Following the introduction of the E-Bills of Lading Act, ITM Editor Joseph Clarke explores the functions of E-Bills and how businesses are adapting to the paper bill’s predecessor
Bills of lading play a critical role in international trade and logistics, as they provide proof of shipment, evidence of the contract between the shipper and the carrier; and can be used to obtain payment or release of the goods. They are typically issued in multiple copies, with the original copy often required for the consignee to take possession of the goods. For several decades, and even long after the introduction of electronic bills of lading, businesses working in import and export have continued to rely upon paper-based bills of lading for their international trade and shipments.
However, with the increasing digitalisation of industries across the globe, and largely thanks to the recent introduction of the E-Bills of Lading Act, electronic bills are expected to become much more common in international trade and shipping operations, eventually replacing entirely their paper sibling.
What are bills of lading?
Summarised by Maersk, “A bill of lading is a legal document that has a few important functions in shipping and logistics. It is firstly a contract between the shipper, carrier, and consignee stating which goods are being shipped, where the shipment is coming from and where it’s headed.” It is an essential document for the shipping and transportation of goods, particularly in the context of international trade, and has three main functions.
Firstly, a bill of lading serves as a formal receipt issued by a carrier (e.g., a shipping company or freight forwarder) to the shipper (the entity sending the goods). It acknowledges that the carrier has received the goods in proper condition and that they are ready for transportation. This document serves as evidence that the carrier has taken possession of the cargo.
Secondly, it is a contract of carriage, which means that it functions as a contractual agreement between the shipper and the carrier, outlining the terms and conditions of the transportation arrangement. This contract specifies details such as the chosen route, the mode of transport (e.g., sea, air, truck, or rail), and any specific instructions or special requirements related to the shipment. It establishes the responsibilities of both the shipper and the carrier during the transportation process.
In some cases, especially when dealing with negotiable bills of lading, this document can also serve as a document of title. A negotiable bill of lading means that ownership of the goods can be transferred by the holder of the document. Possession of the original negotiable bill of lading grants the holder the right to claim and take possession of the goods upon arrival at the destination. This concept is similar to how a physical title document is used to establish ownership of a vehicle.
These functions make bills of lading critical in international trade, as they provide proof of shipment, evidence of the contractual agreement between the shipper and the carrier, and the ability to claim payment or goods upon the arrival of the cargo. Additionally, they play important roles in logistics, cargo insurance, legal and financial transactions, and record-keeping. Ultimately, bills of lading are fundamental in ensuring the organised and traceable movement of goods in both domestic and international trade. In the words of Maersk, “A bill of lading is important because whoever has it owns the cargo. It acts as the legal document of title which allows the person holding it to claim ownership of the cargo.”
Why have businesses relied so heavily upon paper?
Shipping companies have traditionally relied on paper bills of lading instead of electronic ones for several key reasons. First and foremost, bills of lading have a long history in international trade and are deeply ingrained in legal and trade practices. As laws and regulations in many countries are structured around paper bills of lading, bringing about common legal changes and international standardisation for a transition to electronic bills of lading has been a hefty and long-winded task. Prior to the recent introduction of the E-Bills of Lading Act, going digital was simply too complicated and time-consuming.
The preference for paper bills of lading also stems from the perceived trust and security that they offer. These physical documents provide a tangible record of cargo ownership and transfer, and they are often considered more secure and less susceptible to fraud or cyberattacks than their electronic counterparts. Often, the fear of potential tampering or hacking with digital documents can deter companies from making the switch.
Paper bills of lading also bring uniformity to the process by offering a standardised format that is universally recognised and accepted in the shipping industry. In contrast, electronic bills of lading can come in various formats and utilise different technologies, leading to interoperability challenges and potential confusion among stakeholders.
Additionally, in some regions and industries, not all parties involved in shipping have access to the necessary technology for electronic bills of lading. This digital divide can create logistical hurdles and hinder the widespread adoption of electronic solutions. Furthermore, the shipping industry, like many other well-established sectors, can be slow to embrace new technologies and processes. Resistance to change often stems from concerns about the costs and learning curve associated with implementing electronic systems.
However, it’s worth noting that there is a growing trend toward digitalisation in the shipping industry, highlighted significantly by the E-Bills of Lading Act that came into play back in July 2023. The demand for electronic bills of lading and other digital solutions, facilitated by this new Act are becoming increasingly prevalent due to the significant benefits they offer in terms of efficiency, cost savings, and reduced environmental impact. Over time, it is predicted that the industry is likely to shift more toward electronic documentation, but it will require a process of adapting and trust building, while also overcoming technological obstacles along the way.
What is the E-Bills of Lading Act?
The Electronic Bills of Lading Act is a law that equalises the legal status of electronic trade documents with traditional paper documents. Its primary objective is to eliminate the necessity for excessive paperwork and redundant bureaucratic processes, thereby facilitating the transition of businesses from paper-based to digital-based international transactions for buying and selling goods.
