In the early 1800s, the founders of Brown Brothers Harriman & Co. invested in the Collins and Cunard steamship lines and pioneered the use of travelers’ letters of credit issued on its clients’ behalf – all of which served to increase the speed at which international trade could move. To that same end, Alexander Goulandris co-founded essDOCS in 2005 to help enable global trade of physical cargoes without the need for exchanging physical paper documents as part of the trade. Today, essDOCS is the world’s largest provider of electronic bills of lading. The company’s flagship product, CargoDocs, allows its users – who include largely every party involved in a global trade of physical cargo – to engage in a partial or 100% paperless trade. Mr. Goulandris spoke with Brown Brothers Harriman about his endeavor in starting essDOCS and how he hopes to continue to bring the shipping industry into the digital age.
Brown Brothers Harriman: What was the impetus for starting essDOCS?
Alexander Goulandris: I began my career as a maritime attorney, which gave me a front row seat in seeing the disconnect in the speed at which global trade moved vs. that at which trade documents moved – and the friction caused because of it. When I went back to school to receive my MBA, I met Martin Glesner, with whom I would later co-found essDOCS. Martin had also come from a shipping background and experienced first-hand the issues that arose from shipping’s continued reliance on paper documents. It was 2002, and shipping still lagged behind other industries when it came to digital infrastructure. Martin and I saw an opportunity there and formed essDOCS in 2005 to address the issue.
BBH: How would you describe essDOCS?
AG: essDOCS is a fintech1 company for international trade of physical cargoes, with a specific focus on reducing or eliminating the burden of paper involved – while still ensuring possessory security. CargoDocs is our cornerstone solution, which includes two modules: DocPrep and DocEx. DocPrep allows users to draft original paper or electronic documents, such as electronic bills of lading (or eB/Ls), warehouse warrants, certificates of origin, invoices and other supporting documentation – for bulk, tanker or containerized cargoes. DocEx facilitates the exchange of original electronic documentation. Users can adopt some or all of these products, though our ability to generate and exchange eB/Ls is what essDOCS is best known for.
We’ve packaged certain products as sub-solutions for different user types. For example, we have eUCP presentations for banks and compliance solutions such as eSDS, TraceDocs and eDocs for government regulators, customs authorities and inspectors.
BBH: Before essDOCS came along, had there been prior attempts at dematerializing shipping documents?
AG: Yes, there had been a number of attempts, and we estimate at least a quarter of a billion dollars was spent on finding a solution. The big question that Martin and I asked ourselves at the outset of developing essDOCS was why these past attempts had failed. We eventually found three leading reasons for failures. First, these projects had been technologically ahead of their time. One of the critical drivers in moving logistics documentation into the cloud was data security. Prior to 2001, most internet web browsers did not offer acceptable levels of data protection to safely house and transfer legal title documents.
Neutrality was also a big problem. A number of industry-driven solutions were explored by participants – including energy majors and shipowners – and several projects failed due to the perceived lack of neutrality on the part of the service provider.
Aside from confidentiality and neutrality issues, there were also a number of legal hurdles that stood in the way of electronically presenting or transferring title documents, most of which were resolved by 2005 with ESIGN Acts recognizing e-signatures being enacted in all of the top 25 trading nations, as well as the eUCP supplement, allowing for original e-docs to be presented to banks in place of paper.
BBH: I would imagine that the ability to legally accept electronic title documents in lieu of paper may vary by recipient and country. How does essDOCS make its e-docs and electronic exchange universally acceptable among its users?
AG: Transfer of title under a paper document is governed by international treaties – for example, the Hague Rules in the U.S. and the Hague-Visby Rules in the U.K. None of these treaties facilitates electronic transfer of title, so the only way of doing so falls under national legislation or by way of a multipartite agreement.
The solution we chose was with our multiparty user agreement, which essentially recreates the rights and obligations of a paper bill of lading. The agreement connects each party in the trade flow and binds them legally to one another. This is different from your average user agreement, which exists between a service provider and service buyer.
In the future, there may be a new set of international treaties that specifically speaks to and allows electronic transfer of title. The Rotterdam Rules were meant to deal with this but have yet to come into force. These rules will go into force if 25 countries ratify the treaty, which would make the related clause in our user agreement superfluous. However, we would still need the user agreement for other aspects specific to adoption and use of our eB/Ls, which is why it’s such a big part of our solution.
