Security in international trade is not easy. Not many people would feel comfortable shipping container loads of goods to someone halfway around the world who they have only met on the internet; not many people would feel comfortable buying goods from someone halfway around the world they have only met on the internet either for that matter. Any disagreement over payment or quality of goods received generally proves extremely expensive and difficult to resolve.
There are several well-developed financial mechanisms to improve security in these transactions. The most trusted is the "letter of credit," a document which banks produce, which means that the importer's bank guarantees to pay the exporter for the goods at a predefined point after they are loaded on the vessel; there is no question of waiting until the importer has received the goods and has determined that he is happy with them.
The second most important document is the bill of lading; the holder of this document can enforce delivery of the goods as they pass through the transport chain; if the goods are retraded whilst en route, the bill of lading is passed from the seller to the buyer.
An alternative to the bill of lading is the "waybill," this document which includes all details about the shipment but is not traded in the same way as the bill of lading and is less suitable for goods which may be traded en route. It is intended for importers and exporters who do business regularly, trust each other and do not feel the need for such security for payment and delivery.
The problem with all of this documentation is that, at this point at least, most of it is on paper. Although the mechanisms have been developed over hundreds of years, most companies and legislators still insist on seeing a piece of paper. But paperwork of course is much more expensive and time consuming to produce and transport, compared to electronic documents.
Considering how international trade is increasingly being made electronically, the requirements to generate paperwork to support shipments looks increasingly daft. But its difficult to change the international systems which surround the paper, developed over so much time.
The dream of electronic documentation is enough to make all of the people who spend all day typing it out go a little giddy. Computers can automatically create paperwork, send it and read it, and people can carry on working on the more interesting parts of the job.
A further advantage of electronic documents is that it is possible to remove discrepancy problems. There have been times when the sender and receiver of the goods have used different text formats, or spelt words in different ways, and this has led to the recipient refusing to pay for the goods and having (albeit sketchy) legal grounds for doing so, or goods being delayed.
The development of electronic documentation is expected to be an arduous process, with several different electronic systems running in parallel with existing paper systems for a number of years.
Two companies, Bolero and CCEWeb, are forging ahead to make maritime electronic paperwork easier and easier. The two companies are not mutually exclusive; Bolero operates a secure, legally watertight and insured system for transfer of electronic documents and messages, whilst CCEWeb has a system for putting electronic documents together which complies with the existing rule book for letters of credit UCP 500.
Bolero, it needs to be stressed, is at its heart a secure e-mailing system, checking all e-mails through a central messaging hub, to ensure all messages arrive and documents are not changed without the recipient noticing.
The company is doing a great deal to build on this central hub. It has put together a rulebook to ensure that messages have legal weight, with the involvement of lawyers of the companies involved. It also has a cool $50m investment to build applications that use the system.
A crucial part of the Bolero system is its ability to manage the "title registry" of the goods, i.e. the person who legitimately owns them at various stages of the transport chain.
In December 2000, Bolero announced the completion of $50m in its first "institutional" round of funding. Companies recently signed up to use the system include electronics company Hitachi; CoreMarkets, an e-marketplace for raw materials for the steel industry; Banco Itaú, the second largest private bank in Brazil; Australian bank Westpac; Tokio Marine and Fire (Japan), Tokai Bank and Tate and Lyle.
Canadian company CCEWeb has produced a Secure Payment and Trade Management System for trade processing called @GlobalTrade. Shipping lines P&O Nedlloyd, APL and others have already agreed to the necessary clauses enabling the electronic waybill to be used as replacement for negotiable bills of lading.
The pilot project will begin in April 2001, leading to a commercial launch, in Autumn 2001. Exporters, importers, banks, carriers, freight forwarders and surveyors can all use the system.
CCEWeb was originally established in 1996 as an online marketplace for international commodities. The business plan evolved to providing online letters of credit and electronic document management when this proved a more realistic direction for profitability of the business.
The idea arose when Jacob Katsman, Chairman and CEO of CCEWeb read the P&O Nedlloyd Merchant's Guide, written by John Richardson. The document explained the complexities involved in creating a letter of credit between importer, exporter and their respective banks.
CCEWeb's solution presents a mechanism for importers and exporters to put their documentation together over the internet; once completed, the document can be printed out as an unchangeable Adobe portable document format (pdf) file. The file is then further secured with a digital signature.
