What is a Bill of Lading?
A Bill of Lading is issued by carriers or their agents to the shipper of a consignment of goods as proof of receipt of goods for shipment and proof of contract of carriage. A Bill of Lading, or B/L is only used for ocean transport. In most cases the B/L must be presented at the destination to take delivery of the cargo as it also shows proof of owning title to the cargo. For air shipments, an Airway Bill or AWB is used instead.
Master Bill of Lading vs. House Bill of Lading
- The Master Bill of Lading is issued by the actual carrier or vessel operator who will transport the cargo to the specific destination.
- The House Bill of Lading is issued by the freight forwarder or NVOCC who made the arrangements with the actual carrier. NVOCC stands for Non Vessel Owning Common Carrier.
Negotiable vs. Non-Negotiable Bills of Lading
Bills of lading can either be negotiable or non-negotiable. A negotiable B/L can be sold, traded, held as security or bought like it were the cargo itself. In short, the owner of the cargo is the person holding on to the B/L. A non-negotiable Bill of Lading means that the cargo is meant for a specific consignee and it cannot be changed.
What is an Airway Bill?
An AWB can also be called an air consignment note. It is a receipt issued by an airline for goods it has taken charge of and similar to the B/L, it is also proof of a contract of carriage. However, an AWB cannot be negotiable and is always non-negotiable. Hence the goods mentioned on an AWB will have to be delivered to the specific person mentioned on the document. The format of AWBs were designed by the International Air Transport Association or IATA.
How does a Bill of Lading work in International Trade?
Below is an illustration of how a B/L may be used when doing cross border trade:
The seller ships goods via a shipping agent to the buyer. The shipping agent will issue 3 original sets of Bills of Lading and 1 copy. Only 1 original signed set of the B/L is required. The other 2 are kept in case the first set is misplaced. It must be noted that once the master of the vessel signs the original set presented to him/her the other 2 sets become void. Not all carriers still issue 3 sets of B/Ls. The original signed set will be negotiable while the copy will be non-negotiable. The non-negotiable B/L will not be signed. The original copy should be forwarded by the seller to the buyer usually through courier. If several original sets have been signed, they must be all be forwarded. The number of signed original sets is reflected on the B/L. The buyer will forward the B/L to his/her shipping agent who will in turn trigger the delivery order to the port operator in order to take delivery of the released goods.
Who are the stakeholders in a Bill of Lading?
Some of the stakeholders or interested parties in a B/L for any shipment are:
- Carrier – The contracted party responsible for carriage
- Shipper – The contractor for carriage
- Consignee – The receiver for whom the shipment is destined
- Bank – Banks require all signed B/Ls be presented when requesting a funds release
- Notify party – The person who needs to be contacted upon arrival of the cargo
These entities are in some way or another affected if B/Ls are incorrectly drafted and submitted.
What information d0 Bills of Lading/Airway Bills contain?
Traders can expect to be required to provide the following information to freight forwarders who are preparing these transport documents for their shipments.
Some of these data elements are provided by the carriers themselves.
- Name of vessel or airline reference
- Name and address of the shipper
- Name and address of the consignee
- Name and address of the notify party
- Place of receipt
- Port of loading
- Port of discharge
- Place of delivery
- Description of cargo.
- Marks and numbers
- Number of packages
- Kind of packages
- Gross weight of goods
- Handling requirements
- Declared carriage value
- Freight terms – pre-paid of collect
Typically, any information on a Bill of Lading or AWB should also match any information shown in proforma invoices, commercial invoices, tax invoices, origin certifications, letters of credit, manifest submissions, import permits and or export permits. Unnecessary information such as Incoterms should be omitted where possible. Any discrepancy may result in a delay in Customs clearance or a refusal by the bank to release funds.
Any discrepancy may result in a delay in Customs clearance or a refusal by the bank to release funds.
Types of Bills of Lading
We have already read about negotiable, non-negotiable, house and master bills of lading. What other types of B/L categorizations are there?
Bearer Bill of Lading
In this kind of B/L there will no consignee specified on the document, the owner of the cargo will be the person who has possession of the B/L. This is a type of negotiable B/L.
Switch Bill of Lading
This bill of lading is issued by the carrier usually to the consignee on request. This kind of B/L is used when the consignee has a buyer that they do not wish to reveal to the seller. The agent may appear as the seller or shipper on the 2nd B/L.
Through Bills of Lading
This kind of B/L is used when there is only 1 mode of transport although there can be many transfers.
Multimodal/Combined Transport Bill of Lading
This B/L covers transport through multiple modes of carriage and all transfers. The carrier has to deliver the cargo to the destination either through its own facilities or by subcontracting out parts of the carriage to other service providers.
This is a non-negotiable bill of lading and delivery is made upon positive identification of the buyer.
Charter Party Bill of Lading
This type of B/L is used when an entire vessel is chartered for transportation.
Clean vs. Claused/Foul Bills of Lading
A clean B/L is issued by the carrier after a full inspection of the cargo and/or it’s packaging for any damages or other quality concerns. If the carrier finds damages to the cargo or its packaging it may issue a claused or foul B/L. This may create problems when the shipment arrives at the destination as the recipient may choose to reject the cargo. Even if the importer is willing to accept the shipment with a foul B/L, some banks do not release funds if letters of credit are presented with a foul B/L.
… some banks do not release funds if letters of credit are presented with a foul B/L.
Terms & Conditions of Bills of Lading
The overleaf page or back of Bills of Lading contain extensive legal documentation in fine print. These clauses typically remain unchanged for years and it is advised that traders invest some time to read through these clauses at least once.
These clauses cover various areas of interest to all stakeholders of any ocean carriage such as:
- Right to sub-contract
- Carrier’s obligations and responsibilities
- Scope of voyage, delays
- Time bars
- Transportation requirements
- Requirements if transporting dangerous goods
- Other terms of contract