Abstract

The world’s shipping industry is undergoing a paradigm shift towards digitalization. The international shipping industry’s adoption of artificial intelligence, blockchain technology, and automation has exponentially increased in the past few years. This results from the industry’s need for cost and time efficiency at every level of the supply chain in an ever-competitive environment. It is believed that this transition into a digital maritime industry would allow operations to be streamlined, information and documentation to be seamlessly exchanged, and the industry to become sustainable and environmentally friendly. A crucial part of this shift has been digitalizing transaction documents, including the Bill of Lading. Thus, this Blog Post analyzes India’s adoption of electronic Bills of Lading and its integration into the country’s maritime industry.

Introduction: What is a Bill of Lading?

A Bill of Lading (“B/L”) is one of the most important documents used by the shipping industry. According to theB/L Report by the Secretariat of the United Nations Conference on Trade and Development (“UNCTAD”), a B/L may be described as either a receipt acknowledging the shipment of goods on a particular vessel, a memorandum of terms and conditions of the contract of carriage, or a document of title of goods, enabling a consignee to take delivery of the said goods. 

Although India has enacted theIndian Bills of Lading Act, 1856 (“the Act”), the Act does not define what a B/L is. InShipping Corporation of India Ltd. v. C.L. Jain Woollen Mills, the Supreme Court stated that “The Bill of Lading is a well-known mercantile document of title, which is transferred in the business world by endorsement passing to the endorsee, the title of the goods covered by such Bill of Lading.” InBritish India Steam Navigation Co. Ltd. v. Shanmughavilas Cashew Industries, the Apex Court also recognized that “A bill of lading is intended to provide for the rights and liabilities of the parties arising out of the contract of affreightment … The bill of lading is a negotiable instrument in the sense of carrying with it the right to demand and have possession of the goods described in it. It also carried with it the rights and liabilities under the contract, where the property in the goods also is transferred.” Thus, Indian Courts have not only defined what B/Ls are but have also recognized them as important mercantile documents having multifold purposes. 

Traditional B/Ls consist of paper documentation, duly endorsed by the shipper, and usually signed in sets of three originals. The requirement for a B/L to be original when changing hands in a transaction is of utmost importance as it is considered a legal document, often used as security by banks financing the concerned transaction.

India’s Adoption of Electronic Bills of Lading

With the paradigm shift towards digitalization of the shipping industry and the advent of the COVID-19 pandemic, the Indian Ministry of Shipping initiated, inter alia, the development, and adoption of Electronic B/Ls (“e-B/Ls”) for use in India’s maritime industry. These e-B/Ls are said to form a part of India’s Electronic Port Community System (“e-PCS”)to be operated by 19 ports, including major ports, connecting approximately 16,000 stakeholders. 

The e-PCS was implemented to improve the ease at which business transactions could be conducted in the country’s maritime sector. The system aims to, amongst other things, centralize the exchange of trade-centric documents and information seamlessly through a singular electronic platform. The e-PCS provides easy access to major maritime authorities, for instance, the Indian Customs, for clearance of requisite documents and brings together various stakeholders in the industry. The Ministry of Shipping in 2018directed that all maritime trade-related documents and information in the country be mandatorily exchanged electronically via e-PCS. Therefore from 2018 onwards, all maritime stakeholders, including all major and non-major port authorities, Indian Customs, Port Health Organization, Bunk Suppliers, Shipping Agents, and Terminal Operators,have been directed to register themselves with e-PCS and use the same for transmission of information and documents.Resultantly, India’s ranking on the Ease of Doing Business Index improved to 77 in 2018 and continued to improve to 62 in 2019. 

One of the documents to be exchanged via the e-PCS is e-B/Ls. The system aims at facilitating the transfer and the processing of e-B/Ls. The system intends to use existing service providers such as BOLERO’s cloud-based encryption platform and CargoX’s blockchain platform. It is anadded benefit that these platforms have been recognized and accepted by the International Group of Protection & Indemnity Clubs. As it stands, Indian courts have yet to entertain a claim brought on an e-B/L. However, the recognition of e-B/Ls created and exchanged using the platforms mentioned above by the International Group of Protection & Indemnity (“P&I”) Clubs would, on the face of it, mean that claimants covered by such clubs could potentially stand indemnified. 

In essence, these platforms would enable the creation, exchange, and storage of original e-B/Ls while ensuring their confidentiality, audibility, and traceability through secure blockchain technology. Since the originality of B/Ls is vital for facilitating sea trade, these platforms must maintain the sanctity of the original B/Ls. 

