Lawmakers in the United Kingdom will soon bring much-needed change to trade laws that have remained largely the same since Queen Victoria sat on the throne, bringing the U.K.’s shipping rules into the electronic age and paving the way for the digital transformation of global trade.
The Electronic Trade Documents Bill, which started wending its way through the U.K. Parliament on October 12, updates the 1882 Bills of Exchange Act and the 1992 Carriage of Goods Act, ending the legal requirement for certain commercial business documents, such as bills of exchange or lading, warehouse receipts, and marine and cargo insurance certificates, to be printed on paper.
As indicated in the Coalition for Reimagined Mobility’s report, Solving the Global Supply Chain Crisis with Data Sharing, the global maritime shipping industry has not reaped the benefits of the digital age – including improved commercial efficiency, resilience, and environmental performance. Digitization has been significantly slowed by outdated legislation and a lack of standardization. The U.K. government’s announcement is a step in the right direction toward a net-zero future for the freight industry. This overdue change opens the door to digitization of vital shipping information that, if standardized across the industry, could lead to tremendous cost savings, reduced greenhouse gas emissions, and less pollution.
Behind the Times
It might surprise some to learn that even in the age of digital communication, freight remains a largely analog industry. Paper documents, faxes, and even phone calls dominate the documentation and tracking of goods between carriers, customers, banks, customs agents, and insurers for most international maritime freight journeys.
As a result, while other industries have rapidly transitioned from paper systems to digital ones, analog systems and paper remain the norm for global trade documentation detailing the type, quantity, and destination of goods being carried. Nearly all bills of lading, the primary legal document used in ocean trade between the transportation carrier and the shipper, are issued on paper, just as they have been for hundreds of years. With as many as 30 different parties involved in each trip, one can only imagine the problems that ensue: lost documents, theft and fraud, costly vessel and truck delays, and port and road congestion that causes more pollution and greenhouse gases.
Initiatives by international and standards-setting organizations, such as the Future International Trade Alliance, and private sector-led blockchain-based approaches have started to catalyze the transition to trade documentation digitization and data sharing. However, many efforts have failed to scale, in part because of antiquated national laws, many of which draw from the U.K.
By changing processes and requiring trade digitization, the U.K. can expect that other countries will follow suit.
This change couldn’t come soon enough.
A Fruitful Public-Private Undertaking
The Electronic Trade Documents Bill should serve as an example of how the public and private sectors can work together collaboratively to integrate existing technology to make how we move goods more efficient.
The bill, nearly five years in the making, is the result of thorough good faith negotiations between Member of Parliament (MP) Michelle Donelan, who championed the bill, and the International Chamber of Commerce (ICC), the Law Commission for England and Wales, and the Department of Digital, Culture, Media and Sport.
The result is common sense legislation that leverages technology to work for everyone while benefiting society.
A Digital Future Is a More Efficient One
Removing the requirement that commercial trade documents be recorded on paper will significantly reduce emissions and result in economic benefits across the global freight industry. MP Donelan and the World Economic Forum estimate a 10% and a 12% emissions savings from digital technology respectively across high-emitting industries.
Additionally, this modernization effort would likely reduce contract processing times from the current seven-to-10 days to as little as 20 seconds, cutting trade transaction costs by 80%. It could also increase international business for small and medium businesses by 13%, increasing competition and benefiting the consumer.
Beyond Electronic Documents
The proposed U.K. bill would come into effect in 2023. By moving away from antiquated paper requirements for documenting trade, it paves the way for scaling up digital data exchange which currently only occurs in a limited capacity. Digital data exchange gives supply chain stakeholders access to real time information, allowing them to make faster, better-informed decisions regarding the movement of cargo.
This is critical to reducing emissions across global trade and boosting supply chain resilience.
But for digital data exchange to work efficiently, it needs to be standardized across the industry. This is where governments must step in to ensure that as freight data communication moves into the digital age, a patchwork of siloed and proprietary systems don’t take root. Standardizing data exchange—making sure that the new systems all speak the same digital language–allow interoperability and coordination that can lead to a more resilient, efficient, and sustainable supply chains.
Data Transparency Will Increase Efficiency, Reduce Carbon Emissions
The digital transformation of the ocean-borne freight industry promises more safe and resilient supply chains, reduced dependence on oil for the movement of vital goods, fewer greenhouse gas emissions contributing to the climate crisis, and pollution in port communities.
A recent report published by ReMo shows that these outdated, incompatible, and analog data exchange systems that dominate the maritime freight industry impair communication among stakeholders.
ReMo found the standardized exchange of data across supply chains – which would include bills of lading and certificates – can reduce freight carbon emissions by 22% and lower industry costs by 6% per ton-kilometer by 2050 by simply making operations more efficient, less wasteful, and thereby reducing fuel use.
Global Call to Action
ReMo urges governments globally to follow the U.K.’s example to unlock the benefits of a digital and connected global trade system.
Additionally, ReMo urges policymakers to go further and mandate and incentivize the creation and adoption of freight data exchange standards by:
- Allocating authority to regulatory agencies to require the use of freight data exchange standards that communicate near real-time operational data.
- Requiring the use of freight data exchange standards as a condition for accessing ports.
- Funding ports and industry stakeholders to adopt freight data exchange standard pilot projects.
Access to accurate, timely, and actionable information is more important than ever. Geopolitical tensions, coupled with weather disruptions caused by climate change, call for structural resilience in supply chains and near-term solutions to increase efficiency and reduce harmful carbon emissions.
Isabelle Dupraz is a Policy Associate with the Coalition for Reimagined Mobility supporting its freight program work.