Need for Legal Regulation of Blockchain and Smart Contracts in the Shipping Industry

Abstract

The paper analyzes the potential impact of blockchain technology and smart contracts on the shipping industry. As the shipping industry represents a complex system of various actions that have to be controlled and registered, blockchain technology could serve as a tool to allow the streamlining of numerous processes, whilst at the same time taking the human factor out of multiple elements where trust between involved parties is an issue. The authors therefore first present how blockchain technology works and what smart contracts are, in order to give an insight into their applicability in the shipping sector. After a general overview of the technological and legal characteristics of blockchain technology and smart contracts, the authors present examples of relevant subjects, relations, and contracts in the shipping industry. Based on the charter party, a key contract in the shipping industry, the authors present the existing problems which could potentially be solved using blockchain technology. Besides the benefits of blockchain technologies, the authors furthermore point out the existing deficiencies that still make blockchain technology hard to apply in legal relations within the shipping industry. Based on these insights, the authors highlight the current developments in this area and present the existing and expected regulatory reforms of blockchain solutions and smart contracts within the European Union.

The Role of Interdependencies in Blockchain Adoption: The Case of Maritime Trade

“…Some of these intermediaries may be eliminated in the future by smart contracts enabled by blockchain, which has contributed to the hesitation of some firms to participate in the emerging consortia. For the surviving supply chain players, this will improve their return by decreasing: search costs, fees charged by intermediaries, errors and time associated with paper document exchange, and fraud and settlement transaction times [58]. Digitalisation has allowed carriers to start directly offering capacity to shippers [59].…”

“…Since 2010, the European Union has sought to harmonise the electronic reporting of import and export documents and customs clearance [73]. This intensive process will inform the multilateral efforts to deploy blockchain technology including "legal certainty and establishment of interoperability standards" [58]. Blockchain holds promise as the vehicle by which to implement single windows across the 164 signatories of the 2017 Trade Facilitation Agreement [74].…”

Rise, Fall, and Recovery of Blockchains in the Maritime Technology Space

“…TradeLens specifically offers a Hyperledger fabric mainly funded and led by Maersk Line and IBM. Furthermore, blockchain applications in shipping include smart contracts for charter party contracts [30], freight booking and consolidation operation [18,31], real-time cargo tracking [22], etc.…”

“…This problem will most probably be resolved with underlying legal papers (a digital document convertible for legal purposes) while the disputes regarding the technology, data, and other electronic means may need subject matter jurisdiction (specialty courts). The preparedness of courts and legal systems is a bottleneck for the technology [30].…”