Digitalization of import/export procedure i.e. Bill of Lading (B/L) using Blockchain

Introduction

Bill of Lading (B/L) is a freight shipping document made, signed and issued by a carrier to a shipper, in which the carrier acknowledges the receipt of a certain quantity of goods for shipment and commits to deliver the goods which are of good quality and adequate quantity as specified in the packing list to an authorized receiver at the port of destination. B/L is a critical document for the shipper, consignee, and the freight forwarder. It can serve as evidence for a goods transaction and also a carriage contract.

Problem

Picture1-9Figure 1: Current method of B/L delivery

Due to its importance, the original B/L is often transferred using guaranteed delivery from the place of dispatch to the place of delivery. However, this approach has several limitations as follows:

  • High cost: Depending on the delivery distance, the delivery fee and issuing fee for a B/L can be between $200 ~ $450.
  • Time-consuming: B/L delivery often takes 5 to 10 days on average. Sometimes the delivery of goods (from a port to another port) can outpace the delivery of B/L (from sender’s location, it is carried by mail to an assembly place, then carried by air to the destination and finally delivered to the receiver’s location by another mail service provider). Additionally, the B/L is carried back and forth between multiple places, in particular: House B/L is transferred from Shipping Line to Freight Forwarder, while Master B/L is transferred from Freight Forwarder to Shipper, then through the bank, the consignee, Freight Forwarder of the consignee before going to the port and customs to proceed with goods collection.
  • As there are many steps of delivery and handling, the B/L can be missed, stolen or modified. Besides, B/L re-issuance or verification can be costly and time-consuming. In particular, the reporting of lost B/L and the issuance of new B/L can take weeks. As a consequence, the goods can be detained at the port, possibly causing damage. Demurrage charges, compensation for late delivery and goods damage can cost millions of dollars.

Solutions

Amidst the robust development of the Internet, mail delivery of a critical and valuable document as B/L is deemed outdated. It is likewise the use of hand-writing letters when the email is already available. Many efforts have been made to digitize the bill of lading. However, the majority of bills of lading are still delivered in conventional ways. There are several reasons for the slow application of the electronic bill of lading, including:

  • Low security: The technology of centralized data storage has various shortcomings, especially information security. Hackers just need to find a loophole to attack the whole system, steal and alter the information.
  • Lack of transparency: The import and export process involves multiple stakeholders. However, there is only one provider of electronic bill of lading. This company’s operations cover both software and database, both of which are not publicized.

 Blockchain technology can address these issues and make B/L digitalization more popular and accessible. 95% of the B/Ls in the world are still paper-based. According to statistics from the World Bank, the number of containers reached 750 million in 2016 and increases by 50 million on average per year. Therefore, if widely applied, Blockchain technology can save the world hundreds of billions of dollars every year.

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Figure 2: The development and evolution of B/L 

Benefits

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Figure 3:  Benefit of Blockchain-based electronic B/L

The biggest benefits of Blockchain application in B/L are:

  • High security: B/L data will be replicated in a peer-to-peer network of computers. Therefore, if they want to attack the system and alter the information, hackers have to attack multiple computers in different locations, which is not an easy task. As a result, system security and data integrity is improved. Additionally, data can be encoded and can only be decoded by an authorized person.
  • Transparency: Each company and organization can share the data without depending on any other companies. Companies then feel more assured as important shared data is not only stored or managed by a single organization. The operations of the system are public and checkable.
  • Low cost: Zero cost of delivery.
  • Quasi-real time delivery: Similar to email, the delivery of an electronic B/L is instantaneous.
  • The B/L cannot be lost or changed.
  • Blockchain application for B/L facilitates easier search and checking. Information in the Blockchain is immutable. The use of electronic B/L can help to reduce paper consumption, head-counts and minimize the errors.

The following companies can benefit from this solution, thanks to cost reduction and error minimization:

  • Shipping Lines.
  • Freight Forwarder.
  • Importer, Exporter.
  • Customers of freight shipment services, such as retailers and manufacturers.

Additionally, this solution also involves the following entities:

  • Ports
  • Customs
  • Banks

Practical application

Mindful of the visible and enormous benefit of blockchain application in B/L, several big companies have started to experiment with this technology and yield positive results.