BBH: In the event of a trade dispute, are there any legal differences that arise if the bill of lading is electronic vs. paper?
AG: If your legal agreement is written correctly, then there shouldn’t be. An eB/L is not really a bill, since it does not exist in the same physical form; legally, it is the functional equivalent of a paper bill of lading. The legal agreement creates the framework where the rights and obligations under the electronic bill pass in the same time and the same way to the same person that they would under a paper bill. So in all intents and purposes, there should be no difference. The slight difference is that if I am a customer, I now have the potential to argue that the electronic bill of lading itself is not a valid bill. If someone made that argument, he or she would need to make it in the jurisdiction identified in the legal agreement, so in our case the U.K. High Court or New York State Supreme Court. Any other claim – about misdelivery or ownership at a certain time, for example – would be handled as per the jurisdiction clause whether it’s an eB/L or a paper bill.
BBH: How secure is essDOCS?
AG: Security and privacy is the cornerstone of everything we think about. If we were to ever breach either, we would most likely be out of business overnight. We have very strict protocols even within the organization about who has access to any form of data, and we’re very careful about how we handle customer data. For example, we’ve always had two-factor authentication for accessing our eB/L solution. We have annual IT and security audits, our solution is hosted in facilities with SAS level 5 (or equivalent) certifications – as you would expect – and so forth.
My experience is that plenty of people can create a fake paper bill of lading; with a good photocopier or printer, they could probably do it in 30 minutes. It takes someone far more sophisticated to create an electronic fake – so, when it comes to comparing the two, paper is far less secure.
A lot of progress has been made in securing paperless trade, but often, because it’s a departure from the norm, people discount it or say, “We can get an electronic insurance certificate, but what about my certificate of origin or bill of lading?” A large part of our job is to tie all of these things together and give people one secure and dependable solution that lets you do it all.
BBH: Let’s move on to your user base. Who can sign up for essDOCS? Once a company signs up, who else from that party’s trade network needs to be involved, and how do you go about doing that?
AG: The group of potential users includes pretty much everyone involved in global trade, including users in the physical supply chain – such as exporters and importers, ship carriers and shipping agents – to independent inspectors, government or customs authorities and trade finance banks.
Historically, in starting our user base, we began with the big commodity flows like energy and agriculture where you often end up with quite long sales chains. We decided that the easiest way to break into and build out those markets was to start with the biggest players – for example, Cargill and Bunge in the agriculture space, BP and Shell in energy and BHP Billiton and Vale in metals and minerals.
We’re finding that as the user network expands, adoption can happen increasingly faster, and we think we’ll be able to move into new markets without the huge amount of business development efforts that we’ve had historically. Especially when we get to the container business – where it’s often just an exporter who sells to a buyer that can account for a significant number of trades – we won’t need to worry quite so much about building a large cluster of users, because as long as enough of the container lines are signed up, we can probably facilitate many transactions with a handful of customers.
BBH: Much of essDOCS’ success hinges on the size of your user network. Are there any key stakeholders that are very important toward promoting more widespread adoption of eB/Ls over paper?
AG: Ultimately, everyone. It’s a chicken and an egg situation, because the whole supply chain needs to be educated. I think everybody has a part to play in telling the rest of the supply chain, “I’m CargoDocs-enabled.” essDOCS does a huge amount of that. A large part of our job is to facilitate communication in the supply chain and make sure the exporters know which of their buyers and banks are on the platform.
There are three groups that are particularly important: container lines, banks and national plant protection organizations (NPPOs). Many people look at NPPOs and banks as blockers, so it’s key for those two to let the market know that they’re ready to move to electronic.
BBH: In what industries have you had the most success, and why do you think that is?
AG: There are four verticals that we’ve been focusing on: energy, metals and mining, agriculture and chemicals. When Martin and I started the business, my background was bulk shipping, and his was container shipping, so we had a bit of a competition to see which market showed interest earliest.
The energy business ultimately adopted essDOCS first, which is how we ended up in bulk commodities. Beyond brand recognition – everyone’s heard of the big oil majors – there are a number of advantages to bulk commodities. First, bulk traders tend to deal with many more banks than a retailer may need to. The other aspect of some of these areas is that they flow into each other. For example, in the energy business, many oil companies are also in the petrochemical business, which then takes you into chemicals. It gives you various modes of shipping, too. You start with a tanker, end up with a container, and it’s ultimately the same customer base.
