Can Blockchain Technology Prevent Potential Shipping Fraud? (Part 1/2)

A costly mistake; one that could have been avoided if policies were strictly followed. In ocean shipping, it was the most fundamental error that could be made - releasing a shipment without presenting the original bill of lading.

A Freight Relationship Built On Trust

It seemed innocent at the time. The import shipping clerk at this particular global container carrier had a good relationship with the Importer. The customer received at least one container of foodstuffs from the shipper every single week. He had been importing for over three years and his business was valuable to the carrier and their agent. The import shipping clerk knew the procedures well and had over 20 years experience in the business.

The terms of the freight were prepaid and the bills of lading were consigned ‘To Order’. At first the importer would present himself to the carrier’s office and surrender the original bill of lading to effect the freight release. In time, the importer and import customer service representative got to know each other and built a level of trust.

Give An Inch, Take A Mile

One day, the importer called the customer service representative and said that he could not arrive at the office to surrender the bill of lading that day. Instead he would fax (yes that long ago) the front and back of the bill to get the release, and subsequently be in the office the very next day to deliver the original bill of lading as required. The carrier acted in accordance and the importer was in the office the next day to deliver the bill of lading as promised.

This went on for months. The importer would call and fax the bill of lading to the carrier, get the freight released and deliver the original the next day. Then one day, it all went south.

Bad Habits Die Hard

The import clerk released the shipment against a fax copy of the bill of lading, but the importer failed to deliver the original bill of lading the next day, and the next and the day after that. Repeated calls to the importer went to voicemail. Emails were ignored. The freight was picked up and the empty container was delivered back. The cargo was gone.

At this point, the import clerk informed the Customer Service Manager. Shortly after, the shipper contacted the carrier with a claim for the full value of the shipment as they were still holding all three of the original bills which were issued at origin. The file moved quickly to the Vice President who became privy to the carrier’s errors and omissions insurance did not provide coverage specifically for ‘release of shipments without proper presentation of original bills of lading’. The carrier paid restitution to the shipper of $53,000 USD, the commercial value of the shipment.

The original bill of lading itself is a contract between the shipper and carrier. It is a contract of the receipt of goods, and under certain conditions confirms cargo is loading on board a particular vessel. If consigned to order, the original bill of lading is a negotiable document. The bearer of the original bill of lading is fully entitled to the goods. While use of the bill of lading can be traced back to medieval times, widespread use did not begin until the 16th century. Modern rules for shipping and bills of lading began in 1924 with the Hague Rules.

Can Current Technology Prevent Potential Fraud?

The technological breakthrough of the fax machine caused the fraud that led to the errant release of the goods. The fax machine allowed for the copying and sending of documents to a far too trusting import customer service representative. What you have to ask yourself is how vulnerable is the industry with today’s technology 20 years later? Can we use current technology as a solution to potential fraud? Find out in part 2.