The use of electronic bills of lading is gaining traction among large corporations looking to take paper out of trade processes. Liz Salecka examines the benefits of, and challenges to, this approach – as well as the options available.
Although trade has traditionally been characterised by paper-based processes, the emergence of platforms that can electronify trade documents, such as bills of lading, is starting to have an impact.
As a result, the question now facing many major companies involved in international trade is not whether they should electronify, but how they should go about it.
At Bank of America Merrill Lynch (BofAML), Paul Johnson, managing director and senior product manager, trade and supply chain finance, explains that there are two main options when it comes to taking the paper out of bills of lading.
“The first of these involves using trade document preparation technologies to electronify parts of the documents’ journey,” he says. “Banks can enter arrangements with shipping lines to access and download e-bill of lading documentation – rather than waiting for a paper document to arrive.”
The second option, he explains, is much more technology-intense and involves removing paper from the process altogether.
“It involves maintaining an electronic record of the documents using a platform like essDOCS or Bolero,” says Johnson, noting that over time, this type of technology may be replaced by distributed ledgers. “The global infrastructure for this [distributed ledgers] is not yet there – but we will see incremental steps taken towards the use of this technology.”
To a large extent, companies such as essDOCS and Bolero have paved the way for e-bills of lading and other e-documents with their respective CargoDocs and e-Presentation solution sets.
Both agree that much still needs to be done to drive the paper out of bills of lading.
“Companies are looking to automate their business and a lot of investment has been put into everything, from automating orders to their logistics processes, but when it comes to shipping from A to B this is still primarily done using paper,” says Ashley Skaanild, chief commercial officer at essDOCS.
“One problem associated with paper in trade finance is that it has to be couriered and this takes time and costs money.”
“There is still a long way to go to move the trade industry into a digitised environment,” adds Ian Kerr, CEO of Bolero.
“When it comes to making trade paperless, e-bills of lading are particularly important because they represent a document of title [ownership] for the goods.”
Nevertheless, both companies report rapid growth in the use of their platforms.
essDOCS now has over 4,000 companies set up on its solution, in comparison to only 100 five years ago, and anticipates growth of about 60% a year.
Bolero has seen a compound annual growth rate (CAGR) of over 26% in enrolled parties such as corporates, banks, carriers and logistics companies and insurers over the last 10 years.
The biggest users
While e-bills of lading are expected to appeal to banks, buyers and sellers involved in various types of trade transactions, they have generated some of their greatest support within specific regions, such as Asia, and among specific industries.
“Asia is a key area for our customers,” says Skaanild, noting that essDOCS has signed up companies such as Vale and BHP Billiton whose banks have subsequently joined the platform.
He adds that the use of electronic documents is relevant to every industry involved in shipping goods, but for some – agri, metals, energy and chemicals – the uptake has been greater than others.
Kerr also notes that players in the commodities industry have been particularly keen users.
“They are involved in very sizeable international trades – particularly into Asia,” he says, explaining that another reason for their interest relates to the length of time many shipments take. “If you are shipping iron ore from Australia to Shanghai, the shipment might take eight to 10 days – but paper documents might take 20 days to get to the destination.”
Some of the greatest payback from e-bills of lading is also being experienced by those companies involved in large ticket transactions.
“They want to reduce working capital tied up in inventory and receivables,” says Johnson. “This is especially the case where the transit time is short: these companies want to eliminate the likelihood of goods arriving before the documents.
“If the goods are not held up in customs, payment for them can be made sooner, and this results in a lower working capital borrowing requirement. It also means the seller can do more business by churning buyer credit limits more frequently.”
From an end-user perspective, agricultural trading group Cargill, which is hedging its bets and using both the essDOCS and Bolero platforms, recognises speed of transfer as a key benefit of using e-bills of lading.
“We are a worldwide business and have to go electronic because paper is so slow to move,” says David Merceron, World Trade Group (WTG) trade execution team lead at Cargill, pointing out that the company works with e-bills of lading in 35 countries in different time zones.
“We have to make sure that documents are in the right place at the right time and that calls for a reliable platform.”
He adds that e-bills of lading bring added security to trade transactions as well as greater flexibility.
“We want to be able to reduce risks and costs,” he says.
“By using e-bills of lading, we can eliminate the risk of documents being lost in transit and also the need to physically transfer documents by carrier.”
Petya Sechanova, Cargill Agricultural Supply Chain/WTG trade execution leader at Cargill, adds: “In my experience, the problem of ‘paper bills of lading going missing’ can happen five to 10 times a year. If they go missing, there is a possibility that they could be resold, meaning there is a greater risk of fraud.”
The use of e-bills of lading is also generating increased automation advantages for both banks and corporates.
“When a set of paper documents is presented to a bank, they still have to go through the complex process of rekeying in all that data to populate their systems and run sanction checks,” says Skaanild at essDOCS. Whereas if banks receive information as data, instead of on paper, it can be put straight into their own processes.
This greater automation is particularly beneficial when it comes to regulatory compliance.
