What is a Bill of Lading..??
Bill of Lading (abbreviated to B/L) is one of the MOST important documents in the whole shipping and freight chain..
Although I have written several articles under the category of bill of lading, I thought it would be a good idea to dedicate an (rather lengthy) entire post to this document, so here goes..
A bill of lading has 3 basic purposes or roles..
- Evidence of Contract of Carriage
- Receipt of Goods and
- Document of Title to the goods
Let’s examine these roles in more detail..
1) Evidence of Contract of Carriage – emphasis on the term “Evidence“..
Many people think that
- a bill of lading is a Contract between the Seller and the Buyer
- a bill of lading is a Contract of Carriage between the Carrier and Shipper
Both notions are wrong..
The contract between a buyer and seller was already established when the buyer placed the order with the seller and they both discussed and agreed (verbally or in writing) the what, where, when, how and how much of the transaction in detail..
The contract between a shipper and the carrier was already established when the shipper or his agent made a booking with the carrier (shipping line) to carry the cargo from A to B..
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 of the B/L (let’s call it Types), 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..
This B/L satisfies roles 1 & 2 above fully and does not satisfy role 3 (Document of Title) as the document is not negotiable or transferable..
2) When a B/L is issued to a “named” consignee but without any originals it maybe considered as a “Seaway B/L“.. This B/L is also a NON-NEGOTIABLE & NON-TRANSFERABLE DOCUMENT..
A Seaway B/L is usually issued
- for inter company shipments like from ACME Company Hollywood to ACME Company in the Middle of the Australian Outback or
- 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
- 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 release may also be termed as an Express Release and is mentioned as such on the body of the B/L and manifest..
This B/L satisfies roles 1 & 2 above and does not satisfy role 3 (Document of Title) as the document is not negotiable or transferable..
3) When a B/L issued is 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 Letter of Credits.. You can read how a Letter of Credit works here..
A negotiable B/L must be treated like gold and due care must be taken not to lose it.. There are several cumbersome procedures to be followed if an original B/L is lost..
Another notable feature of this type of B/L is that it contains the Terms and Conditions of the Carrier on the 1st Page of the B/L.. The 1st page is what we all commonly refer to as the “back of the B/L”.. Seaway bills issued by some carriers do not have these Terms and Conditions on the back (also known as “blank back short form B/L“)..
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.. This B/L satisfies all of the above 3 roles.. Read the permutation and combination regarding the consignee in one of my previous articles..
There are also various ways in which the B/L is termed or titled, the purpose of which is to identify the carriers responsibility in terms of the carriage..
Below are some of the ways in which a B/L is termed or titled..
1) Port to Port B/L – When a B/L is issued as a Port to Port B/L (also known as Ocean B/L), the carrier’s responsibility begins at the port of loading and ends at the port of discharge and therefore the Place of Origin/Receipt or Place of Destination/Delivery should not be mentioned in the B/L.. Read – Parts of a B/L – Part 2..
2) Combined Transport B/L – When a B/L is issued as a Combined Transport B/L, it involves multiple modes of transport from the Place of Receipt to Place of Delivery and all these movements are carried out as a single contract by multiple service providers under the employ of the carrier..
Carrier takes responsibility for any loss or damage for the entire transport including the sea and other mode of transport..
When a B/L is released as a Combined transport B/L, the boxes like “Pre-Carriage by”, “Place of receipt by pre-carrier”, “Place of delivery by on-carrier”, “On-Carriage by” etc will be filed in..
3) Multimodal Transport B/L – Same as Combined Transport B/L..
4) Through B/L – Similar to Combined Transport B/L except that in the case of the Through B/L, the carrier is directly responsible only for the sea leg and for the inland movement they act as an agent in arranging the inland movement..
The terms on the Through B/L issued by the carrier will specifically state this, in such a B/L..
When a B/L is released as a Through B/L, the boxes like “Pre-Carriage by”, “Place of receipt by pre-carrier”, “Place of delivery by on-carrier”, “On-Carriage by” etc will be filed in..
Another misconception that most people have is terming a bill as Telex Release B/L.. There is no such term.. Read more about what a Telex Release is by clicking this link..
Do you know of any other document as versatile and varied like a Bill of Lading..!!