Market

Can blockchain smooth global supply chains?


From finance to art, blockchain enthusiasts have long claimed the technology can transform a range of industries. But, now, lawyer Martyn Huckerby believes the technology could help solve the global supply chain crisis.

Huckerby is head of competition law at Tiang & Partners, a Hong Kong-based law firm. And, recently, he led a team of lawyers as they helped establish the Global Shipping Business Network (GSBN), which was launched last year with the aim of increasing digitisation in the global logistics industry.

“There are a lot of challenges in the [shipping and logistics industries] at the moment,” he says. “The founding members [of GSBN] have seen an opportunity.

“It is the kind of thing most lawyers would like to have the chance to work on. And it is something that will hopefully help the world,” he adds.

The global supply chain certainly needs assistance. From the outbreak of Covid-19 to the war in Ukraine and China’s recent lockdowns, a string of extraordinary events has upended the system that ensures the smooth movement of goods across the world.

GSBN’s aim is to use blockchain to build a repository of digital data on global trade flows that will help “streamline operations across the entire supply chain”.

To try to achieve this ambition, Huckerby and his team had to tackle a number of legal and regulatory obstacles, not least because some of the founding members are Chinese state-owned companies.

“The supply chain is a very fragmented market with participants who largely rely on paper,” explains Bertrand Chen, chief executive of GSBN. He believes digitising logistics will speed up trade. “The biggest issue is: how do we share the data?”

Blockchain — a technology typically associated with cryptocurrencies — is a catch-all term for a type of encrypted digital ledger used for recording transactions.

GSBN, whose membership comprises eight shipping and port oper­ators across the world, hopes to use it as the backbone for a secure database that various businesses can contribute to, and draw insights from.

From supermarkets across the world struggling to fill shelves to carmakers waiting for parts, fractures have emerged quickly in the network of manufacturers, shippers and financial institutions that work together to deliver goods. By helping these businesses to work col­laboratively, GSBN believes that its technology may “simplify global trade for all”.

However, the prospect of some of the world’s largest shipping and port groups pulling together to share proprietary data was always likely to raise questions about the project’s compliance with competition laws.

Convincing US regulators to get on board has been a particular challenge, given nervousness among officials in the country about the integration of Chinese technology into international infrastructure. GSBN, based in Hong Kong, counts Chinese state companies Cosco Shipping and Shanghai International Port Group among the alliance, for instance.

“In the context of the political environment, we had to tread very carefully,” Huckerby says. But he notes that GSBN received the go-ahead in July 2020 from the US’s Federal Maritime Commission, which regulates international ocean transportation.

Addressing regulators’ concerns was made more complicated by the Covid pandemic. Because GSBN is international in scope, Tiang & Partners had to ensure the project was compliant with a range of national antitrust laws — and, in one case, that meant testimonies being given to Chilean authorities via video chat.

The use of a technology so closely associated with crypto was also likely to make regulators wary. “Because GSBN is based on blockchain technology, we are dealing with issues the competition regulators have not seen before,” says Huckerby.

To Chen, though, the technology is key to the project’s success. “Blockchain is actually the most inefficient way to store data — we don’t want to do it if it’s not essential,” he says. But the encryption technology ensures that GSBN management cannot read the data and that authorised users will “only see the data they are supposed to see”, he explains.

In July 2021, GSBN announced it had launched a service called Cargo Release in China. It said that, by eliminating the need for the exchange of paper documents, the time taken to process forms to release cargo in Shanghai has been cut from two to three days to less than three hours. The service has since been rolled out across south-east Asia and in Rotterdam, the EU’s biggest port.

More recently, GSBN has announced the launch of a finance advisory group with Singapore’s DBS, HSBC bank, and Bank of China, to consider how banks can use its data for risk assessment when providing financing to the shipping sector.

GSBN’s products are still in the early stages, but both Huckerby and Chen argue that blockchain has a long-term role to play in global supply chains. With other blockchain projects for the shipping industry in the works, however, there is no guarantee that GSBN’s project will emerge as the blockchain tool of choice.

“It does not have to be us, we are not that arrogant,” says Chen. But, he adds: “We believe that long term, the industry has to adopt some form of technology. Blockchain has to stay in the industry”.


Case studies:

  • Creating new standards

  • Enabling business growth

Creating new standards

Case studies in best practice. Researched and compiled by RSGI. “Winner” indicates the organisation won an FT Innovative Lawyers 2022 award; other organisations are listed alphabetically.

