Technology and shipping - the high seas of antitrust?

As you read this, there are more than five million shipping containers in circulation globally, transporting more than one trillion US dollars' worth of goods each year.  Container shipping has always been a traditional industry, conducted in large part by phone and through the transfer of physical document ledgers and contracts between ships.  However, this is all changing thanks to blockchain and smart contracts.

In 2018, IBM and container shipping company Maersk launched TradeLens, a blockchain-enabled shipping consortium designed to promote more efficient and secure global trade, bringing together various parties to support information sharing and transparency.   The technology solution is thought to be able to reduce the transit time of a shipment of packaging materials to a production line in the United States by 40%.  Currently, several large companies including Walmart, along with 100 ports and terminal operators, freight forwarders and customs authorities have been testing the technology.  Although the technology solution was initially met with sceptisicm from other shipping companies, on May 28, 2019, Maersk and IBM announced two additional cargo shipping operators would be joining the blockchain initiative: France’s CMA CGM and Switzerland-based Mediterranean Shipping.

A similar blockchain-enabled shipping consortium, the Global Shipping Business Network, was also launched in 2018.  Its aim is to facilitate the seamless sharing of documents and data across all stages of the shipping lifecycle, starting with digitising and automating the documentation and processes around the transport of hazardous goods.

So, how does it work?  Instead of keeping sensitive and often proprietary ledger records or asset registries in one place, on a computer in a warehouse for example, blockchain systems offer a tamper-proof way of exchanging data. The information that can be held on a private (permissioned) blockchain—money, cargo information, contracts, bills of lading—exists as a shared and secured decentralised and encrypted ledger. It is inherently resistant to modification and thus easily verifiable.   

Since blockchain networks can also be used as decentralized virtual machines that execute codes in response to the occurrence of certain conditions, technology initiatives such as TradeLens and Israeli start-up Waze can be used to facilitate smart contracting.  Smart contracts are self-executing computer scripts that enable market participants to conduct transactions without the need for third-party brokers.  Therefore, the entire paper trail of international shipping, from payment to signed contract, can be digitised and decentralised.

Such blockchain consortia, whether in shipping or beyond, are an extremely exciting development for global trade, and offer the possibility of increased efficiency, transparency, and reduced costs.  However, participants will need to be aware of the potential antitrust and regulatory pitfalls:

1.  Increased information sharing and digitisation of confidential transaction-level data, including through smart contracting, could bring about risks of allegations of anti-competitive conduct under US and EU antitrust laws;
2. Selective participation in any consortia, which may provide advantageous trading access, could also pose risks of allegations of unfairly excluding competitors. Indeed, this was a risk flagged by the US FTC's Blockchain Working Group; and
3. Smart contracting also faces legal uncertainty surrounding contract enforceability and validity, and whether smart contracts are upholding applicable fair contract terms legislation.

To lower the risk of an antitrust investigation, whether in the United States or Europe, blockchain consortium participants should outline clearly defined and transparent principles as to who may participate in a consortium and on what conditions. Any consortium should be established with a contract between participants, setting out the rules and principles pertaining to functioning, governance, and decision-making, establishing substantive and procedural safeguards to ensure against collusive or anti-competitive behavior in or through the blockchain.  

Armed with the right information and when appropriate safeguards are in place, blockchain consortia in trade facilitate smooth sailing, rather than being in dangerous unchartered waters.