How to safeguard cargo release using the right bill of lading

I receive a lot of questions from readers about how to safeguard cargo release as some of them have either lost their cargo or their money due to cargo being released at destination to someone other than the legitimate consignee..

Wrongful release is a reality and this could happen to anyone if proper safeguards in terms of documentation is not followed..

Such releases may not always be due to the fault of the shipping line (as widely considered) or that proper release protocol has not been followed (although this also happens) by the destination agent..

In my opinion, a lot of these issues are caused due to the improper consigning of the bill of lading or the type of bill of lading that is released..

Let us consider some of the scenarios where shippers fail to safeguard cargo release and themselves :

  1. Issuing a Straight Bill of Lading on a first time trade showing the buyer as the consignee without receiving the payment for the cargo in full
  2. Issuing a Seaway Bill of Lading showing the buyer as the consignee when the trust between seller and buyer has not been fully established
  3. Safeguard Cargo ReleaseIssuing instructions to the line to issue Telex Release without first receiving the payment for the cargo in full

Risk of issuing a Straight Bill of Lading (when the bill of lading is issued in Original, but consigned to a company or individual) :- A Straight Bill of Lading may not be as straight as imagined, because of the considerable differences between various legal jurisdictions when it comes to its legal identity..

For example the US COGSA does not require the presentation of the original straight bill of lading for release of cargo whereas certain Scandinavian and Chinese jurisdictions require same.. UK COGSA has also been shown to be fickle in this aspect..

Moral of the story : if you are embarking on a first time trade with the buyer and you as the seller haven’t received your payment in full then DO NOT issue a Straight Bill of Lading..

A Straight Bill of Lading is a NON-NEGOTIABLE & NON-TRANSFERABLE DOCUMENT and only acts as

  • Evidence of Contract of Carriage
  • Receipt of Goods

and not as Document of Title to the Goods..

+++

Risk of issuing a Seaway Bill of Lading (when there are no originals issued and consigned to a company or individual)  which is usually issued

  1. for inter company shipments like from ACME Company Hollywood to ACME Company in the Middle of the Australian Outback 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 Seaway B/L, no surrender is required and the consignee can secure cargo without presentation of any original bill of lading..

Moral of the story : if you are embarking on a first time trade with the buyer or you as the seller are yet to develop the required level of trust with your buyer, then DO NOT issue a Seaway Bill of Lading..

A Seaway Bill of Lading also is a NON-NEGOTIABLE & NON-TRANSFERABLE DOCUMENT and only acts as

  • Evidence of Contract of Carriage
  • Receipt of Goods

and not as Document of Title to the Goods..

+++

Risk of instructing the line to issue Telex Release instruction to the discharge port agent (when original bills of lading are issued but surrendered by the shipper generally at the POL)..

Telex Release is a message that is sent by the shipping line or agent at load port to their office or agent at discharge port advising that the shipper or exporter has surrendered one or all of the original bills of lading that have been issued to them, and that the cargo can be released to the consignee shown on the bill of lading without presentation of any original bills of lading..

I have come across cases where the seller has not even collected the original bill of lading from the shipping line and has no intention to collect the originals but asked the shipping line to issue telex release instructions to the discharge port agent..

This is risky behaviour because once the telex release instructions have been given and actioned, it may be difficult and tricky to recall or stop a telex release once it is issued..

Moral of the story : if you are embarking on a first time trade with the buyer or you as the seller are yet to develop the required level of trust with your buyer, don’t be in a rush and ask the shipping line to issue telex release to release cargo to consignee..

Safeguard Cargo Release using the right bill of lading

So what then is the right bill of lading to issue in order for the seller or shipper to safeguard cargo release..??

The answer is a NEGOTIABLE (or ORDER) BILL OF LADING about which I have discussed in detail in my previous article “What is a Bill of Lading“..

When a B/L is issued in Original 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“..

Cargo covered under a negotiable or order bill maybe released by the Destination port agent only after at least 1 of the issued originals are surrendered and after checking the endorsements on the Bill of Lading, as it is possible for this type of B/L to be endorsed or transferred to another company..

By issuing a To Order Bill of Lading, preferably consigned as “To Order of Shipper” the seller/shipper can avoid all ambiguity and this will allow them to ensure that they receive the full value of the cargo before it is released to the legal receiver/consignee..

A Negotiable or Order Bill of Lading is the only bill of lading that fulfills all 3 roles of the Bill of Lading..

  1. Evidence of Contract of Carriage
  2. Receipt of Goods and
  3. Document of Title to the goods

If you have any other viewpoints on how to safeguard cargo release, I (and other readers) would be interested to hear..

In case you are wondering why I am only talking about safeguarding the shipper or seller, please do read my free Beginner’s Guide to Importing where I have covered the safeguards an importer must take to protect themselves from many issues..

 

What did you think of the above article..?? Comment below..

8 comments on “How to safeguard cargo release using the right bill of lading

  1. Hien says:

    Can you interpret the details when abuse B / L will cause consequences and cost to the buyer, the seller and the shipping? Pls and thanks

  2. Ramana Murthy says:

    Shippers need to be careful when they are shipping goods on FOB terms through an unknown Freight forwarder. If the buyer in unscrupulous – fly by night operator, he may connive with freight forwarder and take delivery of Cargo, without original bill of lading. If shippers are not sure about the credentials of their FOB buyer and shipment is to be made through an unknown forwarder appointed by buyer , it is always advisable to insist on liner bill of lading and not to accept forwarder’s bill of lading.

    Ramana murthy

  3. hassan says:

    Dear Mr Hariesh

    why the order of name of person or company is not treat as a straight b/l ? may be that is transferable or be sold to some one else

    also why in the traditional trade there is order bill ? just need the order of bank . we must know who will received the cargo

    how can verification the right company which has right to claim the cargo ?

    now days there is fraud in stamps or authorities letter so how can verify all correct the document ?

    Thanks

    Hassan

    1. Hello Hassan, when a bill of lading is consigned to Hassan or Hassan Pty Ltd.,. for example, only Hassan as an individual or Hassan Pty Ltd., as a company hold the title to the goods and only they can get release.. If Hassan is importing cargo to trade later or sell then Hassan must do so after clearing it in his name..

      To Order bills are normally issued where they already know that the cargo imported may be for trading further on and therefore the customer needs the flexibility of choosing who to sell it to at a later stage..

  4. P R Rajesh says:

    Its back to basics…..get your basics right & you will not have to cut a sorry figure at a later date….
    very useful article.
    Thanks for the refresher course.

    1. Welcome Rajesh.. 🙂

  5. venkatakrishnan krishnan says:

    We as agents insist on telex release to confirm the funds are received by the shipping line / shipper from buyer to avoid any ambiguity eventhough the consignee produces endoresed original B/L. Though telex release take some time for confirmation due to various time zones & working hours. It is safe to avoid any consequences at a later date.

    1. Hello Venkatakrishnan, you mean even after consignee produces duly endorsed original bill you seek confirmation from shipper/POL agent that cargo can be released..?? Does that not cause any delay in your releases..??

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