The CCEWeb solution is further enhanced by its close links to credit card organisation Visa International. Visa is considered to have convenient mechanisms in place for fast settlement of funds with over 20,000 Member banks. Visa International is currently working on a new platform that will enable B2B e-commerce for its Members. Credit cards are widely thought to have been a major fuel to the online business to consumer market. CCEWeb hopes that by creating a suitable payment system for international trade, it can fuel to B2B online market in a similar way.
Within the CCEWeb system, shipping lines generate electronic waybills, which go alongside other documentation normally required for letter of credit payments, including packing lists, certificates of origin and commercial invoices.
Shipping lines are particularly interested in getting involved in a CCEWeb transaction chain, because they get closer to the transfer of funds between buyer and seller and hence can find it easier to collect their freight payments.
Customs brokers can be granted access to the system, enabling them to check the description of the goods on the commercial invoice.
CCEWeb has a powerful maritime pedigree in its staff. John Richardson, director of transportation and logistics, has recently retired from shipping line P&O Nedlloyd after a 45-year career in shipping, 30 of which have been with P&O Nedlloyd and its predecessors. He is author of the P&O Nedlloyd's Merchants' Guide, the Guide to Hague and Hague Visby Rules, the Guide to BOXTIME Charter party and Combined Transport Documents.
Art Thomas, senior vice president of business development, was previously manager of trade and regulatory affairs with APL. At APL he was also manager of export documentation.
Jacob Katsman Chairman & CEO has practical experience in trade finance and logistics having managed trading companies in Asia, Europe and North America. He is a co-founder of L/C Monitor, a monthly print and online publication covering practical use of payment instruments in international trade.
@GlobalTrade in more detail
@GlobalTrade does not require any specialist software to run on the user's computer. This means it is relatively easy to implement between different users of a supply chain, once the bank has granted acceptance of it, since everybody has an internet browser.
The buyer comes to the service equipped with either an eLC Card or a credit line granted by his/her bank. The Documentary Clearance Center (DCC) acting in @GlobalTrade System as an independent processing centre for multiple financial institutions checks with the buyer's bank, that the buyer has sufficient credit and once this is established advises the credit directly to the exporter via the Internet. The communication of documents could also be in XML format, so it is relatively easy to program an interface between @GlobalTrade and a company's existing in-house system.
The documents can finally be issued as an encrypted and digitally signed pdf. Thus the document can only be seen by the intended recipient; it is not possible for anybody to alter it; and it is possible to securely identify the sender.
Any other documents, if in electronic form, can be uploaded to the system from a web browser and delivered to the DCC.
The data is automatically sent to parties who need to produce documentation; for example, the carrier is advised of data needed to complete the waybill or bill of lading.
Some of CCEWeb’s alliance partners include Indentrus, which provides electronic identity verification, and Authentica, which enables users to retain ownership and control of electronic documents. The buyer can thus verify electronically that merchandise has been shipped on time and the quantities and agreed.
CCEWeb recently announced that Dresdner Bank (Germany) will pilot the use of its Documentary Clearance Center (DCC). The system will be implemented by the bank's Transaction Banking Division.
The pilot is scheduled to run from April to August 2001, connecting buyers, sellers, carriers, freight forwarders, customs brokers, surveyors and other parties in making trade transactions.
TradeCard is a New York-based business, which provides an electronic trade document management and financial settlement service. Buyers can complete documents onboard the computer, using special templates or file uploading; the buyer and seller can negotiate the purchase order online; once they agree to terms they can "sign" the order using digital signatures.
Once the seller has created a packing list and invoice, an assurance of payment is attached to the purchase order, assuring the seller that payment will be made on receipt of the shipping documents (proof of delivery, insurance certificate and other documents), once they have been checked against the purchase order.
The ambition of TradeCard is to replace the letter of credit, doing everything the letter of credit does but without paper. TradeCard works closely with credit rating and insurance company Coface, which rates new users of the system. They apply for credit similarly to the way they would apply to a bank.
BIMCO (The Baltic and International Maritime Council) has launched an online charter party editor, codenamed ARION, enabling brokers and principals to edit and exchange charter parties and other standard shipping documents online.
ARION is based on a specially customised version of Microsoft Word which loads into the web browser, with the standard document templates being physically stored by BIMCO the whole time, never in the user's computer.
When the user is satisfied with the completed document, BIMCO converts it to encrypted portable document format (Adobe pdf) file, which cannot be altered and can only be read by those authorised to see it. It is then e-mailed to the users for printing out.
