As shown there are still distinct advantages of paper bills, however there are also a number of crucial disadvantages. The key disadvantage is that of the cargo being transferred faster than the Bill of Lading itself, thus having a hold up at the destination port, as the cargo cannot be passed on until the recipient shows proof of the bill of lading. Jones (2000, p159.) suggest that inefficiencies of paper bills can lead to logistical issues at ports including congestion, delays in ship turnaround and as a result higher costs.
This hold up and increased costs has brought about cases in Argentina where either the port authorities or the carrier release the goods unapproved and this means the seller might not have been paid for the goods, Yiannopoulos (1995, pg 20) .
Golby (2011, p2) critcises paper bills for no longer satisfactorily performing their functions as the speed of international shipping has improved but the processing of paper documentation has not. The huge volumes of international trade that takes place currently means that there are exceptionally high costs involved in producing and processing paper documents. Another big disadvantage of paper bills of lading is the possibility of fraud arising from the ease in which it is to issue a fake set of bills of lading. This can cause problems such as the fraudulent party may be able to gain bank credit based on collateral that does not in fact exist.
As mentioned above in today’s international trade the use of technology is massively on the rise, this is no different when it comes to the use of Bills of Lading. There are a number of arguments against and for the use of electronic bills of lading. However, this issue is not as straight forward as it would seem, there are still advantages and disadvantages of the electronic bill of lading. Electronic Data Interchange (EDI) is a term used to describe systems of “computer to computer exchange of information in predetermined formats…” (Boss, 1991).
The main advantage is the speed in which the bills can be sent, this reduces the issue of the hold up of cargo in designated ports, as the Bill of Lading will already have arrived unlike with paper bills when there is a backlog of cargo due to the bills arriving after the cargo. This therefore cures a number of the problems that we have mentioned earlier that this backlog brings about. Due to the lack of paper documentation there is the obvious saving in administration costs, which on such a large scale as international trade would be huge savings to companies and the traders as a whole. This use of electronic bills of lading will reduce the possibilities of fraud caused by the issuing of either 3 or 6 original bills. However, this issue of solving fraud can also be argued as a disadvantage of electronic bills of lading as there are a number of security risks involving the exchange of data electronically and the misuse of computers. This risk is enlarged over the use of open networks such as the Internet and introduces confidentiality issues as information is shared with third parties. Indira (2010, p198) suggests that the implementation of a paperless Bill of Lading scheme would also have to overcome these key areas:
- Security to prevent and discourage fraud
- National and International Law to discourage and deal with hacking
- Partnership working between countries to share data and evidence
- Acceptance of computer data as a substitute for written documentation
There would be large initial costs to change to electronic bills instead of paper, as the technology required to successfully carry this out would be expensive initially. The cost of implementing this would undoubtedly impact on the entire sector. Traders are reluctant to move to a system that has not been trialed and tested, although the paper system is less cost efficient, there is a high degree of trust and certainty in which the traders and not willing to give up. Thus unless everyone is willing to change, the electronic system will not work as there would be a split in the way in which traders carried out their business and thus complicating matters further.
The transfer from paper to electronic bills would have legal challenges as well. The United Nations Commission on International Trade Law (UNCITRAL) is “attempting to develop uniform international rules that would validate and encourage the use of EDI” (Livermore J et al, 1998 ). UNCITRAL has recognised domestic laws that necessitate certain documents to be in writing and signed as a main complication of an international uptake of EDI. The lack of a required signature or writing can therefore leave it void and without legal validity as well it can impede proof of existence of the contract in case of litigation. The question of whether a data message can be treated as a document and whether it be recognised as evidence in courts. In most countries computerised records are normally acceptable as evidence. This is shown by Derby & Co v. Weldon (No9) (1991) where it was held that as these records were easily transferred into readable format that this was sufficient evidence. Model Law that has been generated by UNCITRAL provides a solution to the problem given. In article 4 the information should not be denied effectiveness, validity or enforceability solely on the grounds that it is in the form of a data message. Article 8 also provides in reference to admissibility and evidential value of data messages in any legal proceedings, that nothing in the application of the rules of evidence shall apply so as to prevent the admission of a data message in evidence on the ground that it is a data message, or if it is the best evidence that the person giving it could reasonably be expected to obtain, on the grounds that it is not in its original form. Article 8 is intended to make it clear that no matter how the ‘best evidence’ or ‘hearsay’ rules apply to data messages, they will not alter the legal recognition and evidential value of such data messages. To satisfy the requirement of writing, the model law through Article 5 provides that where a rule of law (national laws) necessitates information to be in writing or to be accessible in writing, or provides for certain penalties if it is not, a data message satisfies that rule if the information contained therein is available so as to be useable for later reference. The main form of authentication required by law is a manual signature. UNCITRAL through article 6 also address possible issues that will occur through the use of EDI.
There have been previous attempts to move from paper-based bills of lading to a fully electronic system. These systems include SEADOCS, the Comite Maritime International (CMI) Rules and Bolero.