The largest advantage in the bulk business is probably that many of these companies are very politically connected, and customs and government is an important stakeholder in electronic document adoption.
BBH: essDOCS is web-based and therefore easy to access. Does that also make it more flexible to integrate with other software platforms that users may already be relying on?
AG: Yes, ease of integration was first and foremost on our mind from the early days; the platform was built on middleware known for its integration capabilities. The problem with integrating is that you typically need quite a mature product, because if I integrate, what I’m really trying to get to is a situation where people don’t need to directly log in to your system at all. For example, if I am a container line creating millions of bills of lading annually, the idea that my employees will actually log in to CargoDocs, review bills of lading and edit and sign them is just not feasible. Those employees have their own platforms and systems. As such, essDOCS has taken on the burden of integrating with other third-party platforms so we can have the “work with us once, and work with everyone” model. To be able to do that, our product must be mature, because if it isn’t, clients need to keep changing the API,2 which is expensive.
BBH: Can you talk about essDOCS’ experience with bank payment obligations, or BPOs, and the SWIFT TSU?3
AG: A BPO is an irrevocable undertaking given by a bank to another bank that payment will be made on a specified date after successful electronic matching of data based on ISO 20022 Trade Services Management messaging standards and an industrywide set of rules – ICC’s Uniform Rules for Bank Payment Obligations (URBPO).
The BPO was developed by SWIFT when its corporate membership expressed interest in moving away from letters of credit due to the complexity and costs associated with them. The SWIFT TSU is the data matching engine behind a BPO.
We found the BPO interesting because it fits perfectly with essDOCS’ paperless trade approach. When we engaged with our customers, they expressed concern that there weren’t enough banks on the BPO platform and asked several questions, including: “Where does the data come from? If people just send copies of documents to the banks, and the banks need to type it in, that’s not straight-through electronic processing,” and “What happens to the documents?”
essDOCS saw an opportunity to solve these problems. We could connect with the TSU on the banks’ behalf so they could avoid individual integration costs, and we could provide buyers and sellers with essDOCS access, enabling them to send transport and invoice data electronically for matching purposes.
We started working with SWIFT and with BHP Billiton and Cargill – our first clients to do this. They took our CargoDocs BPO+ solution and used it to replace a letter of credit. In many of the iron ore trades that we came across, the transit time for documents to move from BHP as the seller to Cargill and then to the ultimate buyer exceeded the actual shipping time, which was about 10 days. Even if a letter of credit was subject to electronic presentation of the original documents, it was still almost impossible to get the documents to the discharge port in time. The use of BPO+ enabled them to eliminate the step where the banks needed to receive the documents, as documents would move directly from BHP as the seller to Cargill and then to the ultimate buyer; BPO+ easily accomplished that in 10 days.
We’re still at the very early stage of BPO adoption; we’ve seen good traction within the industry, and we’re working on traction with banks. I think we’re on the right track.
BBH: Alex, thank you so much for your time and insight.
This publication is provided by Brown Brothers Harriman & Co. and its subsidiaries ("BBH") to recipients, who are classified as Professional Clients or Eligible Counterparties if in the European Economic Area ("EEA"), solely for informational purposes. This does not constitute legal, tax or investment advice and is not intended as an offer to sell or a solicitation to buy securities or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code or for promotion, marketing or recommendation to third parties. This information has been obtained from sources believed to be reliable that are available upon request. This material does not comprise an offer of services. Any opinions expressed are subject to change without notice. Unauthorized use or distribution without the prior written permission of BBH is prohibited. This publication is approved for distribution in member states of the EEA by Brown Brothers Harriman Investor Services Limited, authorized and regulated by the Financial Conduct Authority (FCA). BBH is a service mark of Brown Brothers Harriman & Co., registered in the United States and other countries. © Brown Brothers Harriman & Co. 2019. All rights reserved. 2019. PB-03199-2019-11-27
1 Fintech: financial technology.
2 API: application program interface.
3 SWIFT TSU: Society for Worldwide Interbank Financial Telecommunication Trade Services Utility.