E-DOCS, THEIR ADOPTION IN SHIPPING AND CYBER RISKS
One of the main advantages that the electronic revolution brought in business was the development of the EDI (Electronic Database Interchange) systems during the 1970’s, by which the companies were able to create digital documents and distribute them electronically without any human intervention. EDI systems, which replaced the traditional transmission of documents via e-mail or fax, initially appeared during 1970’s mainly in invoicing and ordering while they were later expanded in online shopping, which was invented in 1979 by Michael Aldrich. The big boom, though, happened during 1980’s and 1990’s with the development of the Minitel and the WorldWideWeb. It was so high the adoption of the electronic documents that during 1990’s online megastores appeared such as the well-known Amazon and Ebay (both established in 1995) which were entirely operating basis the “electronic documents”, “electronic funds transfer” and “electronic signatures” systems. With these systems, a client could put an order electronically (e-contract) by clicking an accept button (e-signature) and pay via an online banking system (EFT).
In shipping, various documents such as freight invoices, fixture notes/ recaps and draft contracts were routinely generated and transmitted electronically, though via traditional forms of communication, while several attempts to create e-contracts, such as electronic charter-parties or electronic bills of lading, able to be used purely in electronic form rather than in print-out format, has faced much more challenges and very long delays. In most cases, even nowadays, employees in shipping offices use to print-out the documents, sign them by hand and send an original signed paper-document by courier; a time-consuming process which takes days, if not weeks, to be concluded.
But if everything can be performed so easily through e-documents with the click of a simple button, what is the reason behind their slow adoption in shipping? Don’t people want to make their working life easier and more productive?
1. Traditions are strong: Shipping is one of the most traditional industries in the world. Since there are high entry barriers (i.e. high required investment, special knowledge etc) the ship-management usually passes from the older generations to the younger ones and this family-oriented approach helps the traditional policies to survive for longer time.
2. Insufficient regulatory framework for e-documents: Despite the fact that e-documents appeared in 1970’s and highly expanded the coming years, there was not any legal frame to regulate the various standards of document authentication. The first relevant regulation appeared in 1996 from UNCITRAL, the Model Law on Electronic Commerce followed in 2001 by the Model Law on Electronic Signatures and in 2005 the United Nations Convention on the Use of Electronic Communications in International Contracts (New York, 2005). In shipping, the only convention which regulates E-documents is the UN Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea (the Rotterdam Rules) which was signed in 2009 however it has not yet been into effect since it is only ratified by 4 states (Spain, Cameroon, Togo and Congo).
3. Late approval from P&I Clubs: Since P&I Clubs cover Owners and/or Charterer’s risks in regards with third party liability as well as defense risks (FD&D), they require from their members to follow the rules of the Club, in order to remain covered. The International Group of P&I Clubs approved an electronic trading system (electronic bill of lading) in 2010 for the first time. Even in this case, the clubs notify their members that if any new liability arise under the eBL, which is not a traditional P&I risk, same will not be covered by the P&I and thus an additional insurance cover may be needed.
4. English “Common Law” is not favorable to e-documents: The Carriage of Goods by Sea Act 1992 (COGSA ‘92), which is the bible of English Law in shipping, does not apply in electronic documents and therefore holders of e-BLs, for example, cannot rely on COGSA ’92 to pursue claims against the carrier (privity of contract). Also, common law does not fully fit with e-documents. For example, as per common law, the B/L must be presented to the Master for the cargo to be delivered something which was not the case for electronic B/L.
5. Cost of adoption: Some electronic systems required hardware investment or a high cost/fee of adoption (especially at previous days where the technology costs were higher) and this along with their low market usage discouraged a lot of market participants to take the step to digitalization. Despite the above difficulties which have delayed shipping to become paperless, it is now apparent that e-documents can be used to digitalise several processes in shipping such as Charter Party contracts, Bills of Lading, trading certificates and administrative works (i.e. insurance, post-fixture/invoicing, legal etc).
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