This article first appeared in Digital Edge, The Edge Malaysia Weekly on June 21, 2021 - June 27, 2021

When it comes to digitalisation and automation, the shipping industry has been off to a rather slow start. About 90% of shipping processes and authentication at ports still rely on paper documentation, which may seem rather primitive at this point.

Distributed Ledger Technologies Pte Ltd (dltledgers), which focuses on cross-border trade digitisation using blockchain to authenticate multiple parties, saw this as a huge opportunity.

When the pandemic hit last year, the stresses on the system caused by the lack of automation actually impeded physical trade. Samir Neji, founder and CEO of dltledgers, says ships could not be loaded or unloaded at ports because the Bill of Lading (a physical document routed between the carrier, importer, exporter and relevant banks for authorisation and verification purposes) could not be sent across country borders.

The problem was that the normal mechanisms of operation were all thrown out of whack. Courier services were no longer operating between countries, so the standard mechanisms of finance were not working. That meant that companies needed to pay high transaction and demurrage (charter companies are usually given three days to load and unload their ships before being required to pay demurrage) costs at the ports.

And the longer the documents are not synced and integrated with the physical shipments, the higher these charges. “Almost 10% of all global imports and exports have demurrage costs because of delays in the trade documents and almost 15% of any service provided by a courier company involves handling these trade and commercial documents. So developing a streamlined blockchain-based trade digitisation platform was a no-brainer back in 2017,” he points out, referring to dltledgers’ platform.

“Today, the electronic Bill of Lading (eBL) technology is seen in only less than 0.5% of global trade, even though the technology was introduced gradually 20 years ago. It’s a massive problem that the industry is far behind with its digitisation efforts. But some progress has been seen in recent years.”

In May, the company announced its key role in the trial of an eBL between two of the world’s busiest international ports — Singapore and Rotterdam. Backed by the Maritime and Port Authority of Singapore, the trial marked a milestone in the transformation of the shipping and maritime sector and the digitisation of the Europe-Far East trade route served by both ports.

Neji says shipping companies and ports can adopt the platform and technology easily. All they need is basic web or mobile access, as well as a subscription to dltledgers’ platform.

“Companies don’t have to buy anything. They just have to subscribe for transactions. We have an online support and onboarding team that helps [them] with immediate access to transactions. From there, they can start their digitising process.

“It’s all in the cloud and it’s blockchain-based with several deep tech applications, allowing people at banks, ports or shipping companies to access the eBL through mobile phones or laptops to authenticate a shipment,” he says.

Malaysian ports can easily adopt this system. Neji says the company has already spoken to several export houses, ports and carrier companies in the country. “We are looking at how we can provide our technologies to these companies so we can help them get digitised fast and recover better post-Covid-19.”

Global trade accounts for around US$19 trillion (RM78 trillion) worth of goods on ships at any one time, says Neji. Hence, eBL has become increasingly significant for shipping companies and ports over the last year, especially in combating fraud across the supply chain and also in terms of bringing down costs.

Neji says the technology is able to detect fraud in every transaction through its authentication or verification process. The system uses artificial intelligence (AI) and machine learning (ML) to continuously check and trace trade finance transactions and their underlying risks with ease.

Fraud can also happen on the banking level, says Neji, so the technology is not just confined to shippers and ports.

“There are so many different types and layers of fraud in shipping and logistics. It can be as simple as when something is being shipped to you and when the container arrives, it has been double-financed.

“An example of material fraud is when I tell you that I’m going to send you cotton with 5% moisture in it and instead send cotton with 15% moisture. This is also quality fraud,” he says.

However, fraud has become a lot more sophisticated. Singapore alone lost almost S$8.6 billion to fraud in 2020. Although banks do a lot of risk checks, they cannot catch all fraud activities, says Neji, and oftentimes, the fraud cases are caused by negligence.

“Sometimes, fraud happens when a document is duplicated and forged to reap the monetary benefits from banks. These kinds of incidents can also be avoided as the eBL will be able to be authenticated and verified before a transaction is allowed to happen.”

Tech talent remains a gap in this industry, mainly because it is perceived as traditional and unattractive compared with other industries. Neji points out that this has a knock-on effect on the industry; when it does adopt technology, the technology is, frequently, quite old.

But the pandemic is changing all that. “There is a lot of potential in the logistics value chain and it is going through a transformative cycle and should become extremely innovative over the next five years.”

Neji points out that this transformation makes the industry extremely attractive right now, especially for tech entrepreneurs and talent who want to help drive, as well as be a part of, this change. 

Dltledgers is currently working on developing a comprehensive supplier financing system, which utilises an AI-based blockchain model aimed at supporting sophisticated financing models, especially for larger businesses.

Neji explains that, typically, larger companies have credit terms of 30 or 60 days, which can be financially crippling for smaller companies as they may not have enough working capital to survive being paid so late.

With dltledgers’ solution, Neji hopes to plug the gap by bringing in the banks to finance the purchase orders (POs) owing to smaller companies; then the larger companies can pay the banks back according to their accustomed credit terms.

“By creating visibility and transparency, we are trying to help these smaller suppliers get early payments for the goods they supply to larger companies, because they may not have enough money to buy the raw materials to manufacture the goods that have been ordered. 

“We can predict if a PO will be shipped on time or an invoice will be paid on time — using thousands of variables and data science [and] delivering skills that can support the framework,” he says, adding that this service is known as cognitive supply financing and it will be the first of its kind in the word. 

Neji adds that banks will be able to develop risk models using dltledgers’ algorithmic engine and continuously iterate its risk models, which will result in faster financing.

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