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Multimodal
transport: Electronic contract of carriage and transport
document
Mr. Christopher GILLESPIE
MTO's and Electronic Documentation -
Is There a Future?
Before addressing the subject matter of this
presentation, I believe it is important to provide some background on the
organization on whose behalf I am making this presentation.
FIATA is the world's largest non-governmental
organization in the field of transportation. Currently membership is comprised
of the national association members in 82 countries in the world and in
consequence represents some 50,000 international freight forwarders and NVOCC's
worldwide. Of the national association members 64 are authorized by license to
issue the FIATA bill of lading, perhaps the most commonly recognized multimodal
transportation document amongst freight forwarders worldwide.
While my talk today will address the concern of
freight forwarders and electronic multimodal contracts of carriage, these
remarks should not be construed to be limited to the concerns of those who issue
FIATA bills of lading. While some freight forwarders when acting as MTO's will
in fact use the FIATA bill of lading, many will equally utilize their own bills
of lading (especially those not licensed to use FIATA B/L's) and those of use
who are insured by our friend, Mr. Paul Mallon's T/T Club also have access to
the T/T Club bill of lading for those instances where we choose to act as
principals, NVOCC's, MTO's and whatever designation you choose to label us
with.
Today I am going to draw heavily on information which
I have extracted from a few sources and wish to make it clear that while I am
personally very involved in automation and electronification of our
documentation systems, there remain hurdles which without a significant effort
on the part of the world's governing bodies will not unable us to free ourselves
from hard copy documentation. Perhaps the best example that comes to mind are
documents such as veterinary certificates, phtosanitary certificates, heat
treatment certificates and a host of other documentation generated by official
bodies and required in an original form by destination agencies all of which
render the conversion of the rest of the documentation into an electronic
message somewhat futile if ultimately these hard copy documents are
required.
At this juncture it is probably very important to
consider the fact that from a purely electronic documentary requirement, there
is little difference between a marine or ocean bill and that of a multimodal
transport document. While the latter is the document of choice by freight
forwarders when acting as carriers, given that they are usually involved in a
multimodal movement of goods for their clientele from point of origin to point
of destination, this is not to say that forwarders do not equally issue port to
port marine bills of lading.
Having reviewed numerous articles, all of which seem
to point to the same conclusions, I believe it is safe to say that from the
forwarding industry's standpoint, our principal concern with the electronic
documentation rests with its practical application. While there are doubtless
legal issues concerning a variety of consequences inherent with no longer
handling a hard copy document, perhaps one of the most significant of which has
to be the signing of the latter or its authentication, I don't believe that this
is a hurdle that will be long in surmounting. In fact there exists today, as we
are well aware, a working model in Bolero that already seems to have grappled
with this problem.
The issue of concern to the international freight
forwarding community and indeed those of us who issue either marine or
multimodal contracts of carriage rests primarily with the practical implication
of hard copy documentation versus electronic alternatives. There are many
issues that will have to change before the electronic alternatives will be
considered as a readily favourable alternative.
Much of the work handled by freight forwarders
involves letters of credit and most of these transactions concerning letters of
credit involve less developed areas of the world. The importance of an original
marine bill of lading to a letter of credit transaction is paramount to the two
parties engaged in this transaction.
We all know that a marine bill of lading represents
in the legal sense three functions: acting as a receipt, as a contract of
carriage, and when issued in a negotiable form, a title of ownership. These
three elements are critical to the undertaking of the parties to a letter of
credit.
It is an interesting aside to notice that recently
some carriers have commenced incorporating into their bills of lading
terminology which would render them harmless when releasing goods to a consignee
without presentation of originals which had been issued against that contract of
carriage. Our industry and indeed FIATA as its major representative have taken
extreme exception to such an initiative on the part of any marine carrier and
while the initial reaction from the ICC indicated that they did not see an issue
with this, as they were not responsible for the terms and conditions of the
contract of carriage, they too are reconsidering the onus of such an action on
the part of carriers.
As FIATA pointed out to them at the time the
integrity of the original ocean bill of lading is effectively the glue that
binds together the parties to this transaction.