“E-bills of lading bring benefits to banks and corporates in the area of regulation, such as sanctions compliance, and know your customer (KYC) and anti-money laundering (AML) due diligence,” says Johnson. “If you are conducting compliance reviews on data, it can be screened in an automated way.”
At Misys, Moez Thameur, trade and supply chain finance product manager, also believes that e-bills of lading bring added support to KYC and AML.
“The transfer of these critical documents electronically has significant benefits when it comes to tracking and managing multiple changes in ownership of goods across borders,” he says.
“The availability of audit logs shows the transfer of the documents and can be traced back, if required, to ensure security and authenticity. Meanwhile, AML requires identification of different stakeholders and must be known to the banks before an e-bill of lading is issued. This adds another layer of security and ties to compliance.”
He adds that Misys, which services over 200 banks in the trade finance space, is seeing increasing demand to interface to e-bill of lading systems.
Not all smooth sailing
Despite this, a number of challenges still persist when it comes to the widespread adoption of e-bills of lading.
“It is human nature to resist change internally within companies,” says Skaanild, but notes: “Awareness is a challenge, but with a proven track record and an expanding network of users, resistance begins to wane and adoption can only grow.”
Another challenge relates to the fact that the e-bill of lading is only one of a number of documents involved in typical trade transactions.
“Cross-border trade shipments typically involve as many as 10 different documents,” says Johnson.
“No trade chain relies purely on e-bills of lading for financing, so what is ultimately required is the digitisation of all the documents.”
“Generally, e-bills of lading are certainly gaining momentum, but digitising one small part of the trade finance chain is not enough,” adds Thameur.
“The industry needs to look beyond e-bills of lading, from shipping agents, to buyers, to central banks, to customs and find ways to automate and standardise documents, and better connect right across the spectrum to drive wider adoption.”
Some trade documents are also harder to electronify than others.
Skaanild references phytosanitary certificates, which are issued by government-run plant protection organisations and needed for some shipments of foodstuffs, agri goods and refrigerated cargo.
“The challenge for us is to persuade authorities at the shipment destination that they can accept an e-version,” he says.
Merceron adds that there is also still some reluctance to move to electronic documentation in certain countries.
“In some countries such as Malaysia, Taiwan and Korea it is easier, but in Japan it is more difficult,” he says.
Fitting in with the BPO
While e-bills of lading have stolen much of the debate when it comes to making trade paperless, their use must sit comfortably with other digital initiatives such as the bank payment obligation (BPO).
“E-bills of lading are used in association with the BPO. However, at the moment the BPO only accounts for a small proportion of trade business – less than 1%,” says Johnson.
Both major providers of e-bill of lading solutions point out that their offerings are compatible with the BPO.
“There have not been that many BPO transactions – nor BPOs that involve e-bills of lading, but we are in position to support a BPO with our solution,” says Kerr.
And at essDOCS, Skaanild notes: “We can create all the documents on our platform as data documents, turn this into an XML file, and then send this to the Trade Services Utility (TSU) for the BPO. This benefits the banks as otherwise they would be receiving copies of the documents, and would have to key in information.”
He explains that the company then takes the e-bill of lading and holds it in escrow. Once it has notification of a data match in the TSU for the BPO, the e-bill of lading is automatically released to the buyer or the buyer’s bank.
Which platform is best?
While most banks have signed up with more than one trade e-documentation services provider, some corporates, perhaps surprisingly, are also pursuing this approach.
“At Bank of America Merrill Lynch we are taking an agnostic approach to the platforms we use,” says Paul Johnson, explaining that the choice of platforms largely depends on client requirements.
“We have seen ‘dual-use’ scenarios where clients try out one platform and then also seek to trial an alternative. These tend to be large clients that want to deal with the top-end of the market when it comes to technology solutions.”
Ashley Skaanild at essDOCS confirms that a handful of companies have opted to use two different platforms. “Time will only tell if there will be one ultimate winner and, in the meantime, our focus is on delivering the best solutions we can,” he says.
Cargill entered an agreement with essDOCS in 2013, and started using its platform in 2014. A year later it started discussions with Bolero, and used this platform for the first time in 2015.
“Both of these platforms principally do the same thing. Both companies are in competition on a new innovation, and we want to use both providers as we don’t know what will happen over the longer term,” says Cargill’s David Merceron.
“We do not want to commit ourselves to just one platform as this is not our core business and we want to be able to test out both. There is likely to be further innovation in this area, and we want to see how these two platforms will be further developed over time.”
Cargill’s Petya Sechanova adds that the two different platforms are also more suitable for trade in different areas – receivers in the agricultural commodities business tend to be using essDOCS while receivers in the mining sector tend to use Bolero. “A lot depends on the platform our receivers are using,” she says.
She also believes that competition is a good thing. “If you have a monopoly situation where there is only one core provider, they may end up charging you so much more. I don’t believe that we will see several providers in this space – but we may end up with two or three that have different specialisms and whose platforms are perhaps more suited to different sectors.”
Both essDOCS and Bolero also welcome competition.
“Competition drives innovation to the benefit of all. Since we have had competition we have launched BPO+ and DocPrep+, both of which enable customers to further transition to paperless,” says Skaanild.