The maritime sector has been hit hard by the COVID-19 pandemic. Nearly 18 months since the initial outbreak, more than 200,000 crew members have been reported to be stranded and are working on their ships beyond the expiry of their initial contracts. They are unable to return home due to border closures and other travel restrictions [1]. Even for Singapore which prioritised vaccinations for workers in the shipping, the requirement of a PCR test from the last port of call has posed a challenge for crew changes [2].
Although some carriers have been able to reap the benefit of the continued increase in the ocean freight rates out of Asia, many shippers are struggling with rising shipping costs [3, 4]. Compounded by unforeseen factors such as the blocking of the Suez Canal, these freight records could entail contractual disputes. Operators may be tempted to break long term contracts to take advantage of lucrative spot rates.
Nonetheless, the pandemic has also forced a rethink of previously ingrained processes in the shipping sector and provided for the emergence of several positive trends. These include the acceleration of the digitalisation of the shipping trade documentation and its dispute resolution methods.
Digitalisation of the Trade Documentation
The maritime industry has traditionally relied heavily on physical paper documents.
One such document is the Bills of Lading (B/Ls). B/Ls are issued by a carrier to a shipper detailing the type, quantity, and destination of the goods being carried. They provide evidence for the contract of carriage, and the receipt and ownership of goods. Considering the intricacies of global trade, B/Ls can run for hundreds of pages for a single transaction. Presentation of an original paper B/L (usually issued in sets of 3), is normally required to obtain release of the cargo from the carrier or its agent.
Despite numerous attempts since the 1980s to introduce electronic B/Ls (E-Bills), take-up has been slow. Only a few countries, such as Singapore, developed digital solutions for shipping trade documentation using various technologies such as block chain [5].
The Covid-19 pandemic exacerbated the challenges around the use of paper B/Ls and motivated the industry to embrace technology’s potential. Travel and work restrictions indeed hindered the B/Ls’ circulation. To overcome these obstacles, the industry had little choice but to acknowledge the advancements in technology and trust the e-platforms such as Bolero, E-Title and essDOCs.
In this context, in early February 2021, Singapore’s parliament passed the Electronic Transactions Amendment Bill to allow cross-border trade documents to be digitalised making it one of the first countries in the world, after Bahrain, to adopt universally recognised Electronic Transferable Records based on the UNCITRAL Model Law on Electronic Transferable Records (MLETR)[6, 7]. The Abu Dhabi Global Market (ADGM) also recently adopted MLETR in 2021.
The digitalisation of trade documents will significantly enhance efficiency and entail huge savings for the shipping industry. Faster document transfers will lead to shorter payment cycles. Electronic processes are far less susceptible to forgery, fraud, loss or human error. The processing of such documents had been shown by Maersk and IBM in 2014 to make up for as much as 20 % of the costs of moving goods [8]. In a recent study, the Digital Container Shipping Association reported that container shipping could save $4bn a year from a 50% take-up of e-Bills of Lading [9]. Some container companies, such as MSC, have since introduced E-Bills to all its customers using a solution on an independent blockchain platform WAVE BL [10].
Naturally, there are risks associated with the rapid digitalisation of trade documentation. Cybercrime and human errors in the recording of information can create further commercial disputes. In the light of this, the growing use of mediation in the shipping industry complements the technology-driven modernisation of business practices.
Mediation’s Complementary Role to Digitalisation of Shipping Documentation
Almost by definition shipping disputes are “cross-border”. Regardless of quantum and complexity, shipping claims involve more than 2 parties situated in different locations and are thus far more resource-draining than the average commercial dispute.
In most cases, shipping contracts contain a dispute resolution clause. Many charterparty, shipbuilding, and other shipping contracts have historically specified court proceedings or arbitration, predominantly under the terms of the London Maritime Arbitrators Association (LMAA). The perception was that arbitration was less costly than court proceedings and had the added benefit of being confidential.
However, mediation has become more attractive in recent years [11]. With the tightening of the shipping market and the increased arbitration costs, the industry has been incentivised to seek out a more cost effective and efficient means to resolve shipping disputes.
Confidential, conciliatory, voluntary and far more flexible and cost effective than arbitration, mediation is now well recognised by most maritime organisations as a legitimate contender amongst the dispute resolution methods available to the shipping industry. BIMCO incorporated mediation clauses into the BIMCO Dispute Resolution Clause 2018, allowing parties to refer any dispute to mediation at any time, even after commencement of arbitration proceedings and providing for costs consequences should a party refuse to mediate. Closer to home, the Singapore Chamber of Maritime Arbitration has since 2014 proposed the SCMA Arb-Med-Arb Clause. Many international maritime arbitration institutions are now making way for mediation. Indeed, under the arbitration rules of the China Maritime Arbitration Commission (CMAC), an arbitral tribunal may mediate the dispute during the arbitral proceedings at the parties’ request. The LMAA has also established two panels of mediators: the LMAA Mediation Panel and the LMAA/Baltic Exchange Mediation Panel [12].
Digitalisation of Mediation for Shipping Disputes
Just as the Covid-19 pandemic and its worldwide travel restrictions has disrupted shipping practices, it has upended dispute resolutions processes. A welcome consequence is the acceleration of their digitalisation [13].
Online mediation now offers international parties a highly accessible, tailored, cost effective, and environmentally sustainable avenue to resolve disputes [14]. Mediators and experts can be brought together faster and cheaper than ever before, and the range of shipping disputes suitable for mediation are expanding.
Acknowledging the value and the need for online dispute resolution, private mediation centres like Sage Mediation in Singapore have updated their mediation protocols. These are now designed to offer businesses an expedited, economical and effective route to resolve their commercial disputes during the Covid-19 pandemic period. In a recent survey conducted by James Claxton, a professor at Waseda University and Rikkyo University in Tokyo, 71% of the surveyed mediators indicated that online mediation was as effective as mediation in person based on settlement rates [15].
Green Shoots of Change
While the current digitalisation of the shipping and dispute resolution industry has been encouraging, there is still a long way to go. Comparing to the advances made in other sectors like finance and healthcare, shippers and mediators can do much more to cut costs and facilitate greater global integration. As a new normal slowly emerges in the wake of the pandemic for shipping, I am grateful at least that the journey looks to have begun in earnest.
Article written by:
Marine Pesret
Consultant
