The Regulation Approach for Digitalization of Shipping Documents

opportunities for the transportation sector.⁴⁰¹ Finance, insurance, vessel operation, and custom clearance will be facing revolutionary changes after the shipping documents are digitalized.

Predict the process of digitalization is a difficult task because the technological advancements and the sequent business model alterations will impact the direction of digitalization and the regulatory environment.

In the 1980s, the SEADOCS project, which is known to be the first serious effort to facilitate the processing of electronic shipping documents, used telefax to communicate between the users and banks.⁴⁰² The half-automated input–output method dramatically increased the costs. Each operation of the SEADOCS system requires an additional $500 on top of the paper processing fees.⁴⁰³ Moreover, the SEADOCS project did not entirely eliminate the paper because paper is necessary for other services in the payment and delivery fields.

Therefore, the efficiency and security level did not reach a satisfactory level. The practical hurdles led to the cancellation of the SEADOCS project after the expiration of the one-year trail period. Then, the advent of the Internet opened up new opportunities and gave rise to the Bolero Project. The speed of the Internet and the electronic data interchange technology allowed the users of the Bolero system to make real-time communication with each other and exchange encrypted messages. This improvement also greatly enhanced the negotiability of the B/Ls, and thus conferred this document with more financial value. The 1996 launched project survived until today and is still gaining momentum. However, as the 5G era is on the horizon, information will be transmitted at a much higher speed than it is today. Similar to how the Internet facilitated the Bolero Project, the 5G may also catalyze other projects. The improvement of information flow will unlock technologies, such as autonomous ships,⁴⁰⁴smart port,⁴⁰⁵and smart containers.⁴⁰⁶ When that day comes, the processing of electronic documents

401 See Chapter 1, section B, part 1 of this doctoral thesis.

402 Kozolchyk, Boris, Evolution and present state of the Ocean Bill of Lading from a Banking Law Perspective. J. Mar. L. &

Com. 23 (1992), on p. 161.

403 Delmedico, Amedeo, EDI Bills of Lading: Beyond Negotiability, Hertfordshire Law Journal [Online] 1.1 (2003), on p.

96.

404 See Luci Carey, ‘All hands off deck? The legal barriers to autonomous ships’ (2017) 23(3) JIML 202.

405 See Jacqueline Woo, ‘PSA Singapore unveils advanced port technologies in new exhibition’ The Business Times (Singapore, January 9, 2018) for examples of the next generation port technologies that will be introduced in the Tuas mega-port, earmarked as the centerpiece of Singapore’s next generation port vision.

406 See Abnous, Razmik et al. “Smart containers.” U.S. Patent No. 7,512,578. March 31, 2009.

will entirely change. Moreover, compared with the digitalization attempts in the last century, more projects are co-existing in this millennium, which means more competition and more incentives to adopt innovations.⁴⁰⁷

Aside from new technological advancements, the reform of business models can cause fundamental changes in the regulatory environment. The aforementioned SEADOCS project, the Bolero Project, and the subsequent essDOCS have applied centralized system to record, encrypt, and transmit information. However, the users, shippers, carriers, and banks are naturally resistant to store business information in a third party. With this commercial demand, the e-Title TM developed a non-centralized system for users to communicate with each other without having to send information to a central registry. Users who applied the e-Title TM solution will only need to install an e-Title TM software, which facilitates the secure transfer of electronic B/Ls by providing a peer-to-peer system. Only the logs of every transfer will be kept by the software to manage the state of every B/L and prevent double trading and illegal transfer.⁴⁰⁸ This new idea can contest many regimes concerning the processing of electronic documents if these regimes created rules based on the centralized business model and impose major liability on the system operator. As the electronic solution providers begin to distance itself from the operation system, impose such great liability upon the operator is unreasonable.

The e-Title TM solution remains a few steps away from a complete decentralized system, but the breakthroughs in the blockchain technology has brought people to the doorway of absolute decentralization. Elson Ong, a research associate at the Singapore National University, analyzed the use of blockchain technology in B/Ls and supported the idea of blockchain B/Ls as he believed that this method superior to the normal method in terms of security and transferability. ⁴⁰⁹ He further argued that the UNCITRAL Model Law on Electronic

407 The relationship between market competition and innovation rate has long been the focus of economists and jurists.

Many articles confirm that the two variables have a positive correlation under certain premises. See for example Aghion, Philippe et al. “Competition and innovation: An inverted-U relationship.” The Quarterly Journal of Economics, 120.2 (2005): 701–728 and Aghion, Philippe, et al. The causal effects of competition on innovation: Experimental evidence. No.

w19987. National Bureau of Economic Research, 2014.

408 Jacqueline Tan, Electronic bills of lading: Sharing expertise, available at

https://www.ukpandi.com/fileadmin/uploads/uk-pi/Documents/2017/Legal_Briefing_e_bill_of_Lading_WEB.pdf.

409 Elson Ong, Blockchain Bills of Lading, NUS Law Working Paper 2018/020 NUS Centre for Maritime Law Working Paper 18/07. See also Takahashi, Koji. “Blockchain technology and electronic bills of lading.” The Journal of International Maritime Law Published by Lawtext Publishing Limited 22 (2016), on pp. 202–211.

Transferable Records is suitable for the blockchain B/Ls with minor amendments.⁴¹⁰ The blueprint of Ong’s work is not a fantasy of some scholar. In practice, the blockchain B/Ls is already a reality. The first trail has been completed by a Slovenian-based company named CargoX in a voyage from Shanghai (China) to Koper (Slovenia) on August 19, 2018. The blockchain B/L is transmitted through a public blockchain network and the transaction is completed in just minutes. According to the words of the CargoX, “the chances of loss, theft or damage of the bills of lading have been dramatically reduced to near-zero.”⁴¹¹

By illustrating the relentless technological movements and the accompanying evolution of business model, the regulatory environment of digitalization of maritime transport documents is still developing amidst turbulence. Breakthroughs in ledger technologies empower innovations in the shipping industry, and these innovations can be combined with each other to generate more possibilities. New business models are inspired by such combinations and will be employed by adventurous business actors who are enthusiastic to gain competitive edge. This, in turn, forces the conservatives not to sit idle but to seriously consider transformation, urging the whole industry to move forward. In the meantime, the shipping industry is rather closed. The circulation of maritime documents is confined to a small community consisting of shipping experts who are familiar with the transportation process. The change in business models or application of new technologies may enhance the transferability of B/Ls or warehouse receipts, but the added financial feature also fall under the governance of the exchange platform. Moreover, the odds of an ignorant third party becoming the victim of the digitalization of shipping documents is low.

In summary, the digitalization of shipping documents is already in a fast-changing environment and hardly gives rise to a massive negative influence upon third parties. According to Diagram 1, the most proper regulation approach for this type of area should be the process-oriented regulation. The industry itself should enjoy a high level of autonomy while the public authority guides the emergence of an internal liability mechanism.

410 Ibid., on p. 6.

411 See the news titled “CargoX Completes Trial Shipment with 1st Ever Smart Bill of Lading,” available at

https://worldmaritimenews.com/archives/259379/cargox-completes-trial-shipment-with-1st-ever-smart-bill-of-lading/.