1Maritime trade is a collaborative and cross-border industry that operates as a blockchain with a multitude of maritime and port actors and operations. The volume of goods transported by sea amounted to 11 billion tons in 2018, while 793.26 million twenty-foot equivalent units (TEU) passed through the ports, with uninterrupted growth for more than fifteen years. These operations are governed by a multitude of international and national standards, making them incomprehensible to a neophyte. These elements make maritime transport a complex and potentially conflict-prone ecosystem.
2The acceleration of procedures represents a considerable challenge for economic actors. Sea carriers and shippers had accelerated the transfer of transport documents thanks to the electronic bill of lading; however, this concerned only one block in the transport chain. Blockchains and their application to non-financial operations seemed to be the tool that professionals were waiting for. Indeed, it makes it possible to support large-scale transactions in a timely and cost-effective manner. But what is a blockchain?
3It is a technology for storing and sharing information that is transparent, secure and that operates, a priori, without any control body. Specialists speak about “Recording mode for continuously produced data, in the form of blocks linked together in the chronological order of their validation, each of the blocks and their sequence being protected against any modification” (Computer Vocabulary (list of adopted terms, expressions, and definitions) (JORF n°0121, May 23rd 2017, p. 27). We speak about Distributed Ledger Technology (DLT) which is a unified term for a broader technology than blockchains which refers to a particular application (Arif et al., 2021). The blockchain therefore consists of a set of blocks that store data; the management of these blocks, protected by cryptographic methods, is decentralized. The infrastructure is not concentrated in the hands of one organization or operator but distributed throughout the network. The data contained in the blocks are deposited by intermediaries; the participants, called minors, who put the power of their servers at the service of the blockchain. One of the special features of blockchains is that they are time-stamped. The advantages of blockchains are numerous: data security, traceability of goods, certification, automation, time and date stamping (Dutta et al., 2020).
4This technology appeared in 2008 in the form of a cryptocurrency: bitcoin. Since then, its fields of application have multiplied. In the financial sector, 3rd generation cryptocurrency systems are proving their success; in the food industry, many retailers have developed their blockchain to track their goods and inform customers of their origin (Bumblauskas et al., 2020); in the health sector, many States and medical establishments are planning to create a blockchain containing their patients’ medical data in logistics, there are more and more projects to track containers and trucks, and to find out the origin and route taken by goods (Zhong et al., 2021). The fields of application for blockchains are virtually unlimited. Their major challenge is to create a climate of trust.
5The merits of blockchains are therefore numerous, but due to the small number of achievements, the expected impact on maritime trade and the maritime supply chain is still hypothetical. Based on implemented blockchains, this article will analyze the economic and legal advantages and disadvantages of blockchains for maritime trade actors.
6In other words, does the current level of development of blockchain technology, from the point of view of digital economy regulation, allow its adoption in the various operations of the maritime industry? This question obviously raises the issues of fundamental rights and freedoms, responsibilities, sales contracts, service provision, transport of goods, management of maritime crews, management of sensitive personal data, legal security of transport acts and documents, relations with the administrative services of the various States, compliance of ships, etc.
7Like any disruptive technology, this one raises many economic questions: will the reduction in lead times automatically lead to a reduction in costs and an increase in efficiency? Questions also arise concerning the relationship between this new technology and the law: what legal value should be given to a Smart Contract; to the liability of the actors: contractual, criminal? While some studies analyzed the impact of blockchains on shipping (Papathanasiou et al., 2020) and the supply chain (Gode et al., 2020), no study has yet addressed the legal aspects of blockchains applied to maritime trade and few have studied their impact on the maritime supply chain.
8According to Gangulu et al. (2010), there are several indicators of a disruptive technology: (1) the assessment of a gap between the market satisfied by the original technology and the emerging technology; (2) the assessment of the maturity of the current technology (using the adoption curves described by Bohlen et al., 1957); (3) the rate of adoption of the technology, and finally; (4) the measure of the expected utility.
9After defining each of the three types of blockchain, this study will highlight the economic effects of the use of this technology on maritime trade. It will then analyze the legal interest of blockchains for maritime transport and the regulatory issues that remain unresolved. Finally, the more general impact of blockchains on the supply chain will be discussed.
10It is important to specify that the national legal references in this article are essentially French. As maritime law is international law that has a considerable influence on the legal systems of States, the non-French reader will not fail to see similarities between references to French law and certain norms in force in his or her country.
11This exploratory study, which makes it possible to define economic, legal, and managerial issues jointly, starts from a legal reflection on the nature and regulatory implications of a technological innovation that raises serious managerial and operational questions. The hybrid methodological approach adopted follows the same logic: it first addresses the economic and legal issues that are the source of the reflections; then it studies the managerial issues.
12The regulatory issue is fundamental to managerial activity and remains one of the main problems facing technological innovation.
The Blockchain and Its Economic Advantages
13Having defined blockchain technology, we will distinguish between each of the three types of blockchains. Identification of their characteristics will make it easier to understand the applications that can be made of them, particularly in the maritime sector.
Definition, Characteristics, and Applications of Blockchains
14In this section, we will identify the elements that distinguish a public blockchain from a private blockchain and a consortium blockchain.