The introduction of e-B/Ls to the Indian shipping industry comes at a time of need. At present, traditional paper-based B/Ls are widely used. However, these paper B/Ls come with their shortfalls. Paper B/Ls attract substantial administrative costs.According to Digital Container Shipping Association (“DCSA”)’s research, the costs associated with processing paper-based B/Ls are three times as much as the processing of e-B/Ls. Traditional B/Ls are relatively inconvenient and impractical as they are passed around many hands.According to Maersk and IBM, a shipment of goods could involve an exchange of B/Ls between nearly 30 people, including around 200 interactions. A consequence that flows from this is the need for letters of indemnity to be issued by P&I clubs in favor of the shipowners to indemnify them against the delivery of goods without a B/L. This is an added cost to the overall transaction. Moreover, like any other paper instrument, traditional B/Ls are more susceptible to fraud and forgery.

Improved Port Efficiency in India

The limitations mentioned above of paper-based B/Ls are no strangers to the Indian Shipping industry. As is the case with all paper-based documentation, processing thereof being entirely manual, transactions involving paper-based B/Ls are laborious and time-consuming. For instance, traditional B/Ls would transfer many hands from shippers to their agents and on to concerned authorities such as customs, etc. During this time, the cargo would often remain on board vessels, and vessels, in turn, would lay idle for long periods at a port awaiting clearance of the cargo on board.India’s average turnaround time at major ports is 26.5 hours, approximately more than a day on average. One of the consequences of this is that vessels often face the risk of incurring demurrage, i.e., a cost payable by charterers of a vessel for the delay in the sailing-out of a vessel from a particular port, often calculated per day. The Supreme Court had an opportunity to deal with a case on similar facts inShaw Wallace and Company Limited v. Nepal Food Corporation. In this case, the shipper’s failure to timely provides security for the cargo resulted in delayed issuance of the B/L, which caused the vessel to incur demurrage charges. The Supreme Court held that a carrier or his agents has a statutory duty to issue B/Ls without delay, and the failure to do so would render a party responsible for issuing a B/L in breach of its statutory duty cast under the Carriage of Goods by Sea Act, 1925. Such a person would also be deemed to have negligently performed his legal duty in the common law. The creation of traditional B/L is a long-drawn process. The B/Ls are usually procured by the shipper, who fills in the relevant information. These are then physically handed over to the Master of the ship, who checks the same and signs on behalf of the ship, or an agent signs on behalf of the Master. This is then subsequently delivered to the shipper, who must deliver the original B/Ls to the cargo owner receiving the cargo or his agents. In short, traditional B/Ls pass many hands, and the likelihood of delay in timely issuing such B/L is quite high, especially in places laden with red tape. Therefore, with the use of traditional B/Ls, there is an increasing risk of issuers of B/Ls breaching their statutory duty and/or negligently performing their legal duty under common law. 

Likewise, a port at which cargo is stored awaiting its collection by cargo owners is entitled to recover demurrage charges either from the consignor or consignee or their agents as held inM/S. Rasiklal Kantilal & Co v. Board of Trust of Port of Bombay. Thus, cargo owners, shippers, or their agents face the risk of paying demurrage to ports at which such cargo is being temporarily stored, pending the cumbersome procedure to process the B/Ls under which the cargo is being transported. E-B/Ls can play a huge part in avoiding delays and dire consequences in ensuring the timely delivery of cargo to their owners. 

The Indian e-PCS proposes to permit the creation and sharing of e-B/Ls. The e-PCS has e-B/Ls service providers such as CargoX and BOLERO integrated into its system through the P-CaSo services marketplace. What this would mean for various stakeholders of the country’s shipping industry is that they can now easily access, create, and transact with e-B/Ls under one roof, allowing Indian Ports to benefit from the aforesaid multifold advantages. As a result, Indian Ports would have adopted a more streamlined approach for processing shipping-related documents, including B/Ls, increasing port efficiency. 

The introduction of e-B/Ls at Indian ports would substantially cut the amount spent for processing documentation and ensure cargo is delivered to owners promptly, reducing the risk of vessels or ports incurring demurrage and being forced to initiate taxing litigation to recover the same. This could also contribute to reduced turnaround time and de-congesting ports. 

The e-PCS facilitates the instantaneous transfer of e-B/Ls on a common platform, limiting human error, reducing administration time and costs, and providing a viable solution to India’s problem of the snail-paced process of handling paper-intensive documents for export-import of cargo. Accessibility to a common platform would do away with the need for B/Ls to “change numerous hands”. This, in turn, would allow for the timely issuance and exchange of B/Ls, avoiding any potential breaches of statutory law and consequences associated with this.

