The rationale and drivers for digitalising trade are indisputably strong, cutting costs and boosting volumes by trillions of dollars, yet uptake remains slow. According to BIMCO, a shipping industry association covering around 60% of the global fleet, adoption of electronic BLs, or eBLs, remains between 1% and 2%, despite two decades of efforts to move away from paper.
The most significant barrier to widespread adoption is the vast number of different stakeholders and parties that need to embrace change. Global trade is a fragmented and complex ecosystem, with countless parties interacting across hundreds of markets. Paper documents and manual processes are long established, universally understood and a source of trust.
We should not expect a sudden leap towards universal digitalisation, therefore. Adoption must be seen as a process of tran sition, involving technological and legislative innovations, and leaving no one behind. Above all, this transition has to involve replicating current paper-based processes rather than eliminating them.
Technology and interoperability
Solutions such as smart contracts, where technology can match data digitally and process transactions automatically, are out of reach today for many participants in global trade. A wholesale replacement of paper-based processes with automated digital equivalents would be too great a leap.
A more realistic ambition that technology can deliver is to replicate one of the main advantages of paper documents: their interoperability. That may seem a strange term to use for a non-digital system, but a physical BL can be presented in any jurisdiction, and is understandable, amendable and freely transferrable as required for any party involved in a trade transaction.
Digital trade documents must work in the same way. That means being able to handle various different data standards used across the industry, such as JSON and YAML. Data must be modular, so different parties are able to view and consume different parts of information as necessary. And data management, security and control is also crucial. Because documents that give title to the underlying goods, or contain sensitive commercial information, are being transferred, the owner of all relevant data must have full control over who it is shared with.
Any progress made should also be future-proofed. One way to ensure this is to allow for the possibility of reverting back to paper if required during a transaction. For example, companies need to know that if an eBL arrives in someone’s inbox in a jurisdiction, port or terminal where it cannot be handled in digital form – for whatever reason – that document can still be legally handled and transferred in paper form.
Making adoption easy is a challenge technology must address. Tools used must be sophisticated enough to allow for true interoperability, but simple enough that they can be used by anyone. Broad adoption will only be successful if barriers to access are low.
The legal question
There is another reason why participants in global trade are unlikely to drastically change processes and procedures in a single great leap: compliance. There is a growing volume of regulatory and legislative frameworks that parties must adhere to, which reduces their willingness to take on fresh risks.
Again, the solution is to replicate paper-based processes as closely as possible in a digital world. The foundation of the Model Law for Electronical Transferable Records (MLETR) – produced by the UN Commission on International Trade Law – is that electronic records act exactly like their physical equivalents.
If eBL-related legislation introduced in one country differs materially from eBL legislation in another, it may have the opposite effect than intended, creating greater complexity and slowing adoption. If governments adopt the principles set out by MLETR, parties in different jurisdictions would be working within compatible legal frameworks.
Call to action
To date, the majority of initiatives aimed at digitalising trade have involved a platform approach, where the multiple parties involved in a transaction are able to view, amend and transfer documents using a single platform, or in some cases, separate but interconnected systems.
This mindset may be creating more problems than it solves. Providers of platforms for issuing or transferring trade documentation typically do so on commercial terms, attempting to capture a potentially vast market for themselves.
But a well-functioning ecosystem cannot rely on every participant signing up to the same platform. A transaction based on electronic records must be possible regardless of whether all, some, or just one of the parties involved is using a particular technological solution. A better approach might be a utility model, where transactions only incur a charge once – as with paper.
2023 must be a year in which the international trade industry crystallises its direction of travel, and takes an uncompromising view on what will work and what won’t. Rather than fighting for a share of the 1% of trade currently using eBLs, the entire ecosystem should be working together on solving the remaining 99%.