The first attempted form electronic Bills of Lading was SEADOCS in 1986, which used a central archive where original paper bills of lading were deposited. The system was created as a compromise between traditional paper bills and a fully electronic system. The registry was overseen by the Chase Manhattan Bank, through which all parties to the contract dealt with.The success of this was system limited due to the reluctance of the registry to allow external inspections and was run by one bank. SEADOCS did not make it through its trial period. The CMI Rules for Electronic Bills of Lading were implemented in 1990. The CMI Rules do not have the power of law, and parties must contractually agree to use them in carrying out their business. The CMI Rules have not gained wider acceptance from traders for the following reasons:
“(1) The CMI Rules make no provision for contractual rights and liabilities to be transferred along with the documentation;
(2) It is not clear what happens if a holder who has accepted the right of control and transfer defaults;
(3) They make no provision for the passing of property in the goods;
(4) There was a failure to establish a comprehensive system or body to administer it; and finally,
(5) The CMI model was not secure because the secret code was not encrypted.” (Todd, 2002)
The Bolero system was formed in April 1998 by SWIFT (Society for Worldwide Interbank Financial Telecommunications) as well as Through Transport Club (TT Club). This system uses a closed title registry which allows for negotiable bills of lading. However, there are issues relating to how satisfactory it is in relation to global laws. In this system digital messages are regarded as an equivalent to writing. A reliable third party is used which is essential for data security and confidentiality. The Bolero system has been held not to be in conflict with the Hamburg Rules or the Hague Visby Rules. Bolero has carried out a successful initial programme with electronic documents including a Bill of Lading as shown by a recent press release (Bolero, 2011) titled “Bolero leads with the World’s first electronic Bill Of Lading”
The Bill of Lading plays a crucial role in the international transportation of goods via sea. It is clear that paper bills still have advantages including being a clear document of title which can both be traded, making it negotiable, and used as collateral for borrowing which provides great flexibility. However, it is evident that the paper bill system is now dated and has not kept afoot with advances in shipping and technology. This has resulted in problems arising where by goods arrive before the Bill of Lading, increased costs as a result of inefficiencies and the potential for fraud. Electronic Bills of Lading also have distinct advantages including reducing costs, improving security, and making the process more efficient. However, they also present legal issues as it would be necessary for legal systems to adjust to cope with a change in method as well as a huge investment in time and technology throughout the sector to support a change of system. In addition to this, they raise issues about confidentiality, security and long term storage of evidence and documentation.
Despite the obvious advantages of moving to an electronic system, there are clear issues that will need to be addressed in order to give the users of the system confidence and to ensure fairness and transparency. Current work being carried out by Bolero as mentioned has run a successful pilot scheme, and with the want for international trade to move forward with the technological times there is large support by key trade partners to drive this forward so that it becomes a fully functional and widely accepted method and will progress the use of electronic Bills of Lading so that there can be a smooth transition from paper to electronic Bills of Lading in the future.
References
Amelia H. Boss. The International Commercial Use of Electronic Data Interchange and electronic Communications Technologies, 46 Bus Law, 1991.
Bennet, W (1914). The History and Present Position of the Bill of Lading as a Document of Title to Goods. Cambridge University Press.
Bolero, 2011. Bolero leads with the World’s first electronic Bill of Lading [press release], 26 July 2011, Available at: http://www.bolero.net/en/Newsdownloads/news-details/11-07-26/Bolero_leads_with_the_World%e2%80%99s_first_electronic_Bill_Of_Lading.aspx
Indira, C (2010). International Trade Law. 4th ed. Oxon : Routledge-Cavendish. p174.
Indira, C (2010). International Trade Law. 4th ed. Oxon : Routledge-Cavendish. p198
Jones, R (2000). International Trade & Business Law Annual, Volume 5. Routledge. p159.
Livermore J et al, 'Electronic Bills of Lading and Functional Equivalence', 1998 (2) The Journal of Information, Law and Technology.
Miriam Goldby. (2011). Legislating to facilitate the use of electronic transferable records. UNCITRAL Colloquium on Electronic Commerce New York 14th to 16th February 2011. p2.
Todd, P. Cases and Materials on International Trade Law, 762 (2002).
Yiannopoulos, A (1995). Ocean bills of lading: traditional forms, substitutes, and EDI systems. Martinus Nijhoff Publishers. p17.
Yiannapoulos, AN (ed) (1995) Ocean Bills of Lading: Traditional Forms, Substitutes and EDI Systems, Kluwer Law International.
Cases
Derby & Co. v. Weldon (No 9) [1991] 1 W.L.R. 653.
Bibliography
Chuah, Jason. Law of International Trade. 3rd ed. Sweet & Maxwell, 2005.
Dubovec, Marek. The problems and possibilities for using electronic bills of lading as collateral. Arizona Journal of International and Comparative Law 2006, Vol 23 Issue 2.
McKendrick, Ewan. Goode on Commercial Law, 4th ed. Penguin, 2010.