Digital in shipping: prospects of e-bills of lading in Ukraine

Security has always been paramount in shipping. The industry continuously seeks new ways to improve cargo transportation, from protecting goods against theft and damage to combating piracy and ensuring safe conditions for the crew.

In the modern era of digitalization, cybersecurity has become a crucial aspect of shipping. Specifically, the industry is actively discussing the transition to electronic documentation. The implementation of digital versions of transport documents (electronic bills of lading, or eBL) can significantly reduce costs and make the cargo transportation process much more transparent and secure.

 

What is an electronic bill of lading, and why is it necessary?

A bill of lading is one of the most important documents in maritime shipping, essentially serving as a transport waybill for sea cargo. It confirms that the cargo is indeed on board and is being transported to the destination.

Additionally, the bill of lading is a legal contract between the shipper and the shipping company. It specifies the terms of the shipment, such as the route, delivery times, and the cost of services. This document regulates the relationship between the parties and ensures that obligations are fulfilled on both sides.

Moreover, the bill of lading functions as a document that certifies ownership of the cargo. In other words, whoever possesses the bill of lading is entitled to claim the goods at the destination. This is a crucial aspect because it allows the cargo owner to maintain control over the goods during transportation.

An electronic bill of lading (eBL) is the modern version of the traditional paper document. One of the key advantages of an eBL is that its digital format simplifies the contract process and reduces the risk of the document being lost or damaged. Furthermore, creating such documents takes up to five minutes, compared to the longer time required for traditional paper documents.

Electronic bills of lading in global practice

The implementation of electronic documentation in shipping is being driven by the Digital Container Shipping Association (DCSA). Founded in 2019, DCSA is a non-profit organization dedicated to promoting the digitalization and standardization of the global container shipping industry. It comprises over 100 members, including shipping companies, ports, terminals, freight forwarders, cargo owners, and technology providers.

According to Serhii Osypov, a representative of the Ukrainian logistics company Abordage Logistics, the practice promoted by DCSA has already been observed in the industry for some time. In the liner container shipping sector, 95% of transport documents exist in electronic form. Currently, customs authorities in Ukraine and EU countries do not require “hard” copies of documents. However, there is always the option to issue a paper version if required by contract conditions.

Moreover, the digital bill of lading is highly cybersecure, as it is built on a public blockchain network. Information about the eBL owner is stored on millions of devices, making it nearly impossible to hack the document. Each such bill of lading is unique, partly due to the use of NFTs (non-fungible tokens) by some companies.

The only potential cyberattack on secure eBLs is the so-called 51% attack, where attackers gain control of the majority of the network’s computing power, allowing them to manipulate transactions. However, such an attack is extremely costly and complex to execute.

Obstacles to implementation

Despite global digitalization, the shipping industry is currently not ready for a complete transition to paperless documentation. Market players face several challenges. From a technical perspective, obstacles include incompatibility between different systems and the lack of unified standards for electronic documents. This complicates the exchange of documents among various market participants.

Regulatory obstacles are also evident, involving diverse national laws and international norms that do not always accommodate electronic documents or require their legal recognition. However, the example set by Ukraine’s Ministry of Digital Transformation shows that a swift electronic transition is possible with the right motivation. Therefore, the fate of electronic bills of lading largely depends on state interest.

A few years ago, DCSA announced plans to transition 50% of industry documentation to electronic forms by 2025, with full adaptation by 2030. However, as of 2023, market adaptation was only at 3-4%, and it has since increased to 4-5%. The transition is happening, but not as quickly as anticipated, said Mykhailo Lepekha, a representative of eTEU, a company implementing electronic documentation in shipping.

Global forwarders primarily need eBLs as they spend significant amounts on courier services like DHL or FedEx. In Europe, courier services cost around $60, while eBL prices start at $10. Despite forwarders’ interest, negotiations with shipping lines often take a long time and are complex.

Challenges include distrust of new technologies among some market participants, the absence of necessary regulatory frameworks, and the complexity of technical implementation. This includes the use of bank letters of credit and documentary collections, which typically require the original bill of lading. Some agreements still mandate an original paper bill of lading between the seller and buyer, creating barriers to the full adaptation of eBLs since having an electronic bill of lading does not eliminate the need for the “usual format” of the document.

Paper versions are most typically required for order bills of lading and bearer bills of lading. These types of documents stipulate that the ship’s cargo must be delivered to the person who presents the bill of lading. Any person holding it can deliver the cargo to the buyer. The difference between these documents is that, unlike an order bill of lading, a bearer bill of lading does not specify the recipient’s name. These documents are more commonly used for delivering goods whose prices depend on exchanges (grain, oil, metals) or when cargo is sold from one company to another during transit. Order bills of lading and bearer bills of lading are also used when parties want to maintain anonymity. Here, eBLs ensure transparency and reduce the risks of “gray” exports. In this context, paper documentation becomes a matter of habit. For example, with documentation like bank letters of credit, banks are generally not very flexible in these matters. Therefore, electronic bills of lading are unlikely to be adopted soon in such scenarios, suggests Dmytro Kazanin, director and owner of TEUS.

Prospects for eBL development in Ukraine

The aforementioned company developing software for digitizing documentation in shipping, eTEU, showcased a significant reduction in document processing time during the launch of a pilot project in Ukraine. While processing a paper bill of lading takes eight days, the electronic platform reduces this to just one minute.

There are other examples of attempts to transition to eBL in Ukraine. Some large port operators and shipping companies (e.g., in Odesa and Chornomorsk) have conducted pilot projects with electronic bills of lading in collaboration with international partners. One such company, WaveBL, organized a presentation of eBL for Ukrainian clients a few years ago in partnership with the shipping company ZIM.

However, the issue of fully transitioning to eBL in Ukraine persists. The question remains whether Ukrainian shipping companies face additional challenges or advantages regarding electronic documentation compared to international companies. For international container companies, launching electronic documentation is likely not a problem due to their capabilities and market adaptation speed. The key factor is having a demand from the market and its participants. Interestingly, compared to many other European countries, Ukraine is advancing more rapidly in terms of electronic documentation.

The transition to electronic bills of lading in shipping is inevitable, albeit a slow process. Factors aiding the electronic transition in Ukraine include improvements in digital infrastructure, support from government bodies, and the desire to reduce paper bureaucracy and avoid the loss or damage to documentation. However, Ukrainian shipping companies may also face additional challenges such as insufficient digitalization of national infrastructure, lack of unified standards, and the need to comply with international requirements. At the same time, the advantages include reduced costs of paper documentation, faster and more efficient document processing, and the ability to integrate with international supply chains.

Pavlo Lynnyk, CEO of the logistics company GOL, states that the forecasts for full digitalization of documentation in shipping in the next 5–10 years are positive. It is expected that most Ukrainian shipping companies will transition to electronic documents thanks to the development of blockchain technology and enhanced cybersecurity.

Moreover, international organizations like the International Maritime Organization (IMO) are actively working on creating unified standards and recommendations to facilitate a faster transition to eBL. However, the key condition for this remains active support from the government and industry associations.