BIMCO asks for a nominal annual charge for people to use the system (around $200), then will charge $2-$3 per document completed using it, with no additional charge made for draft copies of documents. A demonstration of the system can be viewed on BIMCO's website (http://www.bimco.dk), click on "ARION" logo in the bottom hand column of the screen.
This is a vast improvement over traditional charter party writing, where even some of the most technically advanced shipbrokers still employ secretaries to type final charter parties onto paper forms using manual typewriters and Tippex.
BIMCO is in a very good position to offer this service; it already produces many of the most popular charter party forms which are used in shipbroking around the world, with over a hundred different forms suitable for different trades.
The service uses a customised version of Microsoft Word which functions over the internet, with all files stored and hosted by BIMCO at all times. The system is pre-loaded with templates for all of the standard charter party forms; the template (underlying form) and associated text cannot be changed by the user.
The broker can input the details into the form, and then alert the shipowner or charterer to review them. Any changes or deletions which the other party wishes to make to the document are tracked (the usual "track changes" feature in Microsoft Word.)
The changes are accepted into the body document once both sides have agreed to them; it is always absolutely clear which changes to the text have been agreed by both parties and which changes haven't. The "track changes" feature cannot be turned off.
It is possible to copy and paste text onto the templates; for example if a broking house has in-house clauses which it always uses, it can store them in ARION’s databases and then copy them onto the templates. Users can directly access BIMCO's databases of standard clauses.
The clauses of standard documents can be quickly cross-referenced using ARION’s built-in hyperlinks which will take the user to any part of the form just by clicking a Box or Clause reference in the text.
All BIMCO documents on the ARION system have the original Explanatory Notes built in to the template providing users with instant guidance as to the intention of the original drafters of the form.
Brokers can put charter parties together by loading up a previous one out of the system and editing it as necessary; they do not have to start creating each one from scratch.
Copies of the final charter party are not printed out until the contents are confirmed by both parties; any printouts made during interim stages are clearly marked "draft document." Having multiple printouts of different "final" versions in circulation would prove very confusing.
When both parties are happy with the document, BIMCO automatically converts it to pdf format and e-mails it to the respective parties; it is only that this point that BIMCO charges the user for the service. To ensure security, all documents are sent using 128 bit encryption, and can only be sent to e-mail addresses which have been registered in advance.
The system is not only restricted to putting together charter parties; it can be used for any kind of documentation, provided BIMCO has the form templates on its system. "Our current system has 67 templates documents in it, including charter parties, bills of lading, ship management and crew management agreements," says Grant Hunter, head of the documentary and legal division with BIMCO. "Users will just go in and find a catalogue of BIMCO Approved Forms and third party forms. It will be a very comprehensive system."
It is necessary for users to have a license for Microsoft Word, although the application does not make use of the Microsoft Word software running on their computers; all of the document editing software is downloaded from BIMCO every time.
The web-enabled charter party editor could be considered as an upgrade from BIMCO's previous charter party editing software, which it supplied as a CD-ROM and ran on individual computers.
"The problem we had more than anything was that once a fault had been identified with the software, you had to send out a patch or an update every single time," comments Mr Hunter.
Other problems with this software were that it was impossible to e-mail documents directly to other parties (unless they were also using the BIMCO software); they had to be printed out and faxed.
The new web-enabled system does not restrict itself to only offering BIMCO-standard forms, as the old system does; all popular maritime forms are included. "That will be very appealing to brokers," comments Mr Hunter.
A potential business opportunity, which hasn't escaped BIMCO's notice, is extending the system to allow users to complete transactions over it. "We've allowed for this development," he says.
It is possible to extend the functionality in future to allow broker and shipowner to see the document being edited simultaneously. For example, the broker and the shipowner could be on the telephone whilst simultaneously editing the document. The system could be set up so that the broker types in all the changes, the shipowner can see the changes being made on the screen but cannot make any changes himself.
"What we want to do when we first launch the product is make it as simple as possible," comments Mr Hunter. "It's going out as a simple editor to begin with. But we reserve the right to add much greater functionality as time goes on."
BIMCO has held discussions with possible e-chartering site LevelSeas about including the charter party editor into the LevelSeas system. "Because they' re looking for life of the voyage applications, I think that's the way it would go," says Mr Hunter. "We would like to see the application integrated with other systems."
[ Digital Ship - May 2001]