Introduction

For many years, the industry has sought a solution to the difficulties, costs and inefficiencies associated with paper bills of lading. The obvious answer is to make the bill an electronic document. The eB/L finally became a reality with the operational launch last year of ESS’s CargoDocs Service, which enables users to create, issue and transfer eDocs, including an electronic bill of lading (eB/L), though the the trade chain.

How would you define an electronic Bill of Lading (eB/L)?
Is it sufficient simply to say that an electronic bill of lading (eB/L) is the ‘functional equivalent’ of a paper B/L or is an eB/L something more?

An electronic bill of lading (eB/L) must clearly replicate the core functions of a paper bill of lading, namely its functions as a receipt, as evidence of or containing the contract of carriage and, if negotiable, as a document of title. However, a paper B/L is much more than this: it is a document which, through usage and as a matter of custom, is versatile enough to allow traders to buy and sell cargoes internationally and often while in transit (this versatility includes the ability to change the B/L, for example, by changing the destination of the cargo or the volume to be discharged to a particular receiver). To be a true functional equivalent, therefore, an electronic bill of lading (eB/L) needs to replicate the existing attributes of a paper B/L in an electronic world, while ensuring that the electronic bill of lading (eB/L) is transferred at a faster rate than the cargo to which it relates, thereby eliminating or significantly reducing the current reliance on delivery LOIs.

So what is required to create a genuine electronic bill of lading (eB/L)?

It must have three core attributes:

(a) Legal Framework: either through the current multipartite agreement route or, in future and subject to their widespread adoption, via the Rotterdam Rules, to ensure that the electronic bill of lading (eB/L) replicates the rights and obligations of the parties under a paper B/L. As part of this legal framework, any provider of an electronic bill of lading (eB/L) solution must ensure that its system meets all its users’ insurance requirements, particularly those of shipowners’ P&I insurance.

(b) IT Framework: the IT framework within which the electronic bill of lading (eB/L) exists must be secure. It is essential that there is only ever one original eB/L and one party which has control of that eB/L: no-one should be able to interfere with this right of control or with the integrity of theelectronic bill of lading (eB/L).

(c)  Functional Framework: the electronic bill of lading (eB/L) must have the necessary range of functions:  

(1)         the inherent functionality to allow the progress of an eB/L from issue to production in a manner similar to a paper bill of lading: this includes the ability to (i) endorse the eB/L to another party, transferring the right to possession of the cargo; (ii) provide a security interest in the cargo; (iii) ask for an amendment of the electronic bill of lading (eB/L); and

(2)         the novel functionality necessitated by its existence in electronic form: for an electronic bill of lading (eB/L) to be fully functional it must also be capable of being converted to paper, if, for example, the electronic bill of lading (eB/L) needs to be endorsed to someone who is not prepared to accept it in an electronic form or if it is required by a court.

What about the Rotterdam Rules and Functional Equivalence?
Although the shipping industry is characterised as being resistant to change, the financial and regulatory drivers for adopting electronic processes are winning the argument and now there is finally legislative support. The UN Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea 2008 (the Rotterdam Rules) recognise eB/Ls.

The Rotterdam Rules give functional equivalence to electronic bill of lading (eB/L) by providing in Article 8 that, if the carrier and the shipper agree, a paper B/L can be replaced with an electronic bill of lading (eB/L) and that the issuance, exclusive control or transfer of an electronic bill of lading (eB/L) has the same effect as the issuance, possession or transfer of a paper B/L.

Electronic bill of lading (eB/L) are also given legislative recognition in the US. In 2003, acknowledging the importance of eCommerce in shipping, Article 7 of the Uniform Commercial Code was revised, introducing new rules for electronic documents of title.

The US approach is very simple: the UCC provides that a bill of lading can be either paper or electronic; it does not try to regulate the electronic bill of lading (eB/L) or impose any additional requirements for a valid electronic bill of lading (eB/L).

The Rotterdam Rules have adopted a slightly different approach: Article 9 sets out a series of ‘procedures’ for the use of negotiable eB/Ls (Article 9 does not refer to non-negotiable electronic bill of lading (eB/L), suggesting that the procedures do not need to be followed for non-negotiable eB/Ls). It specifies that the use of negotiable eB/Ls must be subject to procedures that provide for: (a) the method for the issuance and the transfer of the eB/L to a holder; (b) an assurance that the negotiable electronic bill of lading (eB/L) retains its integrity; (c) the manner in which the holder is able to demonstrate that it is the holder; and (d) the manner of providing confirmation that delivery to the holder has been effected or that the eB/L has ceased to have any effect or validity.  These procedures must be referred to in the eB/L and must be readily accessible.

These Article 9 procedures are central to how electronic bill of lading (eB/L) are intended to work under the Rules. For example, transfers of eB/Ls (Article 57.2), the identity of the holder of an electronic bill of lading (eB/L) (Article 1.10) and delivery of goods covered by an eB/L (Article 47) are all linked to compliance with the procedures of Article 9. Therefore, a transfer of the electronic bill of lading (eB/L) from the seller to the buyer is effective if it complies with the procedures referred to in Article 9 and the rightful holder of the electronic bill of lading (eB/L) is determined by reference to those procedures.

How should the provisions of the Rotterdam Rules Article 9 be interpreted?

The intention was to be technology neutral, as no one can predict the direction ecommerce may take during the lifetime of such a Convention. However, this flexibility is also one of its key difficulties: there is no guidance as to how prescriptive the procedures should be (for example, is it sufficient simply that procedures exist or must they satisfy certain minimum criteria?) nor does it address what will be the effect on the rights and obligations of the parties to an eB/L, if such procedures are subsequently judged inadequate (for example, if it is determined that the procedure for issuance of the electronic bill of lading (eB/L) is flawed).

The shipping industry has yet to see how the Rules will be ratified by Signatory States and whether they will be widely adopted. However, until the Article 9 procedures are clarified and the industry is confident that the Rules have been ratified by all states with which they trade, closed systems will continue to be pivotal to providing an electronic bill of lading (eB/L) solution.

The Convention requires ratification by at least 20 states, and will enter into force one year after the 20^th ratification. By August 2011, 24 states have signed the Convention, accounting for approximately one-third of world trade, including key maritime states such as the US, Norway, Denmark, Greece and the Netherlands. However, none of the signatories have ratified the Convention as of yet.