Will the UK Electronic Trade Documents Act Finally Usher in the Era of Electronic Bills of Lading?

The advent of electronic bills of lading (eBL) has been discussed for decades, driven by the eBL’s potential to address several issues associated with traditional paper-based trade documents. Paper trade documents are logistically inefficient, vulnerable to fraud, and have resulted in the widespread use of Letters of Indemnity (LOIs), principally to cover the practical problem of cargoes arising at destination before the original bills of lading are available.

The eBL movement has been tempered, however, by widespread industry resistance to change, uncertainty about transitioning to digital processes, and concerns about the legal validity and functionality of electronic documents. The Electronic Trade Documents Act 2023 (ETDA), which came into force in the United Kingdom on September 20^th, provides a much needed legal framework for the transfer of electronic trade documents in a key maritime jurisdiction.

Traditional paper-based bills of lading are often not just a receipt for goods but also documents of title. In many circumstances when goods change hands, the corresponding bill of lading is endorsed and transferred to the new holder, effecting the transfer of ownership.

One of the main problems posed by electronic trade documents (“ETDs”) is the “double spend” problem – an ETD cannot be accessed and modified by several parties at the same time, which can be a challenge in the digital age. Another problem is transferability. Parties need to be assured that an ETD, like an eBL, has the same functionality and validity at law as its paper equivalent. Prior to the recent enactment of the ETDA, English law did not recognise that an electronic trade document could be possessed or endorsed.  eBL providers (like Bolero) addressed these issues by relying on a contract-based system but that solution, thus far, has not gained widespread traction.

The ETDA, which is based on the UNCITRAL Model Law on Electronic Transferable Records, addresses both of these key issues. The ETDA begins by identifying the group of paper trade documents to which the legislation applies (including bills of lading and mates receipts).  A qualifying document becomes an ETD if there is a “reliable system” in place that meets the criteria set out in Section 2 of the ETDA. Once a document achieves ETD status, it can then be possessed, endorsed, and transferred electronically under English law.

There are still hurdles to the widespread use of eBLs. The maritime industry is inherently global and while some jurisdictions, like Singapore and the UAE, have already enacted similar legislation, other key shipping jurisdictions need to follow suit. The systems currently in existence that support the use of ETDs also need to adapt their platforms from a closed loop contract-based system to a system that allows for eBLs to be transferred across different platforms. This will allow the users of eBLs the freedom to choose a provider without having to force other counterparts to sign up with the same system.

These challenges are not insurmountable, however. The enactment of the ETDA might create enough industry momentum to see the eBL finally become widely used.