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February 28, 2014

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When paper fails, try a dose of change management

Alex Goulandris remembers very clearly the moment when he realised there had to be a better means of managing shipping documents than relying on paper.

“I was working as a lawyer and our client had a vessel which had just sailed from Houston but required that the Bills of Lading be re-cut, so the originals were couriered to my law firm in the New York. I had to call the shipowner in Norway and he gave me permission to rip those documents up so that he could sign new ones,” Goulandris explains.

“I was utterly at a loss as to why he was paying me $250 an hour and why I needed to go to school for 10 years, just to have the ability to rip up pieces of paper.”

The co-founder of ‘e-docs’ innovator essDOCS, Goulandris met business partner Martin Glesner at business school and found someone with his own memories of ‘sitting in the Kuala Lumpur office signing Bills of Lading at midnight’.

Their conversations on what might be done to reduce shipping’s inherent inefficiencies kept coming back to paperwork. In the wake of the dotcom boom of 2000, online banking, hotel bookings and shopping had begun enjoying wider adoption and the pair puzzled over why shipping was still so far away from such a change.

Part of the reason was that technology had not kept pace with the industry. As Goulandris points out, 50 years ago it took one to two weeks to load or discharge a ship, so time was not an issue. Tanker shipping had seen some improvements, but with the advent of containerisation, the increase in automation of loading and discharge completely changed cargo operations and in the process brought into focus the inherent failures in shipping paperwork.

There had been several attempts to end shipping’s addiction to paper, Goulandris estimates close to 10, a number which ignores a multitude of other attempts to propose an alternative to the Bill of Lading. Each foundered for different reasons, some technical, some legal, some for fear of adopting the ‘right’ technology.

“For the oil majors in particular, neutrality was an issue and there’s no doubt that there were technological barriers,” he says. “Internet Explorer didn’t have sufficient security features until IE6 was launched at the end of 2001, which was a critical component to delivering a secure web application. And it was unrealistic to think every ship, every buyer, seller and bank were going to download software needed to make a client-server solution work.”

The legal angle needed international legislation to provide equivalence of electronic signatures and new rules for presentation of original electronic documents to a bank, known as eUCP.

“Without those sorts of legal underpinnings quite frankly you couldn’t do this,” he says. Even so, carriage requirements such as the Hague-Visby Rules that deal with transfer of title for a Bill of Lading still do not facilitate electronic transfer of title. Instead, essDOCS users sign up to a multilateral agreement which binds eB/L users to each other and to essDOCS, an arrangement approved by the International Group of P&I Clubs.

But take away all of these issues and perhaps the biggest challenge remains changing the way shipowners, banks, traders and terminals do business. Goulandris agrees the change management challenge is huge. “Fundamentally, if you have a critical mass of users everyone would be happy, but no-one really wants to use it when you have no buyers or sellers. You have a major chicken and egg problem developing a user community.”

Getting individual users on given trade lanes interested and committed was relatively simple, but getting a substantial amount of the industry to a position of critical mass had never been done before essDOCS attempted it. “When someone works for an owner or a trader, these are the people whose job is to execute a physical movement and they understand the problem. Paper causes them headache after headache, so for them an electronic bill would eliminate a lot of that,” Goulandris explains.

When he presented to major refineries like the Shell facility at Pernis in the Port of Rotterdam, which handles as many as 10,000 movements a year, they wanted to know if using eDocs would throw a digital spanner in the works. “Anything new like this is going to be something that they will enter slowly and carefully,” he says.

essDOCS is in the process of laying out a three-year change management plan for one of its big customers and Goulandris mentions Jeffrey Moore’s ‘Crossing the Chasm’, an inspiration in the early years.

“What that book taught me is that there are companies that will be innovators and early adopters and many that will be late adopters. Fundamentally, what you need to do is provide a good solution to the early adopters that you get enough of them to get to critical mass, to demonstrate that there’s enough value and that the market is moving in this direction. That’s the really big issue here; no-one wants to buy a Betamax when the world is adopting VHS.”

The industry’s innate fragmentation doesn’t help. Goulandris estimates that the dry bulk market is made up of around 9,700 vessels and that the average owner controls five vessels. “That means there are 2,000 bulker operators you need to sign up to get the entire fleet.”

Having cracked electronic Bills of Lading essDOCS numbers some of the world’s biggest banks, commodity traders, terminals and shipowners among its clients and is eyeing truck and rail shipments as the next stage of its evolution.

Having blazed a trail, Goulandris has earned a useful perspective on what works and what doesn’t. He cautions against the temptation to apply some IT and imagine the problem solved. But if a master has to print out a Bill of Lading, sign it, then scan it back in to email, then he argues, that’s not an eDoc.

“If the core document is a scanned image then you’re not achieving much because it can’t be processed as a database document. It’s more complex than using paper, which is easy to print out and write on or edit in Word. But if you are going to originate, amend and share an e/BL then you need to trade up to a system that gives you a much deeper degree of integration.”

More than a decade on this path has made Goulandris realistic about the task at hand, but he remains refreshingly positive about the potential of eDocs. Having built momentum in tanker, dry bulk trades and inland barge traffic, essDOCS has gone after perhaps the biggest prize in terms of potential volume, the container market.

“There’s a migration taking place, but there is still a very big educational effort we need to undertake, to inform people that eB/Ls are available today, what they can bring to a business and that they’re relatively easy to adopt and move into.” But he equally accepts that while adopting eB/Ls opens a door to a world of possibilities, users have to be prepared to walk through it.

An e-Bill of Lading, as complicated and difficult as it is, is actually not a solution by itself. You need to be able to process commercial documents, Chamber of Commerce signed certificates of origin, insurance certificates, and cargo survey reports. You need customs and governmental documentation, issued on a peer-to-peer basis. To provide all of that out of the box is the real target.

“We’re still at the early stages in this move to e-documentation. Data automation solutions are the next evolution, whether that’s the ability to generate a demurrage invoice off the back of an electronic timesheet or create and deliver an electronic commercial invoice from a bill of lading or sailing advice. To take the data from eDocs and push it to a bank payment obligation and have a bank pay out under that data submission…”

It’s typical of a conversation with Alex Goulandris that the remit expands far beyond the original scope. But if eDocs are to truly take off in shipping, then it’s not hard to see that the project is best served by being put in the hands of someone who has spent a decade acting as a practical visionary, who remembers what it means to tear up Bills of Lading one by one and wonder if there wasn’t really a better way.

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