Pacific International Lines (PIL), a Singapore-based company with 150 containers of different types and about 18,000 staff worldwide, has developed and test-run Blockchain-based electronic B/L. The company tested electronic B/L for a shipment of 3,000 boxes of mandarin oranges (about 108,000 oranges) from China to a Singapore-based importer, Hupco. [1]

Result:

  • Significant reduction in the administrative effort for B/L transfer from seven days to just one second.
  • Faster goods collection for Hupco. This is critical for fresh goods which require fast delivery.
  • All documents can be tracked in real-time, safely stored and tamper-proof, reducing 40% risk of frauds.

The trial is an important milestone as it validates the effectiveness of this application in real-time conditions.

Apart from PIL, various shipping lines in the world have experimented and applied Blockchain for B/L, including:

  • Manuchar, a Belgium-based logistics company with operations in 50 countries
  • Zim Integrated Shipping Services, Israel’s largest shipping line and among the world’s top 20. [2]
  • G2 Ocean (Gearbulk and Grieg Star), a company in Eastern Europe with 130 ships. [3]
  • Maersk, a Denmark-based logistics company, with operations in 130 countries and 88,000 employees.[4]

The governments of different countries have started to gain access to Blockchain technology. Seeing its efficiency, these governments have launched several programs to support the technological applications. In January 2018, a memorandum of understanding was signed by the Maritime and Port Authority of Singapore (MPA), the Singapore Shipping Association (SSA) and Singapore Customs to jointly leverage the application of electronic B/L, especially using Blockchain technology. [5]

 

The United Nations Commission on International Trade Law (UNCITRAL) published a model law on the ownership transfer of electronic documents, such as the delivery of e-B/L. This is also formalized in the national legislation of several countries, for example, in the US, New York state law allows electronic commercial contracts and transactions, including e-B/L and other digital documents specified in the Uniform Commercial Code (“UCC”). In the countries with slower issuance of laws on technological application, companies often join forces and sign contractual arrangements which allow the transfer of electronic documents and contracts, including e-B/L among members and organizations. [6]

Big courier companies, like FedEx, are urging the government to research and issue appropriate regulations on the application of Blockchain in the Logistics industry. FedEx believes that Blockchain is the quickest way to modernize and streamline Logistics, satisfying the increasing cross-border shipping needs. Furthermore, Blockchain will facilitate more efficient operations of Customers regarding the prevention of illicit goods. [7] 

Products and Services

Blockchain CoE, under FPT Software FWI, developed successfully a PoC for the application of Blockchain in the issuance and transfer of B/L among different parties. With this PoC, FPT Software can show how economical, fast and convenient it is to use Blockchain-based e-B/L.

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Figure 4: Adapter to connect the existing system with the Blockchain system

Apart from its competence in Blockchain technology, FPT Blockchain CoE also has capabilities in system, cloud, security, software application, mobile application and is working closely with Logistics experts of FPT DLG to:

  • Develop Digital Bill-of-lading from the PoC built for the customers’ requirements in the quickest and most efficient way.
  • Develop an Adapter to connect customer’s existing infrastructure with the Blockchain system.
  • Provide consultancy on the development and implementation of Migration tool to test, evaluate and step-by-step migrate data from the existing system to the Blockchain-based Digital B/L system.

Reference

[1] https://container-mag.com/2019/02/01/pil-ibm-collaborate-blockchain-bill-lading-project/

[2] https://worldmaritimenews.com/archives/268583/zim-moves-forward-with-blockchain-based-bill-of-lading/

[3] https://shippingandfreightresource.com/blockchain-set-to-push-paper-bill-of-lading-into-retirement/

[4] https://techcrunch.com/2019/05/28/ibm-maersk-blockchain-shipping-consortium-expands-to-include-other-major-shipping-companies/

[5] https://www.ledgerinsights.com/singapore-blockchain-electronic-bill-of-lading/

[6] https://iccwbo.org/content/uploads/sites/3/2018/10/the-legal-status-of-e-bills-of-lading-oct2018.pdf

[7] https://bitcoinist.com/fedex-calls-to-mandate-blockchain-for-international-shipping/

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