Shortcomings in the Present Electronic Bills of Lading System 

E-B/Ls are expected to overcome the various issues and limitations of traditional B/Ls, facilitating efficient cross-border transactions in the shipping industry. However, an impediment to the present e-B/Ls adoption is that there is no standard for the creation, processing, and transfer of the same. 

At present, e-B/Ls primarily work on a “club” system. India, too, has adopted a club-based e-B/Ls system viz BOLERO. The e-PCS also functions on similar lines, i.e., it requires users to register with the platform before using it. These club systems are based on advance contractual agreements between the concerned parties and all other parties having access to the software being used. In other words, only those parties registered with a particular platform or “club” that provides e-B/Ls services would be entitled to transact using the e-B/Ls available on the said platform. A natural consequence is that non-contractual parties have no access to the system and thus, cannot exchange electronic documents with contractual parties. As a result, paper B/Ls would nonetheless be required to be utilized, negating the very purpose of the e-B/Ls system. Thus, platforms like BOLERO adopted in India would nonetheless require various parties to register with the system and warrant the use of paper-based B/Ls if the parties are not registered with the said platform. 

Another issue with the present system for e-B/Ls is the reluctance of banks to finance transactions centering e-B/Ls. As aforesaid, B/Ls are often used as security by banks financing a transaction. Unquestionably, banks would insist that a B/L being used as security has legal recognition and is supported by a legal framework that allows enforceability thereof. This is more so in the case of international trade. It is understandable why banks prefer to hold documents as security that are recognized and accepted internationally, i.e., standardized documents. Thus, due to a lack of standard and legal recognition, banks have become increasingly hesitant to use e-B/Ls as security. Indeed, this defeats the purpose of using e-B/Ls.

Standardized Electronic Bills of Lading 

A viable solution to the conundrum mentioned above appears to come fromBIMCO’s recent announcement that it is in the process of developing a standard for e-B/Ls in the liquid and dry bulk sector of the shipping industry. BIMCO is a non-governmental organization and arguably the largest international shipping association in the world. BIMCO is renowned for its standard form charter party agreements and standard clauses, which shipowners and charterers adopt across the globe. Thus, BIMCO’s endeavor to produce a standard e-B/L would bring about some uniformity in the adoption and utility of e-B/Ls worldwide. 

For instance, DCSAhas proposed standards that shippers and carriers could follow to create and share uniform B/Ls, whether physical or electronic (albeit with necessary changes unique to e-documentation). These standardsallow carriers and shippers to create, share and amend standard B/Ls to be used across numerous transactions of the same nature. These standardsprovide for the use of generalized terms (along with their definitions) across all B/Ls created and issued, set, predefined data fields, including those that are mandatory or optional, a user interface designed for ease of accessibility, and possibly boilerplate clauses as seen in traditional, standard form contracts, for instance, governing law and dispute resolution clauses. DCSAhas said that its standards are “…technology agnostic, open source and readily accessible” and that itstrives to develop “…open source standards for necessary legal terms and conditions, as well as definitions and terminology to facilitate communication among customers, container carriers, regulators, financial institutions and other industry stakeholders.” 

The introduction of such a standard for e-B/Ls has many benefits. First and foremost, it will bring about much-needed uniformity in the industry. This, in turn, will provide banks with a sense of comfort, encouraging them to recognize e-B/Ls as security. Moreover, it will ensure that the terms and conditions adopted in the e-B/Ls will be clearly defined, promoting easy comprehension and unambiguous communication amongst the parties concerned. Unlike the club system where a user is required to register itself with a particular club, any party wishing to utilize a standard e-B/L must only implement and abide by the set standards. 

The BIMCO standardized e-B/Lsare proposed to be in tune with theUN/CEFACT Multi-Modal Reference Data Model, DCSA, and other Future International Trade (FIT) Alliance members. As a result, it can be expected that a standard for e-B/Ls will bring about seamless interoperability between various sectors in the industry along with cost and time-efficient end-to-end container shipping documentation. 

Although, at this juncture, it is not clear what BIMCO’s standards for e-B/Ls are, and considering BIMCO’s position to introduce a revolutionary standard for e-B/Ls, it is hoped that it will adopt the use of Distributed Ledger Technology, i.e., the technology on which Blockchains are created. This technology is relatively more robust and offers potential solutions for eliminating the risk of a disastrous attack that could potentially compromise the integrity and uniqueness of an e-B/L. India’s Cargo X platform adopted by the e-PCS uses similar technology. The said technology would also help overcome the issues presently subsisting with the club system, i.e., parties transacting with e-B/Ls would not be required to register themselves with a particular “club.” In doing so, a more comprehensive range of stakeholders will be able to benefit from the use of e-B/Ls.

Conclusion: India’s Way Forward 

Since India is now acquainted with e-B/Ls and already has an established platform for the use thereof, it is hoped that soon, India, too, could adopt BIMCO’s standards for e-B/Ls. This would help overcome the present issues with the club-based system and the reluctance of banks to finance transactions that use e-B/Ls that are unique to these clubs. 

Though the advantages of a standardized e-B/L are multifold, in the absence of a legislation recognizing the use of e-B/Ls, members of the maritime industry may not be able to benefit from the same fully. 

Currently, Indian legislation does not appear to contemplate the use of e-B/Ls nor does it expressly recognize e-B/Ls. While India has a statute governing B/Ls, i.e., the Act, the said statute does not mention the form in which a B/L is to be transacted with. The Act merely lays down the rights of the holder of a B/L. Thus, it can be argued that where a B/L meets all essential requirements to consider it valid such as being duly endorsed and being an original copy, it can be reasonably inferred that even e-B/Ls will be covered under the Act. Although the Act does not appear to cause any impediments to the use of e-B/Ls, electronic documentation brings with it its own set of challenges. Against this backdrop, it is hoped that the Indian government adopts relevant legislation in consonance with theUNCITRAL Model Law on Electronic Transferable Records to ensure better governance and enforcement of e-B/Ls. 

India could perhaps seek inspiration from Singapore. Singapore has recently enacted theElectronic Transactions (Amendment) Act, 2021, which incorporates the UNCITRAL Model Law on Electronic Transferable Records into its municipal legislation. This has resulted in the legal recognition of e-B/Ls, whether created or transacted, by local law. In Singaporean courts, parties can bring claims and seek enforcement of their rights under such e-B/Ls. According to the said Bill, an e-B/L would be considered in writing if the information included therein can be used subsequently and would be considered to be signed if an authorized person adopts a reliable or recognized method to authenticate the information contained therein. These conditions complement the factors to be satisfied to constitute a valid B/L under the Act. For instance, according to Indian law, a valid B/L needs to be duly endorsed/signed. Adopting a similar provision that permits due authentication of the information on an e-B/L by an authorized person through a reliable method such as digital signatures to be considered as endorsing/signing a B/L under the Act would enable an e-B/L to be considered a valid B/L under the said Act. The majority of the provisions of the UNCITRAL Model Law on Electronic Transferable Records appear to complement rather than conflict with existing laws governing the subject of B/Ls. However, India must be cautious in blindly adopting the said Model Law. A deep dive into the present legislative framework, rights, and liabilities enshrined in existing legislation would be required to be undertaken before the said Model Law can be assimilated into local legislation. Undoubtedly, the country’s legislature has its work cut out for itself. Nevertheless, it is imperative that India continues exploring the amendment of its legislation to expressly recognize e-B/Ls and set out a mechanism for enforcing the rights thereunder. 

In conclusion, and considering all that has been stated, the adoption and utilization of e-B/Ls would nonetheless allow India to truly reap the benefits of digitalization in the shipping sector by offering harmonious cross-border transactions, increasing port efficiency and productivity, and making it a desirable destination for various stakeholders in the international industry to do business. Having said this, it is not nearly enough to mandate using e-B/Ls in practice. Legal recognition for the use of e-B/Ls with a supporting legal framework for the enforcement of the rights and liabilities thereunder, which is in comity with international norms, is sin qua non to the success of transacting with e-B/Ls in India.

Disclaimer

The views and opinions expressed by the authors are personal.

About the Authors 

Mr. Siddharth Thacker is a Partner at Mulla & Mulla & Craigie Blunt & Caroe, Mumbai.

Ms. Ayesha Qazi is an Associate at Mulla & Mulla & Craigie Blunt & Caroe, Mumbai.

Editorial Team 

Managing Editor: Naman Anand 

Editors-in-Chief: Jhalak Srivastav and Muskaan Singh 

Senior Editor: Muskaan Singh 

Associate Editor: Pushpit Singh

Junior Editor: Harshita Tyagi

Preferred Method of Citation  

Siddharth Thacker and Ayesha Qazi, “Digitalization of Bills of Lading – India’s Step in the Right Direction” (IJPIEL, 24 August 2022) 

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