Public Blockchain
15This is the most widespread version of blockchains. As its name suggests, it is distinguished by its openness and freedom of access (Tessier, 2019). The bitcoin cryptocurrency is its first and most well-known application. The public blockchain can thus be understood as “a very large notebook, which everyone can read freely and without charge, on which everyone can write, but which is impossible to erase and is indestructible” (Delahaye, 2015, p. 80). It is characterized by the right of access and rectification recognized for all users, transparency, decentralization, and the absence of an intermediary body (Desplebin et al., 2019).
16Nevertheless, a public Blockchain can be accessible to all and require authorization for any transaction or transaction validation. This may be the case of a commissioned public blockchain, of which the Sovryn protocol is an example of use (France Stratégie, 2018). The public or private nature of the blockchain depends on the choice made by the creators and the governance strategy they implement.
17However, the original nature of blockchain technology is public, and any privatization or restriction is only driven by business or governance choices. It is the business plan that determines the restrictive or non-restrictive framework of the blockchain implemented or to be implemented. For example, public administrations that have no business secrets to preserve will be more inclined to adopt a public blockchain. This could be the case for fields of application such as energy, civil status management, real estate administration, politics, and governance issues (France Stratégie, 2018).
18This second version of the public blockchain allows the adoption of this new technology to sectors of activity that are not necessarily linked to cryptocurrencies that are often presented as the alpha and omega of this type of blockchain. Controlling the process of making and validating transactions in a public blockchain, open to all, may be a good compromise for certain fields of application, notably financial and notary. What is certain is that, at the current stage of its development, the public blockchain is not sufficiently capable of resolving the various dilemmas posed by its implementation: decentralization versus responsibility, freedom versus dependence, transparency versus confidentiality, anonymity versus identification (Baudemoulin et al., 2017).
Private Blockchain
19Limiting the number of users and, consequently, the right of access and intervention in a blockchain obviously extracts it from the public domain. This type of blockchain is also referred to as “permissioned blockchains”. Read or write access to the private blockchain is limited to a known number of users. The right to enter data is often limited to a single entity, making it an unnatural form of blockchain, requiring neither validation of the data (added by a single entity) nor consensus (Tessier, 2019). It is, in short, a blockchain restricted in access and intervention by a firewall system set up by the entity that created it.
Consortium-type Blockchain
20Concerted blockchains are halfway between public and private blockchains. They have characteristics often found in either of the first two categories. As Tessier (2019) shows (Table 1), reading access to this type of blockchain can be open as in a public blockchain or restricted as in a private blockchain. As for write access, it can also be free as in the public blockchain or limited to pre-selected users. For validation of the registered data, the consortium blockchain restricts access to pre-selected participants, which makes it a necessary process, unlike the private blockchain, but less strict than in a public blockchain.
Table 1 – Differences in the different types of blockchains (Tessier, 2019)
| Properties | Public Blockchains | Consortiums | Private Blockchains |
|---|---|---|---|
| Read Data Access | No Restriction | With or without Restriction | With or without Restriction |
| Write Data Access | No Restriction | No Restriction or only Pre-Selected Entities | A Single Entity |
| Participate in the validation process | No Restriction | Only Pre-Selected Entities | No data validation because only one entity can add data |
| Complexity of the validation consensus | Complex Validation Consensus to be Tolerant of Byzantine Faults | Validation Consensus Facilitated | No Consensus Necessary |
Table 1 – Differences in the different types of blockchains (Tessier, 2019)
Definition and Legal Potential of Smart Contracts
21The Smart Contract is understood as a set of commitments or promises, specified in digital form, operating on protocols in which the parties to an actual contract fulfil their commitments in an automated way (Szabo, 1996). It is a computer program that allows self-execution of a real contract on a blockchain. It is the automation of a value transfer when one or more preconditions are met.
22It operates on the protocol “If this..., Then that”. The Smart Contract Alliance (2018), supported by the Chamber of Digital Commerce, described it as a computer program that, upon the fulfilment of one or more specified conditions, can operate automatically according to predefined functions. The code can be stored and processed on a large, distributed registry and records any changes made in the registry.
23However, the Smart Contract is not a contract in the sense of positive law (Blockchain Partner, 2017). It is the computer codification on a blockchain of clauses contained in a real contract duly signed by the parties. It is therefore not an independent or self-sufficient agreement, but the computer encoding of the clauses of an agreement. This is even though “Proponents imagine a future where commerce takes place exclusively using smart contracts, avoiding the high costs of contract drafting, judicial intervention, opportunistic behavior, and the inherent ambiguities of written language” (Sklaroff, 2018, p. 263). Driven by the hope of being able to definitively eliminate the hazards of traditional written agreements, some promoters have predicted a revolution that will make all paper contracts disappear.
24Beyond the fact that various aspects of the contract cannot be specified in the functionalities of a Smart Contract, the essential difference between the actual contract and its digital avatar lies in the fact that the former is guaranteed in its execution by a public authority (Higgins, 2020). With the awareness that a Smart Contract is not a contract, but the computerized application of a real contract, we will try to see, further on, the possibilities that this digital instrument opens up for global maritime trade.
The Economic Advantages of the Different Types of Blockchains
25Estimates of the savings that international trade could make thanks to the blockchain are attractive. The reduction in lead times and time savings would significantly impact companies’ turnover.
Reduced Lead Times by Automating Procedures
26Shipping companies are highly complex organizations. They include agents, the most prominent of whom is the ship’s captain, but also the ship and cargo consignees, etc. The ship’s owner is the ship’s master. This multitude of actors makes shipping a fragmented organization and a potential source of conflict. The diversity of stakeholders necessarily leads to a multitude of administrative steps and procedures.