WINNER: Mori Hamada & Matsumoto

Pedestrians wearing face masks are reflected in an electronic screen showing stock market information on the street
© Getty

The firm advised cloud-based video management platform Safie on its initial public offering, which included a rarely used feature called oyabike, which allocates securities at the behest of the selling shareholder. Normally, a “gun-jumping” rule pertains that prohibits solicitation of shares prior to an IPO. However, partner Katsumasa Suzuki convinced the Japan Securities Dealers Association that oyabike could be used to include cornerstone investors that commit to investing a fixed amount of money or shares, without breaching this rule. The approach has been replicated in other recent IPOs and increases Japan’s appeal as a listing location.

Anand and Anand
The firm represented US-based hotel chain Renaissance Hotel Holding in a long-running trademark infringement case in India. The firm appealed against an earlier decision by the Supreme Court of India that had stated there was no copyright infringement. The lawyers successfully argued that there is no other relevant factor in whether copyright has been infringed besides which business registered the copyright in India first. The judgment in January 2022 ended 14 years of litigation by the client and has clarified the law for brand owners.

Baker McKenzie

A man smokes on a balcony near Astro TV satellite dishes installed at a residential building in Kuala Lumpur
© Bauki Muhammad/Reuters

TV boxes, or “illicit streaming devices”, are commonly sold in Malaysia to stream television and films illegally. Acting for television company Astro, the firm successfully argued in the Kuala Lumpur Intellectual Property High Court that selling these boxes is copyright infringement. The decision contributed to an amendment to the Malaysian Copyright Act in December 2021 that makes it one of the first countries in the Asia-Pacific region to legislate specifically against illegal streaming technology.

Cyril Amarchand Mangaldas
The firm advised the Indian government on its sale of heavily indebted national airline Air India. A previous attempt had failed in 2018 because of lack of buyer interest. The firm restructured the parameters and processes of the divestment to attract bidders. In 2021, Air India was sold to Tata Group, the country’s largest conglomerate, following recalibrations to reduce the buyer’s exposure to the airline’s debt.

King & Wood Mallesons
Since 2020, the firm has worked on behalf of more than 115 private equity funds launching in Hong Kong under the Limited Partnership Fund Ordinance — legislation enacted that year to bolster the private equity market in Hong Kong. Partner Jingjing Jiang negotiated with the Hong Kong Monetary Authority, Hong Kong’s de facto central bank, and the Companies Registry to obtain an amendment to the Ordinance. This allows funds to have multiple managers, aligning the regime with other jurisdictions and making it a more attractive proposition to the funds.

Lander & Rogers

A couple walks past a real estate agent’s window advertising houses for sale and auction in Melbourne
© William West/AFP/Getty

Property lawyers collaborated with the firm’s innovation team and Australian blockchain company BeNext to develop a user-friendly contract that gives real estate agents authorisation to act on behalf of sellers. The lawyers consolidated the varied legislation across Australian states to standardise and simplify the agreement. Using BeNext’s platform, real estate agents can draft, store and track contracts digitally.

Nagashima Ohno & Tsunematsu
In March 2021, Japanese messaging app Line reported that its users’ personal information had been accessible to a Chinese subsidiary since 2018, leading to public outcry. The firm’s crisis management team, led by Daisuke Fukamizu, determined that, although there was no breach of contract, internal procedures at Line had to change. The case resulted in proposals from the firm and client for improving Line’s corporate data governance, which other Japanese companies are also implementing.

WongPartnership

The Singapore Supreme Court Building with its unique flying saucer shaped roof, set against the Financial District
Singapore Supreme Court © Alamy

The firm advised HSBC in the bank’s provision of rescue financing to interior design company Design Studio Group, including a “roll-up” — or conversion — of pre-existing debt, whereby all or part of the rescue financing proceeds go towards paying off the pre-existing debt owed to the rescue lender, which is upgraded to a super-priority debt. The High Court of Singapore had not previously approved a rescue financing structure that included a roll-up. By successfully arguing its case, the firm set a precedent that financial institutions in the region can use when financing other distressed companies.

Enabling business growth

Case studies in best practice. Researched and compiled by RSGI. “Winner” indicates the organisation won an FT Innovative Lawyers 2022 award; other organisations are listed alphabetically.