The document would effectively be rendered worthless
if there was any possibility that the cargo could be released to anyone other
than the holder/bearer of the original bills of lading.
The freight forwarder as a transportation facilitator
or as a carrier must ensure that transportation arrangements he undertakes on
behalf of his client will be fulfilled and the parties to that contract will see
a successful outcome; for the shipper that being payment in full for the
products he has shipped and for the buyer, delivery of the product in good order
and condition in a timely manner for the price agreed upon.
A recent article in The American Shipper
magazine dealt extensively with the results of an UNCTAD survey which focused on
the use of transport documents in their various configurations. Not
surprisingly, at least to me given my experience, there was an overwhelmingly
high percentage of negotiable bills of lading, in fact 88% versus the next
largest sector being non-negotiable sea waybills at 51%. The figures did
indicate a 53% use of multimodal/combined transport documents, 37% of which were
negotiable, the balance being non-negotiable.
Again, many of the difficulties in the transportation
industry seem to revolve around terminology. In my view a negotiable bill of
lading can be either a marine or ocean bill of lading or a multimodal/combined
transport document. Equally a non-negotiable sea waybill could just as easily
be considered a non-negotiable multimodal transportation document. However, the
effective conclusion of this percentage analysis is that only 20% of
transportation documents fell into the "other" category.
It must be clearly understood as well when viewing
these results that the 88% use of negotiable bills of lading should be read as
'hard copy' paper bills of lading.
What is as interesting to note in this survey is that
there still appears to be a desire in international trade and transportation to
rely on negotiable bills of lading as opposed to non-negotiable sea waybills.
In our experience we have found that many of our exporting clientele, including
major multinational corporations, are simply unaware of the alternatives
available and in many instances handle shipments in a manner that they are used
to and as they will often say 'this is the way we have always done
it'.
Stock transfer between corporate offices is certainly
a good example of an appropriate use of non-negotiable transport documentation.
In many instances there is not even a transaction taking place until the product
is actually sold. Movement of commodities into bonded warehouses or
distribution facilities is another good example of a practical use of
non-negotiable documentation.
So there is a very real likelihood that with a better
understanding and promotion of the non-negotiable transport document option that
the use of this facility could become more widespread.
Needless to say this too would facilitate electronic
documentation and in many ways we handle sea waybills in an electronic manner
when dealing with them in a practical sense today. We no longer courier or fax
copies of these documents but scan them into a PDF format and forward them to
interested parties. In most instances all of the documentation required for
shipments covered by sea waybills could be handled in this manner, while the
document could still be printed as a hard copy. Our current system allows us to
transfer it by e-mail as an electronic message and my staff, resistant to
change, continue to print a hard copy for their file even though it exists in
our database.
It is fascinating to look at the reasons cited in the
UNCTAD report against the use of non-negotiable documents. The overwhelming
reason cited at 31% "banking requirements make use inappropriate" which only
stands to reason when one assumes what the bank requires would be under a letter
of credit and obviously a document that did not confer ownership of the goods to
its holder would be inappropriate for use with a letter of credit.
The second aspect at 28% was inadequate security.
Again this would have to be assumed to reflect on a document as a title to the
goods. At 17%, government requirements made use inappropriate and at 15%,
prohibited by law and other document required by law, further indicates the
difficulties facing facilitation of transportation documents to an electronic
means.
If in a combined sense 47% of the respondents
indicated that there are government or legal limitations to sea waybills, it is
very hard to imagine that these same regimes would open their arms to electronic
documentation.
One may reasonably suggest however that security and
bank requirements could be met with electronic documentation and while this
certainly could be the case, it is difficult for me to imagine trying to
introduce such a concept in a marketplace where there is such an extreme
aversion to non-negotiable documentation.
This then leaves us with those instances in which
negotiable documentation is a critical element to the transaction and in most
instances this is directly dependent upon the issue of security under a letter
of credit transaction. Here again the UNCTAD study provided for some
interesting percentages, the most significant of which as I have just mentioned,
'security under letters of credit' 75% followed by 35% 'specifically requested
by the trading party', and 31% and I quote "documents ensure mandatory transport
legislation".
