Electronic bills of lading (eBLs) have drawn widespread attention with the continuous development of blockchain technology. A number of containership owners and operators, driven by pursuit of high profits and cost-effective business, have switched to eBLs on some of their trades. The Association has received some queries regarding the use of eBLs. Following circular LP 60/2020, this article is prepared to look at the industry’s progress in its take up of eBLs and respond to some frequently asked questions from the Members.

I. A summary of eBL systems

The electronic bill of lading needs to be issued and circulated through the electronic trade system to complete the bill of lading. Since February 20, 2010, the Association agreed to underwrite the liability of goods arising from the use of electronic trade systems, but the prerequisite is that such systems and the versions used, legal documents, etc. should be confirmed in writing by the Association in advance. The purpose of such a review is to ensure that the electronic bill of lading can play the same role as the traditional paper bill of lading, to avoid disputes over ownership of goods and wrong delivery and other issues.

In order to ensure that the cargo liability arising from the electronic bill of lading can be fully and effectively protected, the shipping companies in practice should use the electronic trade system approved by the P&I Club. As of December 2021, there are 7 ETSs approved by the International Group of P&I Clubs, the details and latest developments are summarized in the table below.

II. Approving standard

EBLs, compared with paper BLs, are more cost-saving, and can be issued and managed in a more efficient, secured and environment-friendly manner. An original bill of lading can be transmitted within seconds for cross-border transactions without being forged, stolen or lost, thanks to the blockchain technology.

To facilitate digital transformation of the shipping industry, P&I clubs are generally open to Members who have embraced eBLs. But to protect interests of the Members, the eBL systems used should be reviewed and then approved to ensure that these systems would be capable of performing the three functions of a bill of lading namely as a receipt, as a document of title and as a contract of carriage which incorporates the Hague or Hague-Visby Rules. Where these systems are modified by service providers, the legal frameworks concerning the use and operation of the systems will be subject to scrutiny by the clubs so that the modifications conform to their requirements.

Generally, to save some trouble, a user agreement is to be reached between all users and with the system providers on issues such as agreeing to: a) ensuring a valid signature; b) laws applicable to paper bills of lading also apply to eBLs; c) establishing a dispute resolution mechanism between users; d) expressly excluding the application of the Contracts (Rights of Third Parties) Act 1999; e) providers insuring damages arising from system failures, and etc.

III. Frequently asked questions

1. P&I cover

Cover is available for P&I liabilities arising under any eBLs to the extent these liabilities would also have arisen under paper BLs. To the extent these liabilities would have arisen because an electronic bill of lading has been used instead of a paper bill of lading, cover is discretionary unless the electronic trading system has been approved by the Club.

2. Exclusions of cover relating to cargo liabilities

All exceptions and exclusions relating to the carriage of goods under the Club Rules continue to apply as they would with a paper bill of lading, including a) discharge at a port or place other than the port or place provided for in the contract of carriage; b) the issue of an ante or post-dated electronic document/record; c) delivery of the cargo without presentation of the negotiable electronic document/record (not following the system rules in an approved system).

3. Risks in using an unapproved system

The risk is that the electronic system is not recognised as performing all the functions that a paper bill of lading would have performed. One example could be that an unapproved system is found, when challenged legally, not to transfer rights in goods in the manner that the creators of the system intended. This may give rise to a dispute about ownership and mis-delivery of the cargo.

Another example could be if the Hague or Hague-Visby Rules have not been effectively incorporated into the eBL. If it is found that in each case the liability has arisen because of the use of the electronic system, then that will not be covered within normal P&I cover. However, it may be covered at the discretion of the Members’ Committee.

4. Liabilities that might incur in signing a user agreement

Non-compliance with obligations under the user agreement could give rise to contractual liabilities to the eBL operators, which would fall outside P&I cover.

Risks in relation to maintaining the obligations include cyber risks and business risks, which may be covered by other business insurances. Cyber risks refer to the risks of viruses, hacking, etc, while business risks refer to contractual liabilities to the operator, such as maintaining computer access, undertakings of confidentiality, or not uploading computer viruses.

IV. Going forward

The Maersk data empire is said to be built with tremendous scale. Major ocean carriers including Maersk, CMA, MSC, Hapag-Lloyd, ONE and ZIM have joined the TradeLens platform. Companies such as MSC and ZIM have also cooperated with other operators to launch new systems.

The research and development of eBLs in China are rather lagged at the moment, but major shipping companies have been excited about exploring innovative solutions and switching to eBLs, which will undoubtedly give them an advantage in international businesses.

The Association believes that with the strong momentum of digital shipping, eBL trade will gain widespread acceptance. Joint efforts in legal and technical aspects will be needed to drive the development of eBLs in China.

For more information, please contact Managers of the Association.