LONDON, 5 March 2018 – Blockchain has vast potential in a world where over 90 per cent of goods in global trade are carried by ships, and shipping transactions often involve dozens of people and organisations and can generate hundreds of interactions and communications among them. It is not surprising therefore that the shipping industry is increasingly looking to blockchain to streamline global supply processes, improve transparency and protect against fraud.
Reed Smith’s recently published whitepaper titled ‘Blockchain – distributed ledger technology and designing the future’ explores the potential transformative power of blockchain technology and the legal issues surrounding this exciting new technological development.
Shipping lawyers Noah Jaffe and Rebecca Lewis take a closer look at what opportunities and challenges blockchain can bring to the shipping industry.
The biggest opportunities for the shipping industry:
- Digitised supply chain – Using blockchain technology would enable parties along the shipping supply chain to upload and share documents instantaneously and securely. This would allow every participant to track and manage the shipment’s progress and documentation from end to end, increasing efficiency and transparency, while simultaneously reducing costs (going paperless could save up to US$300 per container) and the risk of documents being delayed, misplaced or tampered with. This would also reduce the risk of fraud and data loss.
- Electronic bills of lading – Existing Electronic Trading Systems (ETS) seek to replicate the existing framework through user agreements, however the uptake has been slow in part because of uncertainty as to whether e-bills can
comprehensively mirror and replicate the highly evolved and complex legal framework for paper bills of lading. Blockchain technology could make the legal distinction between paper and e-bills less problematic. The technology
guarantees that each e-bill is and remains entirely unique. This ensures that only the holder of the e-bill can exercise the right to claim the goods, making blockchain e-bills better suited to use as a document of title than traditional ebills.
- Marine insurance – innovation in this space is long overdue. EY, AP MollerMaersk, Microsoft and Guardtime have announced their intentions to launch the world’s first blockchain platform for marine insurance in early 2018. This
has the potential to revolutionise one of the world’s oldest branches of insurance in the world. Marine insurance is historically a cumbersome, paperheavy industry, and estimates are that the new platform could significantly reduce paperwork, delays and disputes in the US$30 billion marine insurance market. It is expected to bring about faster billing and collection, greater clarity on claims histories, more accurate exposure management and
- Smart contracts – a smart contract is an agreement written in computer code to automatically execute the contract’s terms when its conditions are met. In addition to increasing the speed of a contract’s execution, the selfexecuting
nature of smart contracts reduces the risk of non-compliance. The obligor in a smart contract loses the ability to withhold payment because payments occur automatically through the blockchain.
- Auto-execution is no substitute for human judgement – The automatic nature of smart contracts would have limitations in certain scenarios. For more sophisticated transactions, human judgment is often still needed for
determining when conditions are substantially met, or in determining the best course of action following a breach or default. While the technology will become increasingly sophisticated over time there may be no substitute for
- Adoption – Widespread adoption of Blockchain technology by market participants will be key to its success in the shipping industry. For a digitized supply chain to be most effective all the parties along chain need to be on the
- Reliance on Global Positioning System could expose blockchain to hackers – GPS can, and has, been manipulated by hackers. A chain is only as strong as its weakest link, and for blockchain technology, the weakest link
might be the one where the digital world meets the physical one.
- The full whitepaper can be read here: