Transportation

The Digital Container Shipping Association (DCSA) is reporting that as container shipping is undergoing its digital trade transition, digital identity is a pivotal element.  A digital identity functions as an online representation for individuals, organizations 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.[1] As DCSA finds, 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, minimizing errors and accelerating document workflows.
• Digital identity integration with tracking systems enables real-time visibility into the movement of goods. This transparency helps optimize logistics, improve route planning and enhance overall supply chain management.

Sanction checks - In the shipping industry, the verification of the 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 organizations, DCSA explains.

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.

As DCSA informs, 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, DCSA notes.  Among 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:

1. 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
2. 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
3. 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
4. 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, DCSA concludes.

Figure 1. Ship collection key words

Figure 2. Map displaying location of attacker domains

This article is presented at no charge for educational and informational purposes only.

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[1] https://safety4sea.com/dcsa-digital-identity-risks-in-container-shipping/