They have been an essential aspect of any shipment and have acted as proof of trade between two parties for decades. Especially in cross-boundary deliveries, these documents have compelled shippers to ensure a seamless and damage-free transfer of goods from the sender to the consignee.
Yes, these documents are called the Bill of Lading or BoL and they have been used for ages to ensure that the consignments are transported safely without any damage. They are the foundation on which the transportation and logistics industry rests.
However, the modern needs of modern humans have made the paper-based bill of lading obsolete. A digitally fueled bill of lading is required that can allow involved parties to track the cargo being conveyed.
The disruptive technologies of Internet of Things and Blockchain provide the exact same opportunity. Their amalgamation has resulted in the emergence of smart contract solutions that allow concerned parties to keep a live track of the cargo being shipped through an immutable and connected network.
However, before we discuss the applications of smart contract solutions in BoL, we must first know in full-depth about a Bill of Lading document.
So, What is Bill of Lading?
A bill of lading is a legal document passed from the sender of the cargo to the master of the ship and then subsequently to the consignee. It is a contract that reflects the terms and conditions set by the sender and receiver of the goods for the shipment of the products. It generally fulfills these three functions:
• It lists and highlights the goods to be shipped along with their quantity and size.
• It also acts as a receipt for the shipped products.
• It also underlines the agreed terms and conditions collectively described by the sending and receiving party.
In short, a Bill of Lading encompasses some rules and regulations that must be complied during the handling and transportation of goods from one location to another. Let us look at some of the points that must be incorporated while developing a BoL.
Bill of Lading Rules and Regulations
As per the freight Bill of Lading rules, some points or key aspects associated with the transportation of goods must be incorporated in it. They are
1) Name and Address:
The name and address of the shipper and consignee (contact details can also be added) must be mentioned in the BoL in a legible and easy to locate format.
2) Purchase orders and special reference numbers:
These numbers and purchase orders act as a specific ID for the conveyed goods and are a pre-requisite for their pickup and delivery.
3) Special Instructions:
These instructions are additional information for the shipper and consignee of the products for its handling and acceptance respectively.
4) Date:
The pickup date on which the shipper loaded its ship with the goods. This date helps the receiver of the product to reconcile the shipping invoices.
5) Description of items:
This section includes details about cargo like the total number of units, dimension, weight, and information about its material and makeup.
6) Packaging type:
Information about the way the cargo is packed. The cargo can be transported in cartons, pallets, crates, or drums.
7) NMFC Freight Class:
The class of freight impact the cost of the shipment. There are 18 classes of freight that are allotted as per the weight, dimension, density, ease of handling, value, liability, and storage capacity.
8) Designation about Hazardous Material:
Hazardous, volatile, and risky shipments must be clearly stated in the document. In most cases, these materials must be transported under special Bill of Lading rules and regulations.
Types of Bills of Lading
Based on the requirements, the type of product that is being shipped, and the contract specification set by the sender and the receiver, different types of BoL are being used. Bill of lading can be classified into subsequent types based on two categories.
A. Based on Transfer of Ownership:
Based on this categorization, a Bill of Lading can be classified into two types — Negotiable and Non-negotiable. In Negotiable BoL, the title or ownership of the shipment can be transferred from one party to another while in Non-negotiable BoL the ownership of the shipment is fixed to the consignee (final recipient) of the goods.
Further based on this categorization, there are 4 more types of Bills of Lading
1. Straight bill of lading:
In a straight BoL, the ownership of the consignment is specified to a particular party and this party can also not re-assign the ownership to any other party. The sole responsibility of the party is to deliver the load to the final recipient.
2. Order bill of lading:
It is the most commonly used BoL type. It is a negotiable bill of lading that can be transferred among different parties. The person responsible for the shipping of the cargo is its owner and can endorse the bill to another party i.e. the ownership/title of the load can be passed on to other shippers or transporters. This chain continues until the goods are received by the buyer or the final consignee.
3. Bearer bill of lading:
Bearer BoL is also a Negotiable document that doesn’t incorporate the name of a consignee. This BoL is quite risky due to the possibility of misuse and hence is very rarely used.
4. Switch bill of lading:
It can be considered as a duplicate BoL for a cargo for which a bill of lading was already put out. It is used when the consignee doesn’t want to reveal the new buyer the identity of the person who completed the shipment.
B. Based on Carrier Responsibility:
There are three types of bills of lading based on this categorization:
1. Ocean bill of lading:
Also called as port-to-port BoL require the carrier to only transport the load from one port/location to another.
2. Multimodal or Combined bill of lading:
This bill of lading covers more than one mode of transportation for goods being shipped. For example, the cargo may cover a part of its journey via ship vessels and then reach its final destination via trucks. In this type, the carrier has the responsibility of goods from the place of receipt to the place of delivery. The carrier can, however, sub-contract the shipment via more than one mode of transportation.
3. Through bill of ladings:
It is similar to the multimodal bill of lading in means of cargo ownership transfer among different shippers of the cargo but it only includes one mode of transportation. For example, the cargo can transfer via ocean and then through inland waterways.
Need for Electronic Bill of Lading:
The impact of the BoL document on the transportation and logistics industry is quite unknown and often not included when estimating the overall market value of these industries. Nonetheless, the influence of BoL is astonishing.
In 2015, more than 20.7 million BoLs were processed with over 10 billion data fields in around 213 countries. That’s around 56000 BoL each day! In the US alone more than 3 million BoL documents were processed.
However, there are different challenges associated with a Bill of Lading document that has compelled the development of eBoL.
