International trade continues to grow annually. In 2014, it exceeded USD 18 trillion. However, cargo transportation remains expensive and complex because it still requires a multiplicity of paper-based documents. For example, “Each international airfreight shipment can require more than 30 different paper documents – increasing the cost of airfreight and lengthening transport times,” according to IATA. Sea cargo transportation is also bureaucratic and complex. Moreover, transportation documents are used to commit commercial fraud.
Thus, to sustain the unencumbered growth of international free trade, the transportation industry needs to undergo a radical paradigm shift and reengineer the business processes pertaining to documentation management.
Fortunately, using the Internet of Things and the attributes of Bitcoin and its blockchain, innovative startup companies now can enhance international trade by creating business solutions that are paperless, cheap, reliable, fast, efficient, and secure.
Cargo Transportation Documentation Issues
Numerous documents have to be used in support of export transactions. Specific documents are required depending on the destination of the cargo and the type of product. ExportGov subdivides these various documents into the following subsections: common export documents, transportation documents, export compliance documents, certificates of origin, other certificates for shipments of specific goods, other export-related documents, and temporary shipment documents.
Documentation must be carefully selected, completed, and forwarded to each appropriate party.
All documents must be accurately filled out. A slight error, inconsistency, or omission may prevent the cargo from being exported, or may result in nonpayment or customs delays. An error may even lead to the confiscation of the exporter’s cargo by customs officials.
The number and complexity of these documents can be overwhelming. For example, the bill of lading (BoL) is a crucial document in sea transport. The BoL is a contract of carriage as well as a document of title and receipt. According to Maritime Law, the carrier can deliver the merchandise at the destination port only when the consignee produces a BoL.
The shipping industry has been using the BoL since the XII century. However, in spite of its importance, the BoL continues to be misunderstood. Indeed, the Bills of Lading: A Guide to Good Practice, noted “a distinct casualness by shippers, receivers, and their agents at load/discharge ports about the importance to the master of bills of lading. Conclusion: they are ignorant of its legal purposes.”
The same guide highlighted another issue: carriers are often pressured to deliver the cargo before the consignee produces the original BoL.
Frequently, the ship arrives at the destination port before the consignee has obtained the BoL. “The reason for this delay is the procedures at the banks as well as the relative slowness of the postal services, which can now take longer than the transport itself,” according to Al Tamimi & Co. In these cases, waiting for the BoL causes difficulties to all parties involved. As a result, the practice of delivering the goods without the production of a BoL has been established. However, this practice also causes many problems.
“If the carrier delivers the goods without requiring the production of a BoL, he does so at his risk. If the goods are delivered to a person who was not entitled to receive them, the carrier will be liable for breach of contract and for conversion of goods. In such cases the carrier may be deprived of the benefit of limitation of liability and may not be able to get indemnification from the P&I clubs,” says Professor Caslav Pejovic.
Moreover, commercial fraud involving transportation documents exists. In effect, “As early as 2002, the United Nations Commission on International Trade Law (UNCITRAL) has been considering the problem of fraud and the resulting adverse economic impact on world commerce, regardless of a country’s level of economic development or system of government,” states UNICITRAL’s report Recognizing and Preventing Commercial Fraud.
The report mentions the BoL as one of the documents that may be used in connection with commercial fraud. For instance, “Documents that are commonly forged or fraudulent may include a forged signature or misdescription of goods on a bill of lading; a bank guarantee; documents under a commercial letter of credit; or false audit reports.” Or, “A bill of lading stating that the goods are loaded on board a vessel is issued with a date a week earlier than the date the goods are said to have been loaded.”
Bitcoin and its Blockchain Can Address Cargo Transportation Documentation Issues
Of course, because of its attributes, the blockchain could help prevent the occurrence of fraudulent activities such as those mentioned above.
Presently, efforts are under way to implement the Electronic Bill of Lading and the Electronic Airwaybill. So, at this juncture, shipping experts may wish to take advantage of this golden opportunity and consider the inherent attributes of Bitcoin and its blockchain to innovate or reengineer.
The Bitcoin’s blockchain is a permissionless, distributed database. It is an electronic ledger, which continuously records and maintains the records of all the Bitcoin transactions that have ever occurred, since the first block was created, known as the genesis block.
Two essential characteristics of the blockchain are reliability and availability. As the blockchain is kept and maintained in thousands of nodes, which are distributed all over the planet, it is protected from a single point of failure. If one node fails, all the other nodes continue operating.
Other fundamental attributes that the blockchain offers are transparency, irrevocability, and immutability (undetected changes in the blockchain cannot happen).
Additionally, in the Bitcoin and blockchain system, documents, including transportation documents and assets such as merchandise, can be cryptographically expressed.
Thus, the blockchain features mentioned above are most pertinent to minimize international commercial fraud. Actually, smart contracts, smart assets, and other applications using these blockchain attributes could be created to ensure that a) shipping transactions are auditable; b) chains of custody of goods can be verified; c) transportation records cannot be altered; and d) malicious parties cannot dispute the veracity of these records.
Smart contracts are computer algorithms that, without relying on human intervention, can verify, execute, and enforce the terms of a business agreement. A smart property is a property whose ownership is controlled by means of smart contracts.
Some startups are already bringing novel, interesting and relevant apps to the marketplace. For example, Proof of Existence is crucial in the international shipping context. Startup Block Notary has already brought to the marketplace a Proof of Existence app, which provides users with the services of a digital notary.
Bitproof.io is also advertising its SealX app. SealX allows users to seal a digital contract, using the blockchain to make it, among other things, immutable. In other words, the content of the contract cannot be maliciously altered.
Also, the FinTech startup Wave offers an application to manage the “ownership of documents on the blockchain eliminating disputes, forgeries, and unnecessary risks.”
As we can see, Bitcoin and its blockchain offer significant features, which in synergy with the Internet of things, can be used to create and develop revolutionary products to better manage the preparation, audit, transmission, tracking, and storage of transportation documents.
What are your thoughts on using blockchain technology to manage transportation documents? Let us know in the comments below!
Images courtesy of Pixabay and Wikimedia Commons.
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