This third item struck me as interesting in that it
would appear to indicate that there is a belief that non-negotiable
documentation is not subject to mandatory transport legislation. In fact I
cannot understand from where such a concept would be derived in that the
non-negotiable sea waybill still maintains its function as a receipt and a
confirmation of the contract of carriage entered into by the parties to this
document and in consequence the terms and conditions of that contract of
carriage are unchanged from the negotiable version of that same contract of
carriage.
We commonly convert our negotiable bill of lading to
a non-negotiable sea waybill express bill of lading, call it what you will, by
simply not issuing any originals ensuring that it is sent directly to consignee
and clausing the bill of lading with wording similar to the
following:
'Cargo to be released without presentation of
Original B/L. Any reference in this contract of carriage to issuance or
surrender of Original B/L is to be considered null and void.'
So what then could be done to address the concerns of
traders worldwide regarding negotiable documents and the potential for these
documents to evolve into electronic messages? I believe that there is really
little that prevents any of the concerns from being addressed in an electronic
sense but equally the survey revealed what we believe and we have encountered in
the past in meetings with entities such as Bolero to be the single largest
stumbling block, that being cost and the need for literally all parties to the
transaction to be participants in the system. Contrary to one of the views
expressed being acceptance of electronic signatures, I really do not believe
that this is not an insurmountable problem.
The issue of the location in which most letter of
credit transactions are focused being developing countries or under developed
countries is perhaps the greatest hindrance to this process.
I recall some years ago attending a meeting where
Bolero suggested that an analysis they had performed of letter of credit
transaction times strongly supported the need for electronic documentation to
hasten the process of letter of credit negotiations considering how much time is
lost and cost associated with demurrage or detention which could
otherwise be reduced or eliminated.
My reaction at the time remains unchanged in that
were we as the forwarding industry taking the amount of time to negotiate letter
of credit documentation as indicated in their study, we would have no
clientele. The biggest hurdle facing us today is ensuring that we can secure
accurate documentation from instructions we present the ocean carrier and in
consequence presentation to the bank.
New security concerns have resulted in rules which no
longer allow for the presentation of bill of lading instructions after a ship
sails. In consequence carriers can no longer rely on the fact that they did not
have the bill of lading instructions in a timely manner and suggest that they
could release the bill of lading immediately after the vessel
sailed.
We can present a completed documentation package to a
bank within one day of receipt of the negotiable bill of lading from the ocean
carrier. The biggest impedance to this is obtaining that negotiable bill of
lading from the ocean carrier.
The justification for electronic documentation must
then be more than that which has been just to us in the past i.e. speed of
negotiation and prevention of fraud. As a multimodal transport operator, we are
in an excellent position to facilitate the transportation process with a
document that presents all of the requisite documents of the buyer and
seller.
Interestingly enough the multimodal document can be
issued as soon as the MTO has the cargo in question in his care and custody. In
fact this could be in the case of landbridge exports from Canada. For example
when a container is received at an inland terminal by the ocean carrier up to a
week in advance of the physical departure of the vessel on which that cargo is
loaded, provided the letter of credit allows for it, the original multimodal
transport document could be presented, the letter of credit negotiated, and the
shipper paid even in advance of the cargo physically loading on the intended
vessel.
In consequence there is very limited likelihood that
there could ever be any demurrage or detention in such a case and the only
concern would have to rest with the buyer who does not have the guarantee of a
marine or ocean port to port bill of lading.
If speed and negotiation is the only reason to be
concerned with electronic documentation then the multimodal transport document
is hardly impacted by this rationale.
Fraud is highly dependant upon the reliability of the
seller. In fact regardless of whether or not the document is electronic or hard
copy neither will prevent the possibility of shipment of drummed nickel turning
out to be drummed sand. Obviously there are ways to circumvent this risk
including inspection and inspection certificates but electronic documentation
does little to remove the risk to fraud.
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