trade has a lot of inefficiencies and of course there are stakeholders interested in removing them over time.”
Whether the end state of standardisation and the full legal acceptance of the eBL – both of which appear to be on the horizon – will lead to consolidation in the space, though, remains up for debate.
“We are seeing a plethora of eBL providers, and I wouldn’t be surprised if we see an eighth approved [by the IGP&I] this year, but that doesn’t mean that we are going to end up with eight. My expectation is that we are going to end up with two or three,” says Goulandris. “Some of that will be consolidation, some business failures, and some pivoting their business strategy.”
“I don’t know any space where there is only one solution provider,” says Bagge. “Someone sitting in one country may think one system is the definitive solution, while someone on the other side of the world will have a completely different viewpoint.” He adds that the likely outcome will be a breaking down of boundaries between the siloes of eBL innovation: “If we want this to work then it’s almost inconceivable that there won’t be interoperability.”
Beyond the eBL
Full, global legal acceptance of digital documents remains some way off, but once work is complete, “quite frankly, any technology company could provide an eBL solution”, says Goulandris. However, as Bolero’s Mallon points out, despite the attention the eBL is currently receiving, it is far from the cure to all of trade’s paper-based ills.
“The eBL is of interest because it enables other things to happen, but you need to tie together the eBL with other workflows to release the value,” he says. “Having an eBL on its own is great, but what about the other documents? How can I pay the invoice, how can I negotiate the letter of credit? I don’t just need one document in electronic form; I need the other documents too, and I need them in a format I can consume and pass on. The eBL is a widget. It’s an important widget, it’s a tricky widget, but it is only a widget. It makes other things happen. What is important is the quality and breadth of the other services and applications that you provide.”
In a blog post published in 2016, Bolero referred to the eBL as being part of a “quiet revolution” in global trade. Today, the combined push factors of Covid-19, legislative changes and standardisation work have turned up the volume. Whether every solution provider in the market will be a winner as a result remains to be seen. What is clear, though, is that a tipping point has been reached, and the long, tortuous journey that the industry embarked upon in the 1990s is close to its destination.