27From an operational point of view, blockchain technology offers the possibility to have optimized schedules and stowage plans in real time, as shown by the TradeLens consortium. This could result in considerable time savings and significantly reduce costs and the margin of error in operations.
Lower Costs and Increased Efficiency
28The implementation of blockchain technology for certain maritime transport operations would make it possible to streamline certain stages of the process (invoicing via Smart Contracts) and would reduce the time taken to process files in administrative procedures (VGM, customs formalities, etc.) and certain compliance checks specific to certain jurisdictions (Customs-Trade Partnership Against Terrorism (C-TPAT), USA).
29According to an IBM estimate in 2019, the streamlining of the import process that a blockchain-based shipment could benefit from would save US$300 per container transported. For a ship like the 23 756 TEU MSC Gülsün, this would be equivalent to $7 126 800 per voyage.
30The complexity of international maritime trade has been sufficiently demonstrated through the documentary credit, which is a complex and time-consume mechanism. Trust, transparency, and security are the characteristics of the documentary credit. Its automation would solve the issue of delays. Moreover, the growing number of documentary credits would require a system that combines speed and power. The blockchain meets all these criteria. The economic impact of automation is invaluable for an international sales transaction: “With the blockchain, the buyer could place the required sums in escrow, which would be visible to the seller. Delivery of the goods would automatically result in the release of the funds to the seller. In terms of deadlines, the process, which currently takes between 7 and 10 days, could be reduced to 3 hours, thus reducing costs by a factor of ten” (Lasmoles, 2018, p. 457).
31The contributions of blockchain technology to auditing, accounting, and management operations are also of great interest to economic actors (Desplebin et al., 2019).
Significant Growth Potential for International Trade
32The potential of blockchain suggests a growth in global trade of around 15%. In a test carried out by the IBM-Maersk consortium (2019) [1], the transport of a single container of flowers from the port of Mombasa (Kenya) to the port of Rotterdam (Netherlands) recorded almost 200 communications. With the classic system, characterized by a large number of manual manipulations, these exchanges extend over several days or even weeks. With the digitization of communications, particularly documentary communications, delays will be drastically reduced. According to a World Trade Organization (WTO) estimate, the removal of barriers in the supply chain would increase global GNP by 5% and the volume of international trade by 15%.
33Moreover, this technology promises a controlled claims rate and less costly insurability of the fleet, as well as more controlled claims management (Remy, 2018). According to a May 2016 report by Goldman Sachs Bank (2016), global financial markets and the legal industry could save US$11-12 billion per year by streamlining the clearing and settlement of cash securities through use of blockchain; while US$2-4 billion per year could be saved through the transfer of real estate securities to large distributed registries.
Legal Advantages and Maritime Issues
34Technical or technological progress is always a source of hope for the global economy. Even the smallest technical or technological development arouses real interest among all the stakeholders in international trade. Increased attention is being paid to the notion of risk inherent in the maritime industry and this is leading to several questions. This is reflected in a number of issues, including analyses of advantages and disadvantages, cost-benefit analyses, etc. These calculations are made from both an economic and a legal point of view. Particular attention is paid to the legal interest of blockchains, as well as to the legal problems that certain regulations could pose. However, some legal issues remain unresolved.
The Legal Interest of Blockchains for Maritime Transport
35Like all other technical developments before it, the blockchain is subject to a review based on safety and cost-effectiveness criteria. Thus, it is interesting to analyze its advantages from a safety point of view, but also from an organizational point of view. Its use is also of great legal importance.
The Benefits of Secure Trade
36As a cutting-edge technology, the blockchain questions, first, the vulnerability of the system it integrates. For a system as decentralized as international maritime trade, security is not a point of negotiation, but a matter of public order [2]. It is a condition for the admissibility of the new technology. The notion of risk is of great importance in the maritime industry and, more broadly, in trade. Through its operation and its main characteristics, the blockchain offers a certain number of guarantees which are worth noting.
37Like maritime trade, the blockchain is a decentralized system. Both operate on the same distribution principle. Maritime trade operates on trust between its actors – Incoterms are the legal translation of this – and the blockchain is built around this trust – the result of transparency – that it establishes between its participants. An eloquent example of this was provided by the Maersk-IBM collaboration that gave rise to the TradeLens platform, which today registers more than a hundred participants [3].
38Effective regulation is the key to managing business risks. International maritime law includes a significant part of so-called safety rules such as the International Regulations for Preventing Collisions at Sea of 1972 or ColReg 72, the SOLAS Convention of 1974, etc. However, these are mainly related to the management and operation of ships. The 2014 amendment of the SOLAS Convention deals, for example, with false declarations of container weight. Since its entry into force on July 1st, 2016, this amendment makes it compulsory to weigh each container before loading begins so that the ship planner can draw up a loading plan corresponding to the real weight of the containers. However, it is in international trade law that the most suitable rules for trade can be found. In addition to national, European, and international standards, there are standards of a more commercial nature.
39This second category of standards (Lex Mercatoria) offers flexibility suitable for the adoption of a consortium-type blockchain. In such a blockchain, safety is a matter of course. It is dealt with upstream by its creators and users, i.e. during its manufacture. This is not the case with a public blockchain (Poullet, Jacquemin, 2018). However, the Lex Mercatoria has the characteristic of being a law drawn up not by the legislature but by merchants, carriers, shippers, etc. (Elcin, 2012). This makes it akin to consortia whose rules are drawn up by their users.
