Navigating digital identity risks in container shipping

As container shipping undergoes its digital trade transition, digital identity is a pivotal element. A digital identity functions as an online representation for individuals, organisations or devices, uniquely identifying and authenticating them in the digital realm. The verification of digital identity, as this crucial online representation, is a vital business process. Its significance extends beyond mitigating risks such as data breaches and identity fraud, it also contributes to operational streamlining because:

Digital identity verification allows for faster and more accurate processes. Automated checks on the identity of shippers, consignees and other stakeholders can reduce manual efforts and expedite onboarding procedures
Digital identities enable the transition to paperless documentation. Electronic identification and authentication streamline the creation, verification and processing of shipping documents, reducing paperwork, minimising errors and accelerating document workflows
Digital identity integration with tracking systems enables real-time visibility into the movement of goods. This transparency helps optimise logistics, improve route planning and enhance overall supply chain management.

In the shipping industry, the verification of your counterpart’s digital identity takes on additional importance, particularly concerning sanction checks. These checks aim to identify and prevent transactions involving entities or individuals under sanctions or restrictions imposed by governments or international organisations. In 2020, the US Office of Foreign Assets Control (OFAC) issued a global advisory, encouraging those involved in transportation or trade in the maritime sector to conduct due diligence on documents suggesting cargo to and from high-risk areas for sanctions evasion.This advisory, along with several others from various governing bodies, has expanded the scope of due diligence beyond mere paperwork compliance. Compliance teams are now tasked with assessing the risk profiles of all parties on the electronic bill of lading (eBL) in line with evolving regulations. This includes continuous checks of digital identities that might have become sanctioned. Assuming responsibility, the shipping industry can safeguard itself from the economic repercussions of sanction evasion, including fines and reputational harm.What do carriers and shippers need to know about digital identity?Container carriers and shippers that exchange digital information with stakeholders must identify their communicating counterparts, validate they are who they claim to be, and authenticate their digital identities. Authentication in this context requires processes to reconfirm the identity of someone or something using credentials. In security terms, this process is commonly referred to as KYC or Know Your Customer.KYC is a process that businesses use to verify the identity of their partners or customers. However, in the container shipping industry specifically, KYC may involve the verification of many more entities. Amongst others, these include shippers and consignees, freight forwarders, shipping lines and carriers and financial institutions. Verifying all the identities of all these entities for cybersecurity reasons is an important and ongoing process. But, in the context of the container shipping industry, KYC is crucial for several more reasons:

Efficient operations: KYC processes can streamline operations by ensuring that all necessary information about customers and partners is collected and verified continuously. This helps in reducing delays, errors and uncertainties in the shipping process
Regulatory compliance: many countries have regulations in place to prevent illegal activities such as money laundering, terrorism financing and sanctions violations. The shipping industry is subject to these regulations, and KYC helps companies ensure compliance with relevant laws. Only continuous monitoring of KYC data can ensure there are no violations. For example, sanctions checks can result in the prohibition of dealings with counterparts previously granted clearance
Preventing fraud: by verifying the identity of customers and partners, companies can prevent fraud and unauthorised access to sensitive information. This is particularly important in the digital era, where transactions and communications often occur online. Data breaches can occur at all the endpoints of digital communication. Only monitoring of KYC data on an ongoing basis can ensure that information on file remains accurate
Risk management: KYC processes are essential for assessing and managing risks associated with customers and partners. Understanding who is involved in a transaction or a shipment allows companies to evaluate potential risks and act appropriately to mitigate them. For customers identified as high-risk, there may be a need to conduct enhanced due diligence (EDD) procedures. These may involve more in-depth verification of customer identity, source of funds and business activities.

KYC not only creates efficiency and ensures compliance with international regulations, it also fosters a transparent and trustworthy global trade environment, ultimately safeguarding the integrity of the container shipping industry.The way aheadThe container shipping industry is on the cusp of digital transformation. Initiatives such as 100% eBL by 2030 are driving increased adoption of digital communications and the standards that support them. However, container shipping is a diverse ecosystem: varying risk appetites, levels of understanding and digital maturity make it difficult to develop a unified view of KYC and digital identifiers. Different definitions of KYC, identifiers used in the journey, and the implementation of continuous checks also diversify the landscape.Actors in the shipping industry have developed risk frameworks and have implemented controls to safeguard against identity fraud and other breaches of cybersecurity. Stakeholders would look to regulatory guidance and structures for this. However, there is no clear single regulator and a lack of prescriptive regulation covering all aspects of digital identification in container shipping interactions and transactions. This leaves room for ambiguity and a need for collaborative efforts.DCSA is currently working on an industry-wide deep dive into this topic, to create a mutual understanding of what happens now in the industry and how industry parties interpret the applicable laws and regulations. The team would welcome your thoughts and input, so please contact [email protected] to get involved.As the maritime industry undergoes its digital transformation it must adapt to new definitions, continuous checks and sanctions monitoring. In upcoming articles, we will take a closer look at the benefits of having a unified view on digital identity and how to improve efficiency based on services and best practices already available. We will also look at what the future of KYC might hold and what it means for the container shipping industry.To take part in DCSA’s industry deep dive into digital identity management in container shipping, contact [email protected]. You can also contact the DCSA team with any other questions and stay up to date with news and the industry’s progress towards digital trade by subscribing to our community.