Chris Chatfield, Partner at Kennedys Law Firm, explains that “The Electronic Trade Documents Act 2023 seeks to modernise the law surrounding electronic trade documents including electronic bills of lading. It adopts an approach which is light on detail and flexible.” The introduction of said Act is expected to “pave the way” for the increased use of electronic bills of lading, which is extremely necessary given that international trade is estimated to generate four billion paper documents per year. Chris adds: “This is seen as inefficient and environmentally unsound and one of the drivers behind this new legislation, along with the need for English law to formally recognise the possession of electronic documents.”
As outlined by Global Law Firm Clyde & Co, there are three main benefit areas to the Act: enhanced efficiency, augmented security and increased trade opportunities.
The transition to electronic trade documents promises substantial cost savings for businesses, eliminating the need for producing costly paper alternatives. Businesses will no longer need to print and dispatch paper documents to third parties, leading to expedited transaction processes and a reduction in the likelihood of errors.
Furthermore, the creation of electronic Bills of Lading can be automated, allowing businesses to input necessary details and generate documents at the click of a button, which can then be swiftly transmitted to the relevant parties. This automation significantly enhances efficiency and mitigates the complications associated with paper bills of lading. In the latter case, carriers cannot release goods in the event of paper document delays, often necessitating a letter of indemnity for the goods to reach the consignee.
However, it’s important to note that the adoption of electronic bill of lading systems might incur additional costs imposed by service providers.
Electronic trade documents also bolster transaction security and minimise the risk of sensitive information being compromised. Various electronic bill of lading systems, such as Bolero, E-Title, and Cargo X, have received approval for use by member Clubs of the International Group of P&I Clubs (IG).
Newer systems are capitalising on blockchain technology to create traceable digital records of the transaction process. This use of distributed ledger technology allows participants to access information instantly while reducing the potential for fraudulent activities. Information is stored on multiple servers, making it onerous for any malicious actor to alter documents as they would need to access all versions.
Increased Trade Opportunities
The combined benefits of heightened efficiency and improved security are poised to stimulate increased trade, not only for existing participants but also for newcomers. These advancements break down trade barriers for smaller businesses and enhance their access to trade finance. This, in turn, makes international markets more accessible for those who are not presently engaged in international exports.
Projections indicate that the Electronic Bills of Lading Act (ETDA) will bolster the UK’s international trade, providing UK businesses with estimated benefits of £1.1 billion over the next decade.
How are companies responding to and adapting to the Act?
I recently had the privilege of interviewing Samantha Brocklehurst, Customer Experience Director Maersk UK & IRL. During the interview, inevitably Samantha and I spoke about green shipping vessels, like Laura Maersk, as well as digitalisation. Additionally, Samantha discussed the introduction of the E-Bills of Lading Act and I spoke about how she thinks companies are responding and adapting to the Act:
“I think slowly. I think the Act is a really significant one. The fact that UK law now recognises an E-bill of lading, which has the same status as a paper bill of lading, is a game changer! However, since that was passed a few months ago, I’ve not seen any significant change from our customers or any significant change in the conversation. I think there’s a lot that needs to be done to be able to actually power that trade.
“I mentioned the DCSA before and the ambition from those nine big ocean carriers to have a fully digital bill of lading by 2030, we’re still seven years off. It’s still very, very achievable. But I think there’s a lot of work to do to get regulators, to get customers, to get key players within the supply chains, to get banks all around the table to really accelerate that conversation around what those standards look like. What does the security around those standards look like? And what do we need to do to be able to really, really buy into this concept of getting rid of bits of paper? Because it is still an incredibly anticipated industry from that point of view.”
Upon mentioning to Samantha that such a high percentage of businesses are still reluctant to move away from paper bills and asking how she thought that we could reduce this resistance, she explained:
“We collectively need to get around that table and really understand how we make this happen. The regulations are there now, and actually the changing of UK law is a bigger game changer for companies and trade even outside of the UK, because a lot of maritime law is informed by UK law. So, this is not just an opportunity for the UK, it’s a global opportunity for E-Bills. Now is the crunch point! Now is the time!”
Grant Hunter, Director of Standards, Innovation and Research at BIMCO, shared his predictions for the coming year:
“I would say that in 2024 we can expect to see the efforts to raise awareness of the benefits of eBLs through BIMCO’s 25 by 25 campaign and, more recently, the FIT Alliance universal eBL declaration, resulting in a positive upward growth in adoption across all trade sectors. The ETDA and similar legislation will help remove some of the legal uncertainty – so this will help too.”
Having spoken with both Samantha and Grant, I was left feeling positive about what the future holds for E-Bills of Lading and the increasing shift away from paper. With regulations now in place, facilitating trade via electronic bills of lading and without the previous complications that were time-consuming and costly, it really is just a question of businesses deciding to step out of their comfort zones and embrace digital solutions like E-Bills of Lading. To echo Samantha’s words, now really is the time!
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