Global menu

Our global pages

Close

Transport legal update: Technology in shipping - Electronic Bills and the reluctance of the industry to use them

  • United Kingdom
  • Shipping
  • Transport

04-09-2013

The use of paper Bills of Lading in the shipping industry is a long accepted practice with established legal principles. The format of paper Bills of Lading is transnational and has been used and understood by traders all over the world for centuries. Paper Bills of Lading have certainly stood the test of time in an increasingly electronic world.

Over recent decades, questions have been raised as to the effectiveness of paper Bills of Lading and there have been many different attempts dating back to the 1980s to develop an electronic solution for the industry with varying levels of success. An increasing number of companies are now signing up to electronic trading systems and the momentum for the use of electronic Bills (e-Bills) appears to be increasing. Is the shipping industry now embracing the use of e-Bills or is there still a reluctance in the industry to use e-Bills?

Issues with Bills of Lading

For centuries, the Bill of Lading has performed a number of unique legal and practical functions in the commercial world:

  1. It is a document of title which enables the rightful holder of the Bill of Lading to demand and take delivery of the cargo. This function allows the title to the cargo to be transferred to different parties, usually by physical transfer of the paper Bill of Lading;

  2. It is a receipt issued by a shipowner in respect of cargo received. It describes the apparent order and condition of the goods and, in the event that the goods are not delivered in the condition set out in the Bill of Lading, the shipowner may face claims for damage or loss; and

  3. It is evidence of the contract of carriage agreed between the carrier and the shipper. In the event that the Bill of Lading is transferred to another party, the new holder of the Bill of Lading becomes party to the terms of the contract of carriage.

In modern shipping practice, however, goods often arrive before the Bills of Lading arrive at the disport, particularly given that cargoes are often sold numerous times whilst in transit. In such circumstances, the carrier may have to decide whether to deliver the goods without production of the Bills of Lading, potentially in breach of the contract of carriage.

The case of ‘The Houda’ [1994] 2 Lloyd’s Rep 541 is authority that, subject to any contractual provision to the contrary the carrier is not obligated to deliver the cargo to a person who appears to be entitled to it, unless that person can produce an original Bill of Lading to the carrier. However, in practice, given that the inability to produce an original Bill of Lading at the discharge port is usually due to unavoidable delays in the transmission of the Bill of Lading and in order to prevent the vessel from being delayed, carriers often agree to discharge against security or a Letter of Indemnity (LOI) for any losses incurred as a result of delivering cargo without production of the original Bill of Lading.

Discharging against an LOI can also jeopardise the carriers’ P&I cover and there is an inherent risk in accepting LOIs in that an indemnity is only as good as the party providing it. As Lord Denning stated in ‘Sze Hai Tong Bank v Rambler Cycle Co’ [1959] AC 576, “… It is perfectly clear in law that a shipowner who deliver without production of the bill of lading does so at his peril”. This begs the question whether there is a better system available for use by shipowners.

Electronic Bills of Lading

The argument in favour of e-Bills is that their use would lead to a quicker, more efficient, centralised system and allow the Bill of Lading to respond better to the speed of transport of the cargo. This in turn would do away with the need to rely on LOIs at the disport. Electronic systems would be beneficial to the container, retail trade and oil trade in particular. In addition to the practical benefit offered by e-Bills, centralised systems could expand the amount known about worldwide trade and expand the knowledge in relation to tradable cargo to the market.

Electronic communication has undoubtedly been embraced by the shipping community in many ways. However, there have been numerous obstacles which have prevented the introduction of electronic Bills of Lading.

In order for an e-Bill to be a feasible substitute for its paper counterpart, all three functions of the Bill of Lading must be incorporated. The receipt function of a Bill of Lading and the role of evidence of the contract of carriage are easily replicated by the electronic systems. However, it is not simple to replace the role of a document of title.

There are several difficulties which e-Bills would need to overcome. It is accepted practice that possession of the paper Bill of Lading constitutes control and possession of the goods it represents and the Bill of Lading may be used to transfer title to the goods. Pursuant to the Carriage of Goods by Sea Act 1992 (COGSA 1992), the benefit of the contract of carriage is transferred to the holder of the Bill of Lading. Title to sue under COGSA 1992 is vested in the lawful holder of the Bill of Lading and is not linked to the cargo itself. The paper Bill of Lading transfers the right to enforce the contract of carriage against the carrier. However, it is considered that COGSA 1992 is applicable only to paper documentation. As such, a key impediment is the necessity for paper based documentation under the English law if a buyer of goods is to acquire rights against the carrier.

In an attempt to overcome this impediment, the electronic trading systems have a legal agreement or rulebook by which the parties to the transaction and electronic trading system enter into a contract which sets out their agreement to the use of e-Bills and their acceptance that e-Bills will be recognised in similar ways as paper Bills of Lading. The rulebook sets out the nature of the rights which are bestowed to the new holder of the Bill of Lading when the e-Bill is transferred and the new holder becomes the only party entitled to give instructions to the carrier. This system is to date untested in the courts.

Development of Electronic Trading Systems

From 20 February 2010, the International Group revised its position to include cover for liability for the carriage of cargo under e-Bills using the two principal electronic trading systems, Electronic Shipping Solutions (ESS) and Bolero International (Bolero). This recognition of e-Bills is an important milestone in reflecting that shipowners are not taking on additional risk in using e-Bills, in fact, in many respects, they are countering risks of accepting LOIs.

Perhaps as a result, an increasing number of shipowners and charterers are signing up to use e-Bills. ESS currently has 900 customers using e-Bills and expects that this figure will increase to 2,000 by the end of this year alone.

In 1990, the CMI Rules on Electronic Bills of Lading were published and a universal system was advocated. In 1998, the Bills of Lading Electronic Registry Organisation (Bolero) project was founded by SWIFT and Through Transport Club. The aim was to create a central registry for trade related documents of title to monitor the transfer of ownership of goods and contract. The Bolero project did not create a single electronic document performing the functions of a paper Bill of Lading, instead it used a series of electronic messages and data records in the so-called Title Registry, which allowed for the transfer of obligations related to the Bill of Lading. It aimed to enable the use of electronic Bills of Lading which would perform all the functions of a paper Bill of Lading.

ESS’ products has been live in the tanker sector since early 2010, in the barge market since 2011 and in the dry cargo market since 2012, as well as the liner market.

Problems with further development of electronic Bills

In order for an electronic system to be effective, it must be acceptable to the wide variety of parties involved in the shipment of goods around the world (i.e. banks, P&I Clubs, shippers, carriers, receivers, port and customs authorities, etc). Due to the slow development of technology in some countries, the adoption of e-Bills worldwide may still have some way to go. However, it is possible for the parties to switch from e-Bills to paper Bills of Lading if necessary.

There are two main electronic trading systems in operation as opposed to one centralised system and, in certain markets, there may be a need to sign up to both Bolero and ESS in order for the use of e-Bills to function.

Many of the practical difficulties faced by the electronic systems have been resolved. However, paper Bills of Lading have been used for many years and the industry is satisfied with the rights and protection afforded by these Bills.

There is still a long way to go before traditional papers Bills are replaced by e-Bills, however, there are certainly advantages to be derived from the use of e-Bills and the shipping industry is unlikely to be able to resist the adoption of electronic technology forever. The future looks bright for e-Bills. The adoption of e-Bills by the industry is a slow process. However, over the past three decades, there has been a growing momentum and it would certainly appear that recognition of the use of e-Bills is inevitable.

For more information contact

< Go back

Print Friendly and PDF
Subscribe to e-briefings