Mads Wacher Kjaergaard
Manager, Standards, Innovation and Research
- +45 4436 6833
In the wake of recent high-profile frauds, building trust and transparency has become an urgent priority for the bulk shipping industry. Digitalisation is a key tool in achieving this goal, as it allows for the creation of multiple "golden sources" of data that promote end-to-end integrity – reducing the risk of fraud and driving sustainable growth.
This article is by Oswald Kuyler, Chief Operating Officer at MonetaGo. See him at our webinar "Reducing fraud through digitalisation" on 9 May.
Global trade in commodities has been rocked by a spate of high-profile fraud incidents, resulting in significant financial losses and eroding trust in the industry, but these are just the tip of the iceberg.
Recent headlines have been dominated by fraudsters who have exploited weaknesses in the traditional paper-based system, forging and manipulating documents to cheat buyers, sellers, and banks out of millions of dollars. However, this typology is also used to disguise shipments of illegal products, misrepresent the condition of a cargo, obscure its true destination and origin, or manipulate the date it was loaded onto the ship in order to wrongly draw funds under the documentary credit system. Falsification can also relate to the ship itself, such as in the case of the issuance of a bill of lading (BL) for goods to be shipped on board a non-existent vessel.
Because international trade transactions involve several parties, from buyers to sellers, shipowners, charterers, ship’s master or crew, insurers, financiers, brokers and agents, there are numerous potential weak spots – as well as numerous potential victims of deceit.
As fraudsters continue to find new ways to exploit the system, the shipping industry needs to establish a collaborative approach to risk management. Achieving this means closing trust gaps wherever they arise throughout the ecosystem. This is where digitalisation comes in.
The BL is one of the most important documents in shipping, and also one of the most prone to fraud.
Digitalising the BL is the obvious answer. Electronic bills of lading (eBLs) can be produced, transferred and managed in a digital environment, which eliminates the risk of physical document handling. Secondly, eBLs offer a higher level of authentication and security, which ensure that only authorised parties can access or make changes to them. Thirdly, eBLs enable audit trails, which allow users to review the progress of a transaction and oversee any changes being made to the trading documentation, giving them greater visibility and control over the process. Finally, the use of encryption and other digital security measures in eBLs makes them more difficult to forge or manipulate than paper bills of lading, further reducing the possibilities of fraudulent activities.
BIMCO, along with its fellow FIT Alliance members the Digital Container Shipping Association (DCSA), the International Federation of Freight Forwarders Associations (FIATA), the International Chamber of Commerce (ICC) and SWIFT, is leading the push for the adoption of eBLs as part of a wider digital transformation of the shipping industry.
Already widely known to regulators, banks and insurers for its standardised paper BLs such as CONGENBILL and CONLINEBILL, BIMCO has developed a global eBL standard for the dry and liquid bulk sectors and is working to encourage its acceptance and adoption.
However, it isn’t just the move away from paper to a more secure digital environment that will shore up the shipping sector. As a structured dataset consisting of 20 predefined data fields that are common to bulk shipping BLs, the BIMCO eBL standard represents a "golden source" – or single version of the truth. This is a key reference to which all stakeholders can turn to ensure that they have the correct version of a piece of information, with clarity on who owns the data, who logged the data and what the evidence of each data point is.
Adoption of the eBL at a global scale, while transformative, will not solve for every type of illicit activity. There is not one single solution which can claim 100% invulnerability, and the eBL is just one piece of the puzzle when it comes to safeguarding shipping against bad actors.
But the more sources of truth that the industry can rely on, the more difficult it becomes to cheat the system.
The Standards Toolkit for Cross-border Paperless Trade, published by the International Chamber of Commerce (ICC) and the World Trade Organization (WTO) in consultation a wide-ranging group of stakeholders, outlines close to 100 available standards, frameworks and initiatives that offer the potential for all parties in global supply chains to speak the same, universal language, and generate multiple golden sources within a digital environment.
For example, digital identities such as the legal entity identifier (LEI) represent a trusted data source on who is who, who owns whom and who owns what in a way that is quick and effortless. Authenticity standards such as the ISO 14533 series for electronic signatures, which allows for the validation of a digital signature for a long time after its generation, can ensure the legitimacy of commercial contracts. Solutions that break down information siloes such as MonetaGo’s Secure Financing service, which leverages a secure data repository to enable stakeholders to verify whether trade documents have been registered or funded to avoid duplicate financing, can increase transparency and integrity in transactions.
The opportunity exists to build a digital infrastructure based on standards, trust, and transparency, but the establishment of golden sources relies on the network effect: unless a majority of stakeholders commit to their use, exploitable trust gaps will persist.
As progress towards digitalisation continues to gather pace, the global trade ecosystem is at a pivotal moment in its history. As we move towards a more digital future, the challenge now is for stakeholders to come together and commit to using all available tools and frameworks, forming a network of golden sources to create a secure and reliable ecosystem for the years to come.