A Bill of Lading (BoL) is 'a document of title, a receipt for shipped goods, and a contract between a carrier and shipper'. It is issued by a carrier (or its agent) and passed to the shipper when the goods are loaded. As such, it functions as receipt of the goods described in the BoL by the carrier. This role even predates the Middle Ages; as early as Roman times this was common practice. Between ports, it serves as a contract of carriage for the goods being transported, before being presented at its destination port in order for delivery to occur.

A BoL must include consignor’s (i.e. the entity or person sending the goods) and consignee's (i.e. the entity or person receiving the goods) name, the departing and destination ports, the vessel’s name, departure and planned arrival dates, an itemized list of goods, identifying marks on the packaged goods, the weight of said goods, and the freight rate.

Furthermore - and most importantly for this project - the BoL can serve as proof of ownership of the cargo at each stage of the transit process if made to order. When this is the case, the original consignee, by endorsing (signing) the back of the BoL, transfers title of the goods to another party who then becomes the new consignee. This proof of ownership is the focal point of the TradeTrust project.

There is an implicit business case involving the digitization of the validation and transferal process in an open and audited code environment. The digitization of the BoL, the so-called e-BL, leads to a more resilient supply chain, reducing idle time in the physical movement of goods as a result of inefficient paper information flows. For highly perishable goods, such as fresh produce, a 24-hour delay can result in the value of the cargo diminishing by 10 to 15 percent. 

Also, digitization can bring significant efficiency gains. The Digital Container Shipping Association estimates that the that the industry could potentially save more than $4 billion per year if just 50 percent e-BL adoption is achieved

The business case for the negotiable e-BL, the focal point of TradeTrust, is very much linked to its role as collateral for banks when issuing a so-called Letter-of-Credit (LoC). A LoC is basically an IoU issued by a bank to the seller’s bank guaranteeing payment in case of buyer insolvency.

Issuing a LoC results in the creation of an off-balance sheet item for which they need to provide backing in the form of a certain percentage of the nominal value. This percentage is dependent on the risk associated with the LoC. In case there’s collateral in the form of a (paper only!) BoL the transaction is considered to be of medium/low risk, a bank only needs to put up 20% of the nominal value. When there’s no such collateral this percentage goes up to 50%.

As in most countries, including the Netherlands and Singapore, the e-BL is not considered to be a valid collateral, trade finance transactions based on LoCs rely on paper BoL, significantly increasing the cost of doing international trade. Finally, we expect that, for as long as the most important international shipping document remains paper-based, the industry and consequently international trade, will remain paper-based.

The TradeTrust project envisions the creation of a sandbox environment in which the first legally binding, interoperable, paperless transfero of ownership of an e-BL can be conducted on a live shipment. TradeTrust allows for the creation of assets wrapped in a token, and therefore able to be owned by an entity represented by an Ethereum address, with the current owner of an asset being kept track of by a Smart Contract which acts as a transparent and cryptographically-secure “Single Global Registry”. These tokens adhere to the ERC721 Token Standard, meaning that each TradeTrust allows for the creation of assets wrapped in a token, and therefore able to be owned by an entity represented by an Ethereum address, with the current owner of an asset being kept track of by a Smart Contract which acts as a transparent and cryptographically-secure “Single Global Registry”.

These tokens adhere to the ERC721 Token Standard, meaning that each token is non-fungible; each token is unique, and therefore perfectly suited to acting as a wrapping for unique hashed documents such as a BoL. This uniqueness or non-fungability is key as each BOL has to be unique, as it contains for example different number of containers, different goods and consignee. Indeed, these assets are designated by TradeTrust as “an Electronic Bill of Lading (e-BL)”.