The bill of Lading (B/L) is one of the most important documents in the whole shipping and freight chain.
A B/L has 3 basic purposes or roles.
1. Evidence of Contract of Carriage
2. Receipt of Goods and
3. Document of Title to the goods
1) Evidence of Contract of Carriage – emphasis on the term “Evidence“.
The B/L is the evidence of the contract of carriage entered into between the “Carrier” and the “Shipper or Cargo Owner” in order to carry out the transportation of the cargo as per the sales contract between the buyer and the seller.
2) Receipt of Goods – emphasis on the term “Receipt“.
A B/L is issued by the carrier or their agent to the shipper or their agent in exchange for the receipt of the cargo. The issuance of the B/L is proof that the carrier has received the goods from the shipper or their agent in apparent good order and condition, as handed over by the shipper.
3) Document of Title to the goods – emphasis on the term “Title“.
It means that the goods may be transferred to the holder of the B/L which then gives the holder of the B/L, the rights to claim the goods or further transfer it to someone else.
Based on the above roles, there are several variations or types of B/Ls, important among which are as below.
1) When a B/L is issued in Original(s) to a “named” consignee it is referred to as a “Straight B/L” and a straight B/L is a NON-NEGOTIABLE & NON-TRANSFERABLE DOCUMENT.
Release of cargo at destination may be issued only to the named consignee and only upon surrender of at least 1 of the original bills issued.
2) When a B/L is issued to a “named” consignee but without any originals it may be considered as a “Sea Waybill“. This B/L is also a NON-NEGOTIABLE & NON-TRANSFERABLE DOCUMENT.
A Sea Waybill is usually issued
1. for inter-company shipments, or
2. where the shipment takes place between two different companies but there are no negotiations required between the two either directly or via bank for release of the cargo and
3. the shipper doesn’t need to submit an original B/L to anyone to secure his payment.
Since no originals are issued in the case of a Sea Waybill no surrender is required and the release may also be termed as an Express Release and is mentioned as such on the body of the B/L and manifest.
3) When a B/L issued in Original(s) and consigned “TO ORDER” or “TO ORDER OF SHIPPER” or “TO ORDER OF XYZ BANK” it is termed as “Negotiable B/L or Order Bill“.
One of the most important aspects of a B/L is that it can be used as a negotiable instrument for payments between a buyer and seller using Letters of Credit.
Destination port agent may issue release of cargo only after at least 1 of the issued originals are surrendered and after checking the endorsements on the back of the B/L as it is possible for this type of B/L to be endorsed or transferred to another company.
Care must be taken not to lose a negotiable B/L. Today the consequences of replacing a set of original bills of lading are far more complex and onerous than they were some years ago.
Today, carriers require a letter of indemnity (LOI), counter-signed by a bank representing a guarantee for as much as two to three times the value of the cargo. And the guarantee can be required to be valid for as long as 24 -30 months.
An LOI is a formal letter stating that the company signing it will not make a claim against a carrier, arising out of the carrier’s compliance with the request to either release the cargo without presentation of the OBL, or to reprint the OBLs.
While an LOI contains an obligation for the company signing it to indemnify the carrier, the LOI does not ensure that the company has sufficient funds to fully comply with its indemnification obligations and as such the bank guarantee is required. The bank guarantee ensures that the carrier is protected from payment of all liabilities and costs related to delivery of the cargo without presentation of the OBL.
In an effort to mitigate your exposure and protect your originals, we are strongly recommending that in cases where feasible one of the following practices be put into place:
• Keep at least one original bill of lading in a secured forwarder archive;
• Send only one original bill to consignee, if not received you can send another;
• Where commercial aspects and/or import customs law do not require issuing the original set of bills, the express bill of lading type might be a preferred solution for faster and smoother cargo release from the carrier.
This topic could not be more relevant than it is today, considering the current circumstances and the impact of COVID-19 on the shipping and freight industry.
With the lockdown in various countries around the world due to COVID-19, there are serious restrictions for export customers to get original bills of lading after the cargo has been loaded on board. Similarly for cargo that has arrived or is arriving at a port of discharge during the lockdown period, importers may not get the original bill of lading on time or worse still an original bill of lading may be lost in transit.
We kindly ask that you take a moment to review the information presented in an effort to better understand current risks associated with B/L provision and management. Your customer service team will be in contact to discuss mitigation opportunities as detailed above.
HENSALL GLOBAL LOGISTICS