Malta: Smart Shipping

Last Updated: 25 September 2018
Article by Adrian Attard

Blockchain technology offers the opportunity to make shipping paperless, says Adrian Attard.

Malta is fast becoming a centre for Distributed Ledger Technology (DLT) businesses. Its efforts to become a global hub in this sector culminated in the enactment of three new laws earlier this year. This new legislative framework seeks to create a regulated environment within which this sector can function and thrive in.

However, despite the buzz generated by blockchain, many people are still not sure what this technology really means and more importantly, how it can transform and revolutionise so many different industries, including shipping.

At its core , blockchain is a decentralised and distributed digital database. This means that different parties can share and update the same information online in real time, naturally depending on authorisation rights. There is no need for a central administrator. To simplify matters, imagine a spreadsheet. Rather than having one person regularly update it, here the spreadsheet is duplicated across a network of users (also known as 'nodes'), who are regularly updating the spreadsheet.

Thus, whereas most centralised databases keep information up­to-date at a particular moment, data held on a block chain exists as a shared database which is constantly being updated and reconciled in real time as new sets of 'blocks' are added to it. Each block contains a timestamp and is linked to the previous block, forming a chain of information. Naturally, while the information can be accessed by all, not all users can add a new entry to an existing chain. To do so, they must have a special cryptographic key.

Decentralised data arguably also provides more security as it becomes harder to manipulate the information in the ledger. By way of example, imagine your bank maintains a central database of all its customer details and transactions. When you withdraw money or transfer funds , your bank updates its records in its database. If a hacker manages to access to this centralised database - they can change balances and change transaction details at will. However, with blockchain, this would not be possible as there is no centralised database. All the users have real-time access to the data. Any manipulation would require the same change being made on all copies of the distributed ledger at the same time, which is highly unlikely.

Most people associate blockchain technology with banking and cryptocurrencies. Perhaps this is a result of the fact that these two industries were the first to identify the enormous potential of this technology and have invested so heavily in it. However, blockchain as a secured, decentralised and encrypted ledger is being explored by other sectors and the shipping industry is no exception.

Shipping remains to date a paper-intensive industry, with most transactions dependent on the use of paper documents such as sale contracts , charterparties and bills of lading. Some of these

documents may also need to exchange hands several times. For instance, traditionally a bill of lading is issued at the port of loading in favour of the shipper. It may subsequently need to pass on to several banks before ultimately reaching the receiver. The process can be so time consuming that sometimes the cargo arrives at the port of discharge before the bills of lading do.

Blockchain technology offers the opportunity to turn shipping paperless, by means of which all the key stakeholders - including shippers, receivers, carriers, charterers, banks, terminals and customs officials - may contract, exchange or store information in encrypted format, give and accept instructions and securely effect payment exchanges. Every party involved in a transaction may access any of the relevant trade documentation in real-time, with the peace of mind that these have not been tampered with. By doing so, the use of blockchain technology promises to simplify current shipping processes, reduce costs, provide more time-efficient solutions and also offers a securer way of trading.

Blockchain technology may also revolutionise the shipping industry through the use of smart contracts. These electronic contracts are essentially drawn up by a computer programme which is intended to facilitate negotiations and execute agreements between parties. Additionally, they also aim to self-enforce or perform the obligations when certain pre-defined conditions are met. For instance, automated payments could become self-executing under a smart contract once the performance of the obligations therein is carried out.

It will be interesting to see whether the industry will embrace the use of smart contracts. In shipping, most transactions are carried out using standard­form contracts and thus, much could depend on how well these contracts can be coded or transposed into smart contracts.

The potential that blockchain has to transform shipping operations into more efficient and profitable enterprises is already being recognised by a number of big stakeholders in shipping. Indeed, over the last couple of months , we have seen a number of ambitious projects go live.

Container shipping giants A.P. Moller-Maersk have teamed up with IBM and recently launched their blockchain trade platform TradeLens. This platform aims to connect all parties involved in the shipping trade and enables them to interact efficiently and access real-time shipping data. It will enable participants to also digitalise and exchange trade documentation using a module, called Clearway, which will also allow for the use of smart contracts and automated processes, such as import and export clearance.

In layman's terms, this technology will allow multiple trading partners as well as authorities to establish a single shared view of each transaction. Shippers, carriers, freight forwarders, terminal operators and customs authorities can interact more efficiently through real-time access to shipping data and shipping documents.

Blockchain-based startup CargoX recently also successfully carried out its pilot shipment for the first ever smart bill of lading. The test trail saw shipments of garments arrive in the port of Koper from Shanghai, China on August 19, 2018. CargoX claims that its services can reduce the costs associated with issuing and processing bills of lading by up to 85 percent, as well as save time and provide a more secure way of shipping cargo.

The likelihood is that widespread acceptance of blockchain technology in shipping will not happen overnight. There are still a number of challenges which will need to be overcome, primarily the need to ensure that the law supports the technology and also protects the legitimate interests of so many parties' involvement in the maritime chain. Another important factor will certainly be the willingness of public authorities to embrace and use this technology. We must therefore patiently wait to see as to what extent the shipping industry can take advantage of blockchain technology.

Originally published by Times of Malta.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Adrian Attard
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