Let us consider these challenges with a Bill of Lading example:
Consider that you order a batch of cigars to sell in your country. You find a vendor and purchase them at a huge amount of money. The vendor also having a big fleet of reefer ships, persuade you to use his agency for the shipment of the cigars.
You and the vendor discuss the terms and condition of the shipment and create a BoL that include the contract specification. Both of you agree on a mutual consensus that the batch of cigars must be transported at an exact temperature of 23°C and in a humidity range of 65 to 74%. Finally, the ship sails towards your destination and you wait for the products to arrive.
Howbeit, when the shipment arrives and you open the container, you find that the cigars have gone bad. You contact the supplier and ask him for a refund but the supplier rejects your concern saying that the bill of lading rule for maintaining optimum environmental condition was met during the entire transportation cycle of the cigars.
You having no way to prove that the contract specifications were met are left with a batch of rotten and already paid-for cigars.
This inability to monitor the parameters remotely is one of the many challenges associated with a physical bill of lading documents. However, based on the type of BoL used and the regulations set by the concerned parties, there can even be more challenges. Some of these challenges have been described in the image below.
Figure 1: Challenges associated with Conventional Bill of Lading
To mitigate these challenges and shift the bill of lading on a more secure platform, we at Biz4Intellia have blended the technology of Blockchain and the Internet of Things to provide smart contract solutions.
Let us have a look at how IoT and Blockchain-powered smart contract solution> works in favor of Bill of Lading documents.
Digital Bill of Lading:
As we discussed above, a smart contract solution takes the features of both the technology of Internet of Things and Blockchain. Where the technology of IoT creates a connected environment for end devices, Blockchain creates an immutable and decentralized platform for the data from IoT devices to be transferred securely.
Digital Bill of Lading is one of the many applications of Biz4Intellia’s smart contract solution that allow both parties to determine the terms and conditions of a shipment in a digitized format. And to make sure that all the contract specifications are met and complied properly, both the parties can monitor the shipment in real-time from remote locations.
The IoT sensors installed on the package being conveyed, collect the live data as per contract specifications and send them to cloud storage with the help of gateways and concentrators as a payload. This data can be processed into useful information and accessed via the Intellia IoT platform.
Also, since the BoL document is stored in a blockchain, there is no chance of its misuse or alteration of its terms and conditions. Its immutable and decentralized nature keeps all the specifications of the contract intact and allow all concerned parties to monitor shipment associated parameters in real-time.
Let us understand this in accordance with the Bill of Lading example we discussed above:
The IoT sensors embedded in the cigar package will detect the temperature and humidity and share it with the concerned parties in real-time. In case, any of the two parameters cross the threshold set beforehand by the vendor and buyer, the contract will be immediately terminated and the reason for the contract cancellation will be notified to both the parties.
Hence, smart contract solutions make sure that all the Bill of Lading requirements are met. It creates an immutable, distributed, decentralized, and secure network that doesn’t let anyone change the specifications of the contract once it is executed. Also, it establishes transparency in the autonomous end to end supply of the products and mitigates the challenges that we discussed above. Let us look at how this solution does it.
Common Challenges Overcome by Digital Bill of Lading:
A) Contract Manipulation:
The chances of BoL misuse and alteration of its terms and conditions are very high, especially in a bearer type of bill of lading. Since in an eBoL all the contract specifications are stored in a distributed and immutable ledger, there is no possibility for manipulation of contract specifications.
B) The physicality of BoL Document:
The tangible nature of a BoL document makes it susceptible to be damaged and manipulated. It is quite possible for a hand-written or typed BoL to be ripped or damaged while being carried with the shipment for long distances. In an eBoL, all the Bill of Lading requirements are stored in a digital format that eliminates the physicality of the contracts.
C) Doubtful Contract Execution:
Just as in the example we discussed above, the traditional Bill of Lading doesn’t offer transparency during the shipments. On the other hand, IoT sensors embedded in the package allow all the concerned parties to monitor parameters in real-time. Hence, any chance of dubiousness is annihilated that further eliminates any future discrepancies.
D) Challenging Insurance Claims:
As we saw in the above example, the receiver of the package often doesn’t have any way to prove or confirm if the conditions of the contract were fulfilled during the transportation of products. In these cases, it is quite difficult for the buyer to claim insurance or file a return for the damaged goods. However, a smart Bill of Lading empowers the buyers to monitor and store all the shipment related data. Hence, it becomes easier for them to file returns.
E) Unknown Cargo Damages:
All the parties can monitor the package from distinct locations and can hence keep a keen eye over the condition of the product while it is being transited. Therefore, involved people can make sure that all the bill of lading rules are complied with and gain alert about cargo damages instantly.
F) Manual Cargo Supervision Expenses:
With the implementation of smart contract solutions, the entire supply chain can be optimized to perform at lower costs. Need to handle and regulate the cargo is reduced and hence cost associated with its supervision is also eliminated. Hence, shippers can conduct their transportation business seamlessly and other parties can transfer products at a high return on investment.
CONCLUSION:
Bill of Lading is a very necessary document, especially for overseas transportation of goods. Its applicability in the transportation and logistics industry has been in effect since 1908. However, with ever-growing business needs, a secure and digital platform was required which could eliminate the challenges these industries face nowadays.
Smart contract solutions of IoT and Blockchain give the same opportunity to these industries with its digitally fueled Bill of Lading. This BoL integrates the capabilities of both these technologies and allows smooth tracking and management of goods being conveyed.
With the implementation of eBoL, the logistics and transportation industry are now set to evolve at an unprecedented rate and garner benefits related to optimized supply chain management and end-to-end visibility in their delivery operations. These benefits will also cut cargo conveyance costs and help companies to better manage their fleets.