40This process offers commercial exchanges taking place in a concerted blockchain, a legal security that is fully controlled by prior agreement between the stakeholders who have drawn up rules adapted to their needs. Since the 1990s, distributed systems have been regularly distinguished by their reliability. The private blockchain allows controlled end-to-end shipments in real time. Also, it would respond to some of the challenges of the maritime industry (De Filippi et al., 2016).
41This control considerably reduces the legal uncertainties inherent in the processes currently at work. The blockchain’s adherence to a system of rules defined according to specific business objectives, such as the Goal-Based Standards (GBS) now known in the field [4], provides better visibility on financial and transport transactions. These goal-based standards of the blockchain participants can be submitted for validation, like the GBS, to independent auditors and/or appropriate bodies of the International Maritime Organization (IMO) or the International Maritime Committee (IMC). Such self-regulation may also be subject to compliance with a number of basic principles defined by the community of participants.
42Another advantage of this type of blockchain is that it allows actors to align their codes with already existing standards, protocols, or model standards. This is the case with TradeLens, which aligns with UN/CEFACT [5] standards for information standardization (UN/CEFACT are trade facilitation recommendations developed within the framework of the United Nations Centre for Trade Facilitation and Electronic Business). For interface standards, the platform favors openness with ERP (Enterprise Resource Planning), TOS (Terminal Operating System), TMS (Transport Management System), and WMS (Warehouse Management System) software packages. This corresponds perfectly to the private nature of a consortium-type blockchain whose transactions are previously controlled by a pre-selected set of nodes (Barraud, 2018); a node being an actor who intervenes in validation of the stages of the process of a transaction as opposed to a simple participant who uses the platform to operate transactions, but without being able to validate or not validate the transactions. This functionality makes it a technology capable of meeting the high level of legal certainty required by international maritime trade. The integrity of the freight market is thus ensured by a high level of security linked to the systematic and durable authentication of transport operations.
43The traceability of containers would also help prevent fraud and other manipulations such as the Ponzi chain, of which the German company P&R was accused in 2018. The company, which claimed to have sold some 1.6 million containers to around 54 000 investors for a total of 3.5 billion euros, only had a fleet of around 600 000 containers. In a blockchain, this type of Ponzi scheme would be difficult to operate.
44Blockchain technology was used, in a very concrete way, by the Louis Dreyfus Company to carry out an export operation of 60 000 tons of soya to China in 2018. In addition to real-time monitoring of the various stages of the operation, the digitization of travel documents (sales contract, letter of credit, certificates, etc.) enabled automatic data matching and avoided duplication of tasks and manual checks. This application of blockchain technology to the export operation has reduced document and data processing time by a factor of five (Leguilloux, 2018). In addition, this allows “[...] the reduction of the risk of fraud and a shorter cash cycle. The success of the platform demonstrates the immense potential of distributed ledger technologies to advance commodities trading and financing” (Leguilloux, 2018, p. 3).
45More than 90% of the world’s goods are transported by sea, and nowadays 80% are transported by container (Fremont, Soppe, 2005). However, according to the Danish company Blockshipping, 40% of the 25 million containers in transit through ports are empty. To reduce unnecessary costs and the resulting pollution, it has announced the implementation of a “real-time global register of container movements” based on a blockchain serving as a “global commercial platform for all types of services related to container handling.” This would save billions of dollars each year by optimizing existing container capacity (Caldwell, 2018, p. 4). This traceability of operations would prevent Ponzi schemes and other freight speculation.
The Benefits of Document and Cargo Authentication
46Authentication of business transactions using timestamp is one of the key features of blockchain technology.
47The reliability of acts by means of the timestamp function would make it easy to determine the authorship of any operation, failure or error that might occur at any link in the system. This is a significant advantage for the traceability of the commercial and/or logistical operations of the various players, as shown by the TradeLens solution.
48Knowing that business document management can account for up to a fifth of the actual costs of overall documentation, the maritime industry would benefit from automating administrative processes. Speedy document control and accounting operations would significantly reduce the risks inherent in manual audits and frequent tracking processes, compliance costs, and the time required for transport operations.
49This security through the prevention of errors, fraud, and other prejudicial breaches is in line with the safety culture initiated in recent years within the maritime world (Valkonen, 2001). This functionality makes the blockchain a serious decision-making aid tool, the porosity of the current model contributing to certain decision-making failures. It could be an effective means of managing the flow of goods, but also, and above all, of seafaring personnel.
The Advantage of the Blockchain in Crew Management
50The management of maritime crews remains a crucial issue for shipowners. The unavailability of all or part of a crew, due to the expiry of work permits and delays in their renewal, inevitably jeopardizes the operation of a ship (Butautaeye, 2019).
51In 2018, Lloyd’s Register and blockchain technology and governance experts (BOC) announced the creation of a consortium that will pilot a certification system for seafarers based on blockchain technology. Similarly, a consortium including MMBL, Maersk, Heidmar, PTC Holdings Corp, Mission to Seafarers, C-LOG, Navozyme, Hanseaticsoft and others is studying the possibility of using this technology in seafarer certification systems (Ajot, 2018. This is a certification system based on a consortium-type blockchain and aims to facilitate and accelerate the processes related to seafarers’ certification documents.
52This system would allow better control of the manning companies thanks to concerted monitoring and real-time exchange of all parties, as well as foolproof traceability of the decision-making chain. It would also save time for administrative and judicial authorities in investigations and decision-making.
