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As the industry turns digital, there is a growing need for more flexible shipping documents in international trade.
To help with this cause, the United Nations Commission on International Trade Law (UNCITRAL) Working Group VI (Negotiable Cargo Documents) met for its 44th session in early May at the UN Headquarters in New York.
UNCITRAL is a subsidiary organ of the UN General Assembly established in 1966 to harmonise and modernise international trade law.
UNCITRAL Working Group VI has been working on an international instrument that allows the use of negotiable cargo documents and negotiable electronic cargo records for all modes of transport in a multimodal or unimodal context.
These instruments are negotiated through an international process involving various participants, including all UN member States, invited IGOs and NGOs.
Following a roundtable discussion on the future impact of negotiable cargo documents, Trade Finance Global’s Deepesh Patel (DP) spoke with James Hookham (JH), Director of the Global Shippers Forum.
The potential of negotiable cargo documents
DP: What are the potential benefits of negotiable cargo documents and negotiable electronic cargo records?
JH: In international trade, goods are often not sold directly to the end user but to intermediaries such as commodity traders. In commodity trades, goods are often sold multiple times while in transit. A negotiable cargo document, once developed, could allow goods to be sold while in transit. Such sales could be further facilitated when negotiable electronic cargo records are issued.
The flexibility to sell goods while they are in transit to another buyer is becoming an important part of building resilience into supply chains by shippers at times of disruption. For example, the decision by many shipping lines to reroute vessels away from the Red Sea and Suez Canal has prompted the development of new services combining shipping services with road, rail, or air transport. Switching between modes and with the flexibility to sell goods to another buyer is of potential interest to shippers, depending on their risk assessment in their supply chains.
The call for a new type of document of title originally came from China, where buyers faced difficulties with obtaining trade finance, particularly letters of credit, when sellers in Europe chose to transport goods by railway.
Banks often mitigate their risks in letters of credit that require negotiable transport documents evidencing ownership by taking these documents as collateral based on the established legal framework or by decreasing banks’ capital requirements depending on applicable regulations. Therefore, banks often prefer negotiable maritime bills of lading rather than non-negotiable transport documents.
Lastly, a uniform legal framework, such as an international convention, would provide the same legal standards on the recognition and use of negotiable electronic cargo records and facilitate interoperability among platforms, particularly in a multimodal context.
Key stakeholders
DP: What is the role of the banks and other trade financiers?
JH: Regarding negotiable cargo documents and electronic cargo records, banks and other trade financiers play a similar role as if they were presented with maritime bills of lading. Banks typically have two key requirements. They require a document that evidences the receipt of the goods by the buyer who is legitimately entitled to claim them so that payment can be released to the original seller and the trade completed. Banks also need to be confident that they have sufficient documentation allowing them to take possession of the goods in the event of an insolvency of the buyer.
DP: What are the other key stakeholders for the project?
JH: In addition to the ICC Banking Commission, the Roundtable that I moderated included contributions from IATA, speaking for airlines, the International Union of Railways, and the Federation of Commodity Associations. Insurance interests were represented by TT Club, a global mutual insurer, and the crucial role performed by freight forwarders was addressed by their global organisation FIATA, which has been issuing negotiable multimodal bills of lading for many years.
Issuers, be they carriers or forwarders, will only issue negotiable cargo records only at the shipper’s request. The shipper may request such records because its bank or first buyer asks for them or to build resilience into supply chains at times of disruption.
Insurance companies are also relevant because insurance coverage and premiums may be adjusted if such records are issued. The International Federation of Freight Forwarders Associations (FIATA) has been issuing negotiable multimodal bills of lading for years, and this project will provide an international legal framework for its practice.
Negotiable cargo documents
DP: What are the key features of negotiable cargo documents?
JH: The issuer could be contractual carriers—including any rail, road, or air carrier or freight forwarder—that conclude transport contracts with consignors. By default, the existing transport document (such as the FIATA negotiable multimodal bill of lading or railway consignment note) could be upgraded into a negotiable cargo document by annotation with reference to the new international treaty on negotiable cargo documents. As a fallback rule, a negotiable cargo document can be issued as a separate document and a non-negotiable transport document. Issuing two negotiable documents for the same goods by the same transport operator would not be possible.
The draft instrument currently assumes the issuance and transfer of a negotiable cargo document should not affect the rights and obligations of the transport operator, consignor, or consignee under applicable laws and conventions. However, if the holder of the negotiable cargo document acquires the rights to control the goods during transit, any pre-existing rights on the goods would cease to exist.
DP: What are the main conclusions from the 44th session of UNCITRAL Working Group VI?
JH: The 44th session of UNCITRAL Working Group VI was the fourth session devoted to this project and considered draft text on negotiable electronic cargo records. This will be similar to MLETR in substance, though MLETR is broader in scope and not limited to transport documents.
The working group agreed to follow an approach where paper and electronic versions are treated similarly, which is important given that some documents might only exist in their electronic format in the near future, making the functional equivalence rule inapplicable. The need to ensure consistency between the draft instrument and the principles in MLETR was highlighted, considering that many States have adopted or are in the process of adopting laws based on MLETR.
The draft instrument is currently envisaged to take the form of an international convention. Chapter 3 in this draft Convention intends to develop uniform legal standards, provide the high level of legal certainty demanded by the industry, and facilitate platform interoperability.
