Risks and Liabilities of paper trade documentation in current disruptive environment

Global trade has been around for centuries and since the introduction of paper some 2000 years ago, paper has been widely used in global trade documentation and continues to do so. Although paper trade documents have been used for centuries, the world of trade was jolted out of its normal functioning by the arrival of the COVID-19 pandemic.

The pandemic threw several trade routines into total disarray mainly due to the inherent need of the industry to exchange paper documentation in exchange for the release or transfer of goods.

In this article, we look at the risks and liabilities that paper trade documentation brings with it in its wake and how it affects global trade. 

Speed of delivery

One of the most important documents in global trade is the bill of lading which is exchanged in original paper form to secure the release of cargo. A paper bill of lading is forwarded by courier and postal services and physically handled by various entities including shippers, forwarders, banks, consignees, and shipping lines.

In the current environment with faster and more modern ships, shipments can reach their destination quicker, and also in several cases, customers are making sales on the high seas all of which will impact on the delivery of goods against the presentation of a physical bill of lading. Any delays in this exchange could have a financial impact on ship and cargo discharge delays or demurrage in bulk cargoes or demurrage and storage in container shipments.

Cost of Trade

In addition, the transmission of paper documents between involved stakeholders also increases the cost of a trade. As per DCSA, the cost of processing paper bills of lading is 3 times that of electronic bills of lading and has estimated that at the global economic growth rate of 2.4% forecasted by the OECD till 2030 the industry can potentially save close to $4 billion per year if only 50% of the trade adopted electronic bills of lading.

As a comparison, DCSA has quoted electronic Air Waybills adopted by IATA in 2010 which as of 2019 has become the default method of document transfer taking air cargo into a new era where digital process is the norm and paper is the exception.

Loss and Misdelivery

A bill of lading entitles delivery of the cargo to the valid holder of the bill of lading, and in many cases, a trade financier will hold a valid original set of bills of lading as security for a trade finance transaction. In several legal cases, however, it has been shown that the cargo has been delivered to a third party against a forged bill of lading.

The other more common area where paper bill of lading is at a big disadvantage is the loss of an original bill of lading.

As a bill of lading is a “Document of Title” when it is issued in its original form, the release of goods may be granted to the rightful owner only against the presentation of this physical paper document to the carrier.

There have been several cases where this original(s) has been lost in transit or delayed. In such cases, customers have to go through several tedious processes including

• placing an advertisement in the local press about the “loss” or “nullification” of the original bill of lading, 
• securing a court order advising the carrier to deliver the goods to the holder of the title of the goods, based on a surety bond given by the entity
• providing the carrier with a bank guarantee at an amount decided by the bank which could be held as security or collateral

Carriers may be held liable for misdelivery of goods against forged or fraudulent bills of lading and/or non-production of the bill of lading as it is in breach of their contractual duties and such misdelivery could adversely impact on the limitations and immunities provided for in the contract of carriage.

Customers may further go through another tedious process of canceling the bank guarantee after due coordination between the various stakeholders including the banks.

Conclusion

Aside from the bill of lading, there are several other trade documents such as Commercial invoices, Packing Lists, Certificate of Origin, Import permits/licenses, and many more, all of which need to be prepared, printed, stamped, collated, and transferred between the entities involved in the trade.

As the disruptions brought about by COVID-19 continue, especially in countries like China, customers are hamstrung by their inability to deliver trade documents to their intended recipients like banks, carriers, customs, and other authorities. These create several risks and liabilities for the customers in terms of delays and associated costs.

With the advent of electronic trade documentation platforms, transferring the required documentation between parties has become safe, secure, and cost-effective and the risk levels are inherently lower than paper documentation.

There are of course several benefits for customers using electronic trade documentation and you can read about the legal angle of electronic vs paper trade documentation.

About the Author

Patrick Vlacic is the Legal Advisor for CargoX. He is a legal expert in the fields of Transport Law, Maritime Law, Insurance Law and Obligations Law. Patrick is an Associate Professor at the University of Ljubljana, Faculty of Maritime Studies and Transport, and was the former Minister of transport in the Government of the Republic of Slovenia.

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Source: shippingandfreightresource.com