Technology ahoy! Shipping and the cult of paper
Despite advances in technology, shipping remains a traditional industry. The shipping industry has a particular fondness for paper: shipping transactions are mostly conducted on paper, for example sales and purchase contracts goods/cargo specifications, invoices, charterparties, marine and cargo insurance, class inspections, bills of lading, letters of credit, certificates of origin, customs and excise declarations and port authorisations. Even where contracts are validly concluded through email, or documents created electronically, parties usually still want the contracts to be formalised by way of signed originals. Parties habitually require hard copies of electronically concluded/created contracts and documents. Furthermore, these pieces of paper often require a lot of additional work, for example they might need to be stamped in duplicate and triplicate, authenticated, signed, notarised, legalised, consularised, etc.
This preference for paper in the shipping industry is particularly reflected in the bill of lading, that much vaunted key to the warehouse. Carriers traditionally issue bills of lading in a set of three originals; at the same time, copies are also floating around.
A bill of lading has three functions: (i) it evidences the terms of the contract of carriage; (ii) it is a receipt for goods on board for shipment; and (iii) most importantly, it is a document of title, the aforesaid “key to the warehouse, floating or fixed”. A carrier is obliged to deliver goods only upon production of the original bills of lading. Frequently, however, the original bills of lading wend their way slowly through the banking chain, often arriving in the hands of the receiver at the discharge port long after the vessel arrives. Carriers usually have little choice in this situation but to accept letters of indemnity to deliver the cargo without receivers producing the original bills of lading. Problems typically arise in relation to the enforceability of the LOI, and exposure to the risk of misdelivery and/or conversion claims. Issues also arise where the cargo (typically in the oil trade) is subject to a series of “string” sales while still on board the vessel; these “string” sales are routinely entered into after issue of the bills of lading at the load port.
The example of bills of lading is a stark illustration of how the shipping industry’s reliance on paper is perhaps not the most efficient or effective way to do business in this day and age. This is particularly so given the recent development in technology, namely Blockchain, the Internet of Things (IoT) and Artificial Intelligence (AI):
As the name implies, it is a chain of blocks. Each block in this chain is like a page in a ledger: it contains a list of transactions between two parties, and a reference to the previous block. The best known use of blockchain technology is currently in the form of cryptocurrencies, namely, the popular Bitcoin and Ethereum.
Internet of Things
In its broadest sense, IoT is the technology of retrieving data from devices or machines to be able to understand the relationships between those devices or machines.
AI is the science-led effort to create human-like systems and devices. Today, these systems and devices analyse a huge amount of data and assist us in our decision making. In the future, such decisions might be made by a system or device which has human-like consciousness and intelligence, without requiring our input and without us even noticing.
These technologies offer the promise of streamlining processes, increasing productivity, reducing costs and risks.
It is not surprising, therefore, that the shipping industry is exploring the use of these technologies. There has been an increasing number of articles in trade publications and the popular press since mid-2016 on the exciting possibilities offered by such technologies. Some recent examples are as follows:
- Maersk, Microsoft, accounting firm Ernest Young and blockchain firm Guardtime, together with a number of marine insurers, plan to launch a platform for marine insurance using blockchain technology. The objective is to create a shared database involving assureds, brokers and insurers that includes information about shipments, as well as potential risks, to help companies comply with insurance regulations.
- HMM, along with other companies, recently conducted a pilot voyage from Busan to Qingdao with reefer containers. Blockchain technology was used from booking of the shipment to cargo delivery. HMM was able to monitor the cargo in realtime by combining the blockchain technology with IoT technology.
- In May, Maersk trialled a blockchain-based cargo-tracking programme in partnership with IBM.
- IBM is also cooperating with a major port operator in Singapore to work with a regional shipping firm to test a blockchain-based supply chain network.
- In January 2017, Mercuria, working together with ING and Societe Generale, used blockchain technology to process an oil trade from Africa to China.
Will these forays into technology remain exploratory and experimental? Or will they develop and be widely adopted by the shipping industry? Only time will tell.
By Maureen Poh, Senior Associate, Singapore.