53Furthermore, the entry into force of the Erika III package (European Union Commission) and the 2006 MLC (Maritime Labour Convention) has increased the number of controls and port State obligations in the European Union. In order to adapt to the new requirements, maritime administrations have carried out a minimal reform of the system (French Court of Auditors, 2012). This task is so important that only a large-scale technology can support it at a lower cost.
54The automation of certification and crew management systems would allow the authentication of seafarers’ professional qualifications, compliance with the standards in force, harmonization of treatment, and the fight against the glaring inequalities and social fraud in which some shipowners engage. Ultimately, the system would allow seafarers to manage their own certificate repertoire from the time of initial issue, maritime administrations to better manage renewal and approval in different jurisdictions, crew management organizations to better manage their ships’ crews, and shipowners to have an overview of their crews and their compliance with the regulations in force. Such a blockchain would be a consortium-type blockchain to freely exchange information between parties.
55The legal potential of blockchains is immense and could have as yet unsuspected consequences, positive or negative.
The Legal Potential of Smart Contracts
56First of all, the Smart Contract makes it possible to codify standards previously established in commercial exchanges. This functionality would make it possible to encode a large number of commercial and economic standards accepted as universal by the international maritime community. This may concern the contractual terms of transport contracts established by the International Chamber of Commerce and accepted by international trade actors. They are referred to as Incoterms. These are International Commercial Terms which define the obligations, costs, and risks inherent in the transport of goods by sea.
57The codification of Incoterms in a blockchain, and more specifically by means of a Smart Contract, would make it possible to automate the payment of transport costs and ancillary costs as soon as the goods arrive alongside the vessel for an FAS (Free Alongside Ship) sale, on board the vessel for an FOB (Free On Board) sale, at the port of destination for a CFR (Cost and Freight: Insurance and risks borne by the buyer) sale, or a CIF (Cost, Insurance, Freight: Insurance and risks borne by the seller) sale.
58These standards have the advantage of being non-mandatory standards (Soft Law) which are freely agreed and adopted by the participants in international maritime trade. They are governed by the principle of central autonomy in international contracts and for traders (Radu, 2020). Their inscription in a blockchain is facilitated by the fact that Incoterms are stable over time, which responds to the immutability of the data in a blockchain.
59The various Incoterms can be coded by computer, which would allow a real time saving in commercial exchanges. This would also reduce the time and cost of transport operations. Clauses relating to the physical delivery of the goods, the transfer of responsibilities and risks, the sharing of costs, and documentary formalities in the ports could thus be automated.
60In some common law countries, as opposed to civil law countries, an interesting concept is developing: that of Smart Legal Contracts, on the automation of agreements relating to convertible bonds (Smart Contracts Alliance, 2018). This digital and legal instrument developed by digital firms with the aim of ironing out the differences between Smart Contract and Legal Contract already has its followers. In the United States, companies such as OpenLaw, AccordProject, CommonAccord or Clause have begun to capitalize on this new instrument. In these countries, Smart Contracts concluded exclusively by digital voice have been subject to the contractual rules in force [6]. Email exchanges are likely to be accepted as constituting an enforceable contract between the parties [7]. In the United States, the courts have accepted Click-Wrap aggregation as enforceable to the extent that the parties do not need to discuss each term of the contract [8].
61Moreover, the concerted blockchain or its Smart Contract application offers the possibility of implementing a controlled regulation and conflict resolution mechanism. These mechanisms, called blockchain-enabled dispute resolution systems, are already implemented by technical operators (Sklaroff, 2018). Operators such as OpenBazaar, a peer-to-peer trading platform similar to eBay, use moderators to settle disputes. In the event of a dispute, moderators examine the arguments of the parties and make a decision that triggers the payment of the disputed funds. This functionality will take the form of an algorithmic arbitration free of the human factor and the risks it entails.
62However, the immutability of the data recorded on a blockchain does not reassure certain actors who fear possible errors in the introduction of data, particularly in a Smart Contract. In the event of an error when entering data on the blockchain, given that this is irreversible, is it possible to correct the error?
63In B2C2 Ltd v. Quoine Pte Ltd, a case decided at the Singapore Court of International Trade, one of the first instances to assess a virtual currency transaction under the principles of contract and trust law, Justice Simon Thorley held that in determining whether an error had been made, it was necessary to consider the intention of the programmer at the time the program was written [9]. This decision indicates how liability between different players in a private or consortium type blockchain could be engaged.
64As for the possible rectification of registration errors, the idea of a Kill Switch or emergency stop button has been put forward in the IT world (Eyers, 2016). A Kill Switch could be imposed in certain sensitive sectors such as banking and energy to prevent major risks and reassure users.
65A second possibility is being discussed with the institution of a Third Order called an Oracle. An Oracle is a mechanism that makes it possible to link the blockchain to external databases. Within the framework of a Smart Contract, the Oracle’s function is to provide the data located outside the blockchain, enabling the execution of programmed functions. This is a more ergonomic execution of the contract clauses codified in a blockchain and whose conditions are backed up by data on temperature, sports results, etc.
66The potential of Smart Contracts could be multiplied in marine insurance. Automation of procedures and the simplification of certain formalities for insurers and policyholders would considerably reduce the time taken to pay compensation for delay, loss, or partial damage. Actors in the insurance chain, grouped around the Danish shipowner A. P. Møller-Maersk, have agreed to automate the insurance of more than 1000 ships, while offering a decision support tool. A platform called Insurewave will enable the ship’s captain to know whether his insurance covers him and at what price, so that he can make an informed decision (Remy, 2018).
