Bojan Čekrlić, CEO at CargoX
“There are several business drivers for switching from paper to electronic B/Ls. From efficiency and speed to improving security and transparency, using blockchain-based B/Ls can play a major role in accelerating shipping’s digital transformation”
The global shipping industry transports around 90% of the world’s cargo.[1] Volumes are expected to increase by 2.1% over the next five years.[2] As an industry, it accounts for about 2% of global energy-related CO2 emissions,[3] the volume of which grew 20% in the decade ending 2023.[4]
The industry needs to reduce its carbon footprint. It knows this: in recent years, new regulations and targets have come into force. The Energy Efficiency Existing Ship Index (EESI), carbon intensity indicator (CII) and the European Union Emissions Trading System (EU ETS) are just some of the schemes in place to incentivise operators to improve efficiency and reduce emissions. Plus, the International Maritime Organisation’s greenhouse gas (GHG) strategy outlines targets to be aimed at. These include a 20-30% reduction in carbon emissions by 2030 against 2008 levels, growing to 70-80% by 2040, as part of the goal of reaching net zero at or around 2050.
Industry players are already implementing a range of measures to bring their emissions down. Naturally, with vessel assets contributing so much to emissions, much focus has been on ships and their fuels. Among the approaches currently being deployed are retrofitting, new builds, alternative fuels and slow steaming.
The need for multiple decarbonisation levers
Each of these approaches has its advantages and disadvantages. What is clear is that there is no silver bullet, no single mechanism that will dramatically reduce industry emissions. Instead, a variety of levers will need to be used depending on individual operator situations.
Those levers aren’t restricted to vessels, either. Ships certainly do produce the majority of emissions, but it would be wrong to overlook other parts of an organisation. One area that is perhaps often overlooked in sustainability discussions is administration, particularly paperwork.
With so many parties involved in the transportation of cargo from one side of the world to another, shipping generates a lot of paperwork. While much of it will seem opaque and confusing to those outside the industry, one term may be familiar: the Bill of Lading (B/L).
Managing the Bill
The B/L remains a critical document in international trade. It functions as a receipt for cargo, a document of title, and evidence of the contract of carriage: in effect, who is responsible for the cargo at any point in its journey.
Even now, with shipping going through its digital transformation process, most B/Ls are paper-based – one estimate suggested that just 1.2% of the 45 million B/Ls issued in 2021 were electronic.[5] That means a physical document must be available at every point in the journey, meaning they had to be sent from one party to another, crossing borders. Without the B/L, shipments, payments, and transfers of title can be delayed, slowing down the process and incurring a variety of charges for the various parties involved.
It’s an inefficient process, and it is also susceptible to forgery, loss, and theft. Plus, there is no real way of tracking its whereabouts or who has access.
And it is not particularly sustainable. A study looking at the production, preparation, transport, and disposal of a paper B/L calculated that the total carbon footprint was 975.54g carbon dioxide equivalent (CO2e).[6]
Efforts have been made to develop a more efficient, secure, and immutable way of creating and sharing bills of lading. Using digital technologies like blockchain, these electronic Bill of Lading (eBL) are faster to produce and share, easier to distribute to multiple parties simultaneously and provide a secure record of the cargo and all involved. Its digital nature makes it easier to track and can reduce the administrative burden of B/L by reducing manual handling and integrating innovations such as smart contracts.
Sustainable blockchain
But how sustainable is blockchain? There is often a perception that blockchain has a significant carbon footprint. However, the truth is a little more complicated.
Most eBL solutions use one of two blockchain technologies: public Layer 2 Ethereum blockchain using Proof of Stake (PoS) and private blockchain based on Bitcoin using Proof of Work (PoW).
CargoX uses the public Layer 2 Ethereum blockchain, which offers:
- Improved scalability and reduced transaction costs
- Significantly lower energy consumption due to the PoS consensus mechanism
- Public verifiability and transparency of transactions
- Interoperability with the wider Ethereum ecosystem
Private blockchains using Bitcoin’s PoW consensus mechanism provide:
- High security through the energy-intensive mining process
- Full control over the network for the operating entity or consortium
- Potential for customisation to meet specific industry needs
- Limited public verifiability, as the network is not openly accessible
The Carbon Footprint study evaluated eBLs using both types of blockchain. The public Layer 2 Ethereum blockchain generated 35.17g CO2e, just 4% of a paper B/L. The Bitcoin eBL, however, produced emissions ranging from 10.05kg to 50.05kg CO2e – a huge increase on paper and Ethereum.
Type for a less carbon-intensive Bill
There are several business drivers for switching from paper to electronic B/Ls. From efficiency and speed to improving security and transparency, using blockchain-based B/Ls can play a major role in accelerating shipping’s digital transformation. At the same time, the pressure on the industry to reduce its carbon footprint will only increase. Any decrease must be considered. With bills of lading such a prominent role in the industry, being able to cut its CO2e by up to 96% is another compelling reason to make the switch – if it’s built on the right blockchain.
If you’d like to read more about the carbon footprint of different forms of B/L and how it is calculated, visit CargoX.
Footnotes
[1] https://www.ics-shipping.org/shipping-fact/shipping-and-world-trade-world-seaborne-trade/
2 https://unctad.org/system/files/official-document/rmt2023_en.pdf
3 https://www.iea.org/energy-system/transport/international-shipping
4 https://unctad.org/system/files/official-document/rmt2023_en.pdf
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[1] https://www.ics-shipping.org/shipping-fact/shipping-and-world-trade-world-seaborne-trade/
[2] https://unctad.org/system/files/official-document/rmt2023_en.pdf
[3] https://www.iea.org/energy-system/transport/international-shipping
[4] https://unctad.org/system/files/official-document/rmt2023_en.pdf
[5] https://dcsa.org/newsroom/dcsas-member-carriers-commit-to-a-fully-standardised-electronic-bill-of-lading-by-2030