WINNER: Tiang & Partners

A ship is loaded with containers in the Kwai Tsing Terminals in Hong Kong
© Jerome Favre/EPA-EFE/Shutterstock

In 2021, Tiang & Partners law firm, collaborating with PwC Consulting in Hong Kong, helped a consortium of shipping carriers and terminal operators to create Global Shipping Business Network, a non-profit blockchain platform for shipping-industry data. The project raised a number of competition law questions, including securing antitrust clearances relating to many countries. But the use of blockchain provides security because it allows data to be amalgamated for collaborative automation projects without being shared between unauthorised parties.

The first tool launched on the platform, Cargo Release, automates the documentation for cargo to be released at a port. In trials in Shanghai, the tool cut the process time from up to three days to a couple of hours.

Allen & Gledhill
The firm advised on CapitaLand’s S$10.3bn restructuring in 2021, to separate the property developer’s real estate and fund management units. CapitaLand’s real estate development business was put under private ownership of CLA Real Estate Holdings, and the rest of the business listed separately as CapitaLand Investment Management, in order to maximise shareholder value. It is unusual for a privatisation, demerger and listing to take place in one transaction in Singapore.

Corrs Chambers Westgarth
The firm advised on the US listing of Tritium, an Australian company that designs and manufactures fast chargers for electric vehicles. This was the first time an Australian company has listed in the US by merging with a US special purpose acquisition company — a so-called de-Spac structure. The firm project-managed the Australian side of the deal, negotiating with the regulators and working out the structure. Tritium DCFC received a $1.2bn dollar valuation.

Dechert
The firm advised on the delisting of asset manager New Century Asset Management’s real estate investment trust (Reit) from the Hong Kong Stock Exchange in August 2021. As the first delisting of a Hong Kong-listed Reit, the team had to ensure fair considerations were given to unit-holders, negotiating details with the Securities and Futures Commission of Hong Kong. This created a template for the dissolution of Reits, which has since been replicated.

Freshfields Bruckhaus Deringer
In January 2022, telecoms providers Indosat and Hutchison 3 Indonesia announced a $6bn merger to form Indosat Ooredoo Hutchison, Indonesia’s second largest telecommunications company. With support from local Indonesian law firm HHP, Freshfields devised a merger structure and led on drafting agreements and obtaining regulatory approvals for a public merger between unrelated parties — a market first for Indonesia.

Freshfields Bruckhaus Deringer

People wear face masks amid concerns of the spread of the COVID-19 Coronavirus while shopping at a local market in Hanoi
© Linh Pham/Getty

The consumer finance arm of Sumitomo Mitsui Financial Group, one of Japan’s largest banks, acquired a $1bn, 49 per cent stake in FE Credit, a Vietnamese consumer loan provider. On behalf of the bank, the firm’s cross-border team negotiated with Japanese and Vietnamese regulators to complete a deal that provides a model for future Japanese finance and fintech investment in Vietnam.

Latham & Watkins
Following the January 2020 revision of the implementing rules in the Philippines Real Estate Investment Trust (Reit) Act, the firm advised on five Reit offerings, including the very first one. Representing real estate company Megaworld, Benjamin Carale, a partner at the firm, led a team that developed the blueprint for Philippine Reit offerings, with more due to be announced this year.

Pinsent Masons
The firm advised Ventia, the Australian infrastructure operations and management company, on its successful bid for a 25-year operations contract for the state of Victoria’s largest road and tunnelling project: the North East Link. The bid model, which is also being replicated elsewhere, included a unique risk allocation framework and an adaptable plan to allow for more energy efficient technologies that become available over the lifespan of the project. The contract is worth A$15bn.

S&R Associates

© Toru Hanai/Bloomberg

In the first Term Loan B facility debt financing involving an Indian company, the firm enabled Oyo, a hotel, hospitality and tech company, to raise funds from a pool of global investors. The firm created a structure that navigated Indian exchange and control regulations and raised $660mn. This means of financing has since been replicated by other Indian businesses.

Sullivan & Cromwell
The firm helped telecoms company China Mobile list on the Shanghai Stock Exchange in January 2022 after it was delisted from the New York Stock Exchange. This initial public offering was the first time a Hong Kong incorporated and listed company has listed in mainland China. The firm navigated a variety of complex legal issues including revising China Mobile’s constitutional documents to comply with both Hong Kong and mainland Chinese laws. China Mobile’s Shanghai IPO raised $7.5bn.



Source link

Leave a Reply

Your email address will not be published.