67An example of the automation of compensation thanks to the blockchain was given in 2017 by Compagnie AXA, which had set up the Fizzy offer to compensate its subscribers for all flight delays of more than two hours and flight cancellations. This computerized insurance program was connected to global air traffic, enabling it to collect flight landing information in real time. It ended with 11 000 policies for around 100 claims. This Smart Contract application could be tested in marine insurance, where the realities are approximately the same as in aeronautics.
Outstanding Legal Questions
68To gain a better understanding of the legal issues that could arise from the use of blockchain technology, it is important to analyze a few normative instruments that could come into play or influence the choice of manufacturers.
Relevant Legal Instruments
69The maritime bill of lading is an endorsable title of possession, which is fundamental to the documentary credit. As a material document, liable to change its holder as many times as its subject matter changes ownership, its inscription on a blockchain offers the parties to the maritime transport contract a certain number of guarantees. The bill of lading is at the same time a contract of carriage by sea, proof of receipt of the goods by the carrier, a travel document for the cargo, a negotiable document of title. In this respect, its security, the traceability of the goods it describes, and the transparency of its circulation, are essential for the maritime industry.
70Initial tests of the bill of lading backed on a blockchain created by Maersk and IBM showed that administrative costs could be reduced by up to 15% of the value of goods shipped, thanks to the traceability of shipping containers and the scanning of travel documents (Comben, 2019). Long procedures and cumbersome formalities, as well as the high costs associated with them, could be significantly reduced as a result. Transaction times could, with the removal of certain administrative barriers, be reduced to minutes or even seconds.
71Financing an international sale is legally complex and time-consuming. With the intervention of several intermediaries, such as the banks issuing documentary letters of credit, the process is burdened with several manual signatures and verifications, as well as hundreds of physical documents and communications.
72To remedy this cumbersome situation, some fifteen companies, banks, and oil investors (ABN AMRO, BNP Paribas, Citi, Crédit Agricole Group, Gunvor, ING, Koch Supply, Trading, Macquarie, Mercuria, MUFG Bank, Natixis, Rabobank, Shell, SGS and Société Générale) have created the company Komgo SA with the aim of digitizing raw materials trading through the blockchain. For the consortium, the aim is to offer its participants “a service for verifying the identity of customers by exchanging documents in an encrypted manner, without a central database, as well as a ‘digital letter of credit’, replacing documentary letters of credit” (De La Raudiere, Mis, 2018, p. 56). A large number of documents and/or data are thus shared with access rights modulated according to the participants in a fast, secure, authenticated, and transparent process.
73With the blockchain’s functionality, direct competitors can collaborate with confidence, with complete transparency and the end-to-end reliability of their operations. Using the blockchain streamlines the process by eliminating unnecessary paperwork.
74The advantages of blockchain technology are numerous and particularly decisive for the maritime world. The choice of the type of blockchain is decisive both for the regulatory control of the infrastructure and for the responsibilities of its players (CNIL, 2018).
The Fundamental Question of Responsibilities
75The blockchain is distinguished, particularly, by the fact that any information introduced into the chain becomes, from that moment on, irremovable. This characteristic raises the sensitive question of the personal data of the participants. Within the European Union, the General Data Protection Regulation 2016/679 (GDPR) elevates the protection of personal data of individuals to the rank of a fundamental right whose respect is due regardless of the nationality or residence of the persons concerned (Recital 2).
76The legal issues raised by the processing of personal data concern the blockchain as a shared electronic recording device, likely to include data relating to the identity of its participants, as well as a space likely to generate conflicts (CNIL, 2018). The immutability of the platform’s recorded data makes the blockchain a device at the opposite end of the spectrum from the user’s right to oblivion [10].
77In a public blockchain, the risk of breaching the privacy of participants is less controlled than in a private or consortium blockchain. In the first case, the degree of decentralization of the platform is such that it is extremely difficult to determine who is responsible in the event of a breach or to find those presumed to be responsible for the breach. The GDPR does not apply to this type of blockchain operating based on anonymity and without a known legal guarantor. Moreover, “‘Minors’ (stakeholders), or developers, act under an open-source license, and cannot be qualified as ‘responsible’ or ‘sub-contractors’ under the Regulation” (Grangier, 2019, p. 7).
78What about data located in a system abroad? For the purposes of an investigation for fraud or any other offence in commercial exchanges, paragraph 2 of Article 57-1 of the French Code of Criminal Procedure provides that “If it is previously proven that this data, accessible from or available to the initial system, is stored in another computer system located outside national territory, it shall be collected by the judicial police officer, subject to the conditions of access provided for by the international commitments in force”. These provisions seem to apply to data stored on several servers located in different countries, such as the nodes of a public blockchain.
79In a private or consortium-type blockchain, those responsible are more easily identifiable. Gathering evidence may therefore be less burdensome, as the manager(s) of the platform are identified or identifiable.
80The choice of the type of blockchain is legally decisive for the different actors. The concerted blockchain makes it possible to anticipate conflicts and prevent breaches by blocking suspicious or anonymous transactions. Responsibilities could also be shared between the different participants and/or modulated according to the rights of each participant. The code of the blockchain concerned is an important indicator in this respect. This choice will determine, particularly for the processing of personal data, the applicable legal regime by making it possible to identify the status of the participants and their role in the ecosystem (CNIL, 2018).
