I have been in commercial shipping for over 25 years but my experience in the world of arbitration and lawyers is quite recent. However, I have understood two facts quite quickly. First one is that most of the legal concepts are embedded in commercial dealings for a very long time, especially when it comes to maritime contracts and second is that the legal community is transforming, slowly but surely.
These thoughts that follow discuss the changes that we can expect in the maritime legal space and how we can become the leaders of such transformation.
Let me start with the simple concepts of Notice of Readiness, demurrage, and despatch. For those unaware, it is a notice that is tendered to the relevant parties when a ship arrives at the port. Most contracts allow it to be tendered either in written or email form. This was extremely useful a few decades ago when modern communication did not exist and when the ship arrived at the port, the shipper or the receiver of the cargo would start getting his act to load or unload the ship. The notice is also important to start the allowable time (laytime) clock can start ticking. Laytime is the time allowed to the charterer of the ship for loading and unloading the cargo and the time spent in port. In case the time is exceeded, there is a penalty to pay in form of demurrage and in case any time is saved, a reward in form of despatch.
Demurrage and Grab taxi
Now I want you to compare a ship to a Grab taxi (similar to Uber) that you book. Do you expect it to tender a “notice” when it arrives? – absolutely! Do you expect it to send you an old school “written” notice? – absolutely not! You simply get alerts on your phone that the cab is 5 minutes away, then 3 minutes away and eventually a simple alert that the cab is at your doorstep. The alert also states that if you do not make use of the cab within next 5 minutes, “demurrage” will be applicable. Sceptics will tell us that maritime is more complicated and you cannot compare it to a Grab taxi! I can tell you it is not!
The concept is simple – the notice is a wake-up call for the shipper or receiver to get his act in order and if you can transparently and reliable communicate and demonstrate that the ship has arrived through a standard and independent modern technology, the purpose is achieved. Now we have AIS system where chartering & operation managers, agents, shippers, and receivers can track every minute movement of the ship, and thus do we really need a notice of readiness? I believe the need to tender a notice of readiness (in a traditional sense) will simply not exist in near future as you will simply set up alerts for all related parties giving them access to AIS data for the vessel. Once you can digitally pin the exact time of vessel’s arrival at the agreed point in the port, the clock can start ticking and the demurrage or despatch calculation can also be digitalized. Things will get very simple.
Currently a lot of maritime disputes are linked to the validity of notice of readiness, laytime and related issues. There is a huge body of case law that has developed over the years, mostly in England. This simplification will most likely make this law almost redundant. The future smart contracts should have standardised data sources dealing with notices of readiness and thereafter laytime issues. There will be parties who detest transparency as they thrive on the opaque nature of the maritime business, but I believe things are changing fast and the bigger players will increasingly adopt digital tools driving standardization and transparency.
Similar digitalization of vessel’s performance data will also bring in standardized data sources for ascertaining vessel’s speed and consumption figures. Sensors directly picking up accurate and up-to-date information on exact fuel consumption as well as weather conditions will create a transparent and truthful picture of the vessel’s performance. This is currently a major area of dispute between parties. Currently, there are multiple products being tested out in this space and as the technology becomes standardised and affordable, I expect some of the larger charterers to put clauses in the contracts measuring vessel’s performance in a standardized manner using digital transparent sources. Vessel performance disputes will substantially reduce going forward and again centuries of case law may become redundant in a decade or even sooner.
Electronic Bills of Lading
Another exciting development is Electronic Bills of Lading. Blockchain technology is spearheading greater transparency and speed into the trade processes. The Bills of Lading serve multiple purposes and all of them can be achieved seamlessly through the Electronic Bills as well. Some of the large container liners are already embracing this technology, banks are coming on board, global legislations are being amended with Singapore taking the lead with the recent amendment of Electronic Transactions Act and related statutes. Bills of Lading disputes and case law relating to these disputes form another major part of global maritime disputes. As this decade reaches it mid-point, these disputes will reduce or even disappear completely, thanks to digitalization and its rapid adoption.
I guess you get the point. Quite a few maritime concepts have outlived their purpose and are continuing only due to two reasons. First is the lack of awareness and knowledge leading to inertia – the “as per last” approach. Second is the lack of a suitable alternative that is easier and better, and that the industry is willing to embrace, serves the same purpose and is acceptable to the whole industry. As the larger players invest in digitalization and standardization, both the second obstacle will be surmounted, and the first obstacle will help this change as the industry continues with its “herd mentality” approach.
Whatever resistance that existed towards digitalization in the maritime industry has been blown away by one single event - Covid-19! The pandemic has, without doubt, accelerated digitalization in the maritime industry. When we look at the rate of change from past years and crises, the speed of change is literally lightening fast.
Challenges to digitalization
However, with such quick and large changes, there are also challenges. Digitalization and its resulting solutions are still untested territory and as the new normal sinks in and the dependence and use of digital solutions increases, there are bound to be disputes arising due to a mismatch of results from expectations or contractual promises. This is not going to be a simple “breach of contract issues” but will require a holistic understanding of the issues involved and resolve such disputes. This will most likely require considerable support from expert witnesses, which can be quite expensive for the parties. What will certainly be more effective is to have commercial and technical experts acting as arbitrators and forming a part of the Tribunal. The key, therefore, is to equip such experts with knowledge of maritime law, arbitration law and award writing skills, so that they can positively contribute to resolving these disputes for the parties.
Singapore is at the forefront of this maritime digitalisation and transformation. We, at Singapore Chamber of Maritime Arbitration (SCMA), are very pleased that, being in Singapore, we are at the very heart of this digital transformation. It is also our privilege to have a globally diverse panel of arbitrators to facilitate resolution of maritime related disputes. We are also constantly rejuvenating and enriching our panel of arbitrators to ensure that we have the required diversity and expertise. The flexible model of SCMA also allows the parties to appoint an arbitrator of their choice outside the panel as well. SCMA is working to launch a program, in collaboration with Singapore Institute of Arbitrators, to facilitate maritime experts and professionals, who may not be lawyers or legal experts, to obtain the required qualifications for potential empanelment as an arbitrator.
Digitalization in Maritime industry will continue, and it is important that the maritime arbitration centres around the world adapt to this changed reality and cater for it. Let us bring the focus on resolution of disputes in the most effective and useful manner for the parties.
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