The Slow Migration to Paperless Trade

The subject is not new, we have been talking about paperless trade and e-commerce for almost thirty years but progress has been painfully slow. Looking at how quickly technology has advanced over the last thirty years it does seem strange that we still couriering bills of lading all over the world and churning out multiple paper invoices covering every shipment. The internet, email and mobile phone ‘revolutions’ have been relatively quick, so why is the international trade process lagging behind so far? Some readers will recall that BOLERO was established in 1998 by a conglomerate of SWIFT, major logistics providers and the insurance industry to provide digital solutions across global supply chains. The BOLERO system, a private sector venture, has achieved some traction and provides interesting solutions. However, it is not widely used notwithstanding some excellent innovation and ‘thought leadership’ within the remit of international e-commerce.

UNCTAD have estimated that Each international trade transaction requires an average of 40 documents of 200 data elements, with 15% repeated at least 30 times and 60-70% repeated more than once. This is a global average but it tells a rather disturbing story, particularly in relation to the cost to business. Globalisation has brought about increased export opportunities but also increased competition. Thus, the cost of administering and processing an export transaction can severely impair competitiveness. This cost could be vastly reduced were electronic messages to replace the need for paper documents.

The major rules and protocols covering international trade facilitate the use of electronic messages as an alternative to paper. For example, Incoterms alluded to this even, in the 2000 version, and Uniform Customs and Practice for Documentary Credit has also included an e-UCP section since 2002. In relation to the latter, at the time, the International Chamber of Commerce stated  ‘eUCP came into force at midnight GMT on 31 March of this year. It was a response by the ICC to the growing number of electronic documents being used in international trade. The product of more than two years of work, the eUCP is expected to revolutionize the way letters of credit are commonly used.’ The statement suggests an increase in the use of electronic documents was noticed, or predicted, around 2000. However, evidence suggest that electronic document presentations under Letters of Credit are still very rare and that the rules are, thus, not widely utilised. The World Trade Organisation Trade Facilitation Agreement requires electronic systems to be more widely used in customs activities and the various committees of UNCEFACT are also very active in this area.

An implicit element of an international sale is that, at least, two countries are involved in the intrinsic processes. The consequential challenges – such as different electronic platforms, software, legislation, capacity – are compounded by the large number of stakeholders involved on both sides of the transaction. Additionally, there are generally two contracts involved – a sales contract and a contract of carriage and maybe, also, a contract of insurance. This means that, even if the exporter and importer agree to use a paperless environment for the transactions, there are a number of ‘moving parts’ that have to be considered.  The rate of technological change may also constitute a perceived encumbrance. Coverage of electronic alternatives in Incoterms 2000 reflected current technology at the time of publication but this very soon became outdated. Accordingly, Incoterms 2010 took a more generic approach in order to retain relevance over a longer period and Incoterms 2020 will also re-consider how to accommodate the possible direction of travel up to around 2030. Cyber security, or insecurity, is another issue which raises concerns – although, arguably, electronic messages can be better protected than paper documents there is a perception to the contrary. This is possibly due to the wide media coverage of the relatively few large scale ‘hacking’ incidents, particularly, and understandably, newsworthy where large organisations fall victim.  The ‘blockchain’ concept and technology, initiated in 2008, would seem to provide a level of comfort in relation to data security.

It will be apparent that the complexities of e-commerce are compounded in international transactions. The work of agencies, such as UNCEFACT, in establishing international standards is crucial in the creation of a level and safe playing field for paperless cross-border trade transactions. The expansion of Single Window platforms to private sector stakeholders should provide an ‘enabler’ to expedite the move away from paper. The visionary ‘data pipeline’ model, designed to connect the exporter’s comprehensive consignment data output with the importers data input requirements is very logical. For example, the export declaration to customs in the country of supply becomes the import declaration in the country of arrival without any need for intermediary involvement. This requires a high level of information sharing and customs to customs co-operation, itself a requirement under the WTO Trade Facilitation Agreement. However, it is recognised that such co-operation will be one of the hardest measures within the TFA to implement. Governments are not naturally comfortable in sharing information with others.

It is interesting to consider that, up to around 20 years ago, we were all still writing letters and using ‘snail mail’, the email revolution has been relatively quick. Recently, a freight forwarder commented that the IATA proposal to phase out paper airwaybills sooner rather than later was un-realistic. The response was ‘when did you last get a paper ticket as an air passenger?’ A very good point!

Article written by Jon Walden - Associate of Strong & Herd LLP

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