81The question of responsibilities is closely linked to that of the purpose of the blockchain and its operations (CNIL, 2018). Mastery of the code adopted guarantees the controlled processing of members’ personal data.
82If it is, moreover, quite conceivable, for reasons related to responsibilities, to wonder about the interest of adopting blockchains in many sectors of maritime navigation, the supply chain seems to have taken this crucial step. Its reticular nature seems to predestine the supply chain to the blockchain technology.
Supply Chain and Blockchain: A Common Destiny?
83Apart from their nominal resemblance, supply chain and blockchain have characteristics that make them look like they were made for each other, and several studies estimate that supply chain imperfections can be corrected through the digitalization of international trade (Pillai et al., 2020). Smart contracts open promising perspectives for the supply chain (Rejeb, Rejeb, 2020).
Figure 1 – Examples of the use of Blockchain Technology in the Supply Chain (DHL, 2018) [12]
Figure 1 – Examples of the use of Blockchain Technology in the Supply Chain (DHL, 2018) [12]
84Supply chain management operations require a lot of time and energy from the industry. The large flow of goods, services, and data involved in an international sales operation generates tensions between sellers and buyers or providers and customers. These conflicts are mainly due to the lack of trust generated by the lack of transparency in the information transmitted during the different transactions (Umair, Singh, 2020).
85Faced with such a problem in international trade, and as we have already pointed out, Maersk and IBM have resorted to the blockchain to improve the transparency of operations and thus build trust in exchanges. As a disrupted ledger using a P2P network model, the blockchain offers a guarantee of transparency based on a peer-to-peer verification system, thus providing integrity to the data entered, preventing hacking at best (Ming et al., 2021).
86The multiple cargo handling operations in a supply chain involve dozens of parties for a series of confirmations and settlements, with no less than a hundred interactions (Tsiulin et al., 2020). The volume of these operations makes the supply chain a heavy industry, demanding in resources of all kinds and energy consuming. Added to this is the omnipresent risk of supply chain interruption, making risk management a key issue for the industry, especially since it is often poorly controlled by the players and amplified by the globalization of the economy. Traditional management tools are becoming insufficient (Umair, Singh, 2020).
87Operational risk management is one part of the supply chain security challenge, the other being the fight against fraud. The immutability and transparency offered by the blockchain allows, through the traceability of data, to fight more effectively against acts of fraud (Tsiulin et al., 2020). For example, in the diamond industry, which is heavily criticized for diamonds mined in conflict zones, the De Beers group now uses the blockchain to trace the diamonds it markets (Verny et al., 2020). Using blockchain technology, the U.S. company Walmart was able to reduce the time it took to trace mangoes from tree to store from 7 days to 2 seconds (Verny et al., 2020).
88Pillai et al. (2020) believe that the supply chain incorporating the appropriate technology functions as a smart brain, facilitating real-time, end-to-end tracking of goods, as well as identifying the recipients of the goods. Authors, referring to blockchain technology, argue about the gap that exists between the supply chain and that this can be reduced by incorporating the unified theory of technology acceptance and use; thus, converging blockchain technology, supply chain network theory and technology acceptance models (Pillai et al., 2020). Furthermore, the use of blockchain technology would reduce the carbon footprint of the supply chain through the reduction of logistics (Rejeb, Rejeb, 2020).
89Where an export transaction may require up to four different contracts and 37 documents and involve a good 100 parties, a Smart Contract can drastically reduce paperwork and save time and costs by reducing the number of intermediaries and automatically executing negotiated clauses (Mamunts et al., 2018). Blockchain simplifies the process by redefining the correspondence; allowing a large volume of data to be recorded and transmitted to the different actors, eliminating traditional tools such as spreadsheets; also reducing the margin of error (Papathanasiou et al., 2020).
90Blockchain seems to be the solution to the various problems posed by the fragmentation of data between protagonists of a transaction; the unavailability of relevant data leading to decision making that is often risky and can put professionals at odds with consumer needs (Gonczol et al., 2020). This technology can give companies access to timely data, allowing for improved purchasing management, production management, transportation management, inventory management; thus, having a real impact on supply chain management.
91However, not all types of blockchain meet the same needs. A public blockchain is not necessarily compatible with the industrial needs of a supply chain. The private blockchain seems to be more in line with this use by assigning a unique identifier to each participant; this allows a company to define its own business and data access policies and rules (Verny et al., 2020). This leeway offered to parties is more in line with the flexibility of the Lex mercatoria than the rigidity of a monolithic system of rules.
92On the other hand, blockchain technology has limitations that one must be aware of before its adoption. Any company must be aware of its shortcomings in order to clearly discuss them with the provider in charge of its implementation (Umair, Singh, 2020). The complexity of blockchain technology, security of personal data, party-specific uses, etc. are all challenges that need to be incorporated (Papathanasiou et al., 2020).
93The interest of the blockchain for the supply chain is certainly more and more demonstrated, but the questions remain. The studies on the subject are proof of this. As such, some have focused on specific benefits touted as the flagship qualities of the technology, such as extended visibility and traceability, digitization and disintermediation of the supply chain, improved data security, and smart contracts (Wang et al., 2019).
