An end to paper?
Stevie Knight investigates the advantages of digital trading and the hurdles to widespread acceptance
Fraud can be a big problem for ports despite it rarely being aimed directly at them. Take Qingdao: it became ensnared in a scandal in 2014 when 123,446m tonnes of alumina, used as collateral against loans, simply wasn't in the warehouse. The effects fell like dominoes: when the news broke that one of its subsidiaries was being taken to court for recovery of the metals, it immediately knocked the newly-released Qingdao Port International shares.
Even if the port isn't financially implicated there can be wider issues at stake. One oil producing country seems to have lost millions of barrels of crude oil exports on route over a two-year period: according to them the missing revenue has even dealt a blow to infrastructure development. More, some ports face the loss of local partners who've been reduced to bankruptcy by scams.
However, 'paper-chase' issues can hit the ports more directly if less dramatically - during a three-week journey across the Atlantic, bulk cargo is quite often split and reshuffled three or four times, “so the cargo just hangs around, waiting for it all to get reconciled”, says Simon Streat of Bolero. Further, he adds there's “significant” numbers of unclaimed containers with blank-endorsed bills of lading (B/Ls) left sitting in the yard “where the shipper's known but not who's collecting it - and the port doesn't know who to chase”.
So, companies like Bolero and ESS answer the issue with a portfolio of centrally-managed electronic documents.
There have been technical hurdles: fully electronic exchange of trade is only possible if the document passing between parties is accepted as the original. “That's surprisingly complex to achieve,” says Mr Streat, but without it, an electronic document is no more than a copy of a paper one.
Further, he says: “A chain can only be as strong as its weakest link,” adding for a truly effective transformation it needs to reach further than just bills of lading or letters of credit. “The process has to sit with a raft of other documentation - like weight and inspection certificates and so on.” This is where Bolero has been looking since its first foray into e-BLs and it now has a collection of over 200 of these trading documents.
Slow take up
But, although there's undeniably a good trickle of take up, there's been no revolution. Gadi Ruschin, chief executive of WAVE, has his own view on why the electronic transformation hasn't happened. He says: “I know of a dozen attempts to digitise trade this way; some didn't start the process due to conflicts of interest while others never got to commercial use.” And he points out, although there are now three active platforms, none have delivered a paperless industry.
It's a wider issue than being vulnerable to a single point of failure or even the inevitable legal wrangling. “It is always a question of who takes the lead, and from which sector - shipping, banking or international regulators - as this stands to change the existing balance of power right across the supply chain,” he says, “and that's judged unacceptable.”
By contrast, blockchain technology is rather different: it's an encrypted, electronic ledger held on a number of servers. As any document is instantly received on one side and deleted on the other “it's the same as if I'd put it in your hand” says Mr Ruschin.
Some banks seem quite keen on it; Barclays has teamed up with WAVE and it's already executed the first blockchain-based global transaction, a US$100,000 letter of credit between Irish dairy giant Ornua and the Seychelles Trading Company. Mr Ruschin is coy about which ports were involved “as this system is still in the pilot stage and not yet fully commercialised”, but does say they've got “several” port facilities and over 50 banks interested.
While the good thing about blockchain is that there's no central authority, the bad thing about it is that there's no central authority: any disputes have to be solved by the various parties themselves - as in paper trading. However, critics say that blockchain is just not as secure as a service like Bolero's: after all, the first use of it, bitcoin, raised concerns about money laundering, drug dealing and other nefarious activities - including hacking.
While some ports are already onboard, others like Antwerp are taking a watching brief and are waiting for “maturity and ease of use” says chief financial officer Jan Adam, adding he'd like to see “more high profile applications that would be tested on their security in the real world”. Certainly, it's important to convince ports like Antwerp as they can put considerable might behind new tech: as Mr Adam says, given a minimum level of commitment from stakeholders “we can get things started”.
It is still early days, points out Mr Ruschin - adding WAVE is actively looking for dialogue with more ports to further develop the offering. However, as far as security goes, he's adamant that the underlying technology is itself is robust: even though the digital bitcoin currency had its issues, “the hacks haven't been successful against blockchain”, despite providing the underworld with a $16bn target. So, he says: “You can probably say it's safe.”
But while all trade documents will be accepted from launch, the really big efficiencies will only be seen when enough of the supply chain reaches critical mass and automation takes over, potentially even lowering costs on the shelf, says Mr Ruschin. This point applies to both approaches: till then, he says no matter what claims are made the slower, manual checking processes “will hold things back”.
Despite this, neither system requires everyone to buy in from the start. Mr Streat explains that electronic and paper can work side by side, “so there's no need to force a big bang on the supply chain”, and although it isn't optimal there are still savings. Mr Ruschin follows this by saying: “Ideally you want a whole, single transaction to be digital, but that doesn't mean all the parties have to do it all the time for every transaction - that wouldn't be realistic.”
However efficiency is just one argument among many. Despite blockchain's foothold, other bodies may yet want a good, old fashioned electronic document: Singapore, amongst others, is looking at a centralised system because it stands to gain an oversight of all trade activities and the authorities are keen on collecting the appropriate amount of tax, says Mr Streat. On the other hand, one industry source is of the opinion that “certain areas will never accept digital trade as it would make the real figures too hard to obscure”.
Finally, Bolero itself is looking at what blockchain chunks it can swallow: Mr Streat says he doesn't see the technology as competing but “more as complementary” and adds there are services that could benefit from a distributed ledger approach. These, he says, could be used within or alongside Bolero's existing systems and he adds that it's already “discussing inter-operability scenarios” with a number of companies.
UNDERSTANDING THE ROOT USE
While 'dematerialising' documents will usually bring efficiencies, those behind a change “need to be aware that the paperwork is not always used for its original intent”, says Bolero's Simon Streat. And this is where it gets complicated.
Take phytosanitary (phyto) certificates: these are issued by the plant protection organisation of the exporting country to that of the importing country. However, during a discussion about replacing it with a reference code it became obvious certain authorities “hadn't realised these certificates are used for declaring the quality of the goods and are physically put in the pack for surrender when it gets to the consignee”.
The only answer is to reach out to everyone - but everyone - who might take a peep at the paperwork. “The next question is, 'what exactly do you want to see it for?'”
There are two very different answers he explains; in one case it needs to be accepted as an original to validate ownership, while the other is more about data transfer.
The fact remains that it takes a lot of work for any kind of 'dematerialised' document to mirror the flow of the paper trail: but once established, it's a safer and less expensive than paper and according to Mr Streat, it can chop days or even weeks off the total time it takes to push cargo through the port's gates.
LATEST PRESS RELEASES
Exis Technologies, with the support of leading shipping and freight insurers, TT Club and UK P&I Clu... Read more
The exhibition series ‘Intermodal Africa’ organized by Transport Events is always a good possibility... Read more
The German based Headquarters of ShibataFenderTeam recently completed an order for the Port of Esbje... Read more
Start-up for ocean route planning enters ESA’s Business Incubation Centre (BIC) Read more
AMRO, a specialist marine equipment and services provider, is proud to announce that they will now c... Read more