94Legal and regulatory barriers to the use of blockchain are among the obstacles to be overcome for the supply chain industry (Umair, Singh, 2020). Some traditions are long-lived, and maritime trade is far from devoid of them. In Greece, for example, shipping executives are wary of technological innovations. As one of them put it: “We would adopt this technology, only if the majority of our network was about to participate. Currently, many of our suppliers do not even have their own ERP system!” (Papathanasiou et al., 2020, p. 934)
Conclusion
95Beyond its purely technical aspects, blockchain technology is on the verge of overturning entire sectors of our economy: finance, transport, intellectual property, education. But it is still far from having reached maturity. Professionals are only just beginning to identify the obstacles. The same applies to researchers. That is why our contributions are primarily theoretical.
96The first contribution of this study is economic. Once the management methods of maritime transport professionals have been recalled, the contributions of blockchains to this sector can be analyzed. The securing of exchanges, the automation of procedures, the traceability of goods and the authentication of documents are all advantages in the service of the reduction of goods routing times and transport costs. These advantages are not specific to maritime transport but can be beneficial to logistics and supply chain management activities more generally.
97The second contribution is of a legal nature. The functions attributed to blockchains, however attractive they may be, may lead to conflicts with national as well as international legal principles. An analysis of these friction points shows that most of the functions attributed to blockchains are compatible with the treaties and laws in force. Certain incompatibilities, particularly with respect to the notion of good faith in contracts, will be resolved. Therefore, blockchains and the law should agree. However, the difficulty with this technology, which is international in nature, is that it will rub shoulders with very different laws. Blockchains will therefore have to reconcile the contradictory injunctions emanating from these legal systems.
98The third contribution concerns the study of the contributions of blockchains to the supply chain, beyond the maritime supply chain; but also the obstacles to its adoption by professionals.
99Beyond these contributions, this study deals with notions such as transparency, data security, and trust, which, paradoxically, should modify the balance of power in the supply chain. Indeed, the adoption of blockchain technology must be the subject of a consensus by all the players. But who is in a better position than the client in relation to his suppliers? This leads some authors to believe that blockchains could strengthen the control power of principals, who are already in a strong position (Kin et al., 2018). This would lead to ideological power, according to Mann, for whom “when meaning, norms, and aesthetic and ritual practices are monopolized by a distinctive group, it may possess considerable… power” (Mann, 1986, p. 23). Blockchains would thus become a confrontational force field (Lacolley et al., 2010). If this were to be the case, the notion of trust would no longer have the same strength and would force blockchain members to rethink how they manage their relationships with their stakeholders.
100This research studied French legal aspects and international law. Its limitation is that it did not analyze blockchains from the perspective of Asian law. Countries practicing this type of law are at the forefront of cybernetic technologies. Although their conceptions of law are far from ours, it would be enlightening to analyze the choices they have made to reconcile their legal principles with the functioning of blockchains.
101In line with the study of blockchains from the perspective of Asian rights, a survey of maritime carriers and supply chain professionals in this region, who are known to be at the forefront of technological innovations, would allow us to identify their motivations and obstacles, in line with the authors who surveyed Greek shipowners (Papathanasiou et al., 2020). Such a study would be less descriptive and provide elements for future comparative analyses.
Notes
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[1]
https://www.joc.com/technology/dual-blockchains-shipping-test-interoperability_20190712.html
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[2]
Public order is a notion of Roman law (as opposed to Common Law) which defines it as the set of principles which are fundamental, and which imposes setting aside from effect not only private will but also foreign laws.
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[3]
To announce its collaboration with Maersk on 5 May 2017, IBM states on its website that the digitalization of global trade will benefit the maritime industry, which uses a chain of blocks to manage transactions between networks of shippers, freight forwarders, sea carriers, ports, and customs authorities. Accessed on 17 August 2020 at < https://www-03.ibm.com/press/us/en/pressrelease/51712.wss>
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[4]
Goal-based standards have been defined by the IMO as “high-level standards and procedures that must be met through regulations, rules and standards for ships. GBS include at least one goal, one or more functional requirements associated with that goal, and the verification of compliance of rules/regulations with the functional requirements, including the goals. In order to meet the objectives and functional requirements, classification societies acting as recognized organizations (ROs) and/or national administrations will develop rules and regulations accordingly”. Consulted on 17 August 2020 at <http://www.imo.org/en/OurWork/Safety/SafetyTopics/Pages/Goal-BasedStandards.aspx>
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[5]
UN/CEFACT: United Nations Centre for Trade Facilitation and Electronic Business.
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[6]
Lumhoo v. The Home Depot USA, Inc, 229 F. Supp. 2d 121, 160 (E.D.N.Y. 2002).
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[7]
Golden Ocean Group Ltd v Salgaocar Mining Industries Pvt Ltd and Anr, [2012] EWCA Civ 265.
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[8]
Hancock v. American Telephone & Telegraph Co, 701 F.3d 1248, 1251 (10th Cir. 2012) and Davis v. HSBC Bank Nevada, N.A. 691 F.3d 1152, 1157 (9th Cir. 2012).
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[9]
B2C2 Ltd versusQuoine Pte Ltd [2019] SGHC(I) 03S. Baker & G. in Wackwitz, Cryptocurrencies: Property, Trust and Mistake, Publication and events, April 2019. Consulted 1 September 2020 on: <https://www.whitecase.com/publications/alert/cryptocurrencies-property-trust-and-mistake>
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[10]
CJEU, Google vs Spain judgment, 13 May 2014.
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[11]
https://www.dhl.com/global-en/home/press/press-archive/2018/dhl-and-accenture-unlock-the-power-of-blockchain-in-logistics.html
