What exactly is a Bill of lading and its different types
Unwinding the mystery behind bill of lading and its various types
When I joined @shipmnts , the most intriguing thing which struck me was that the jargons used in international freight forwarding and customs clearance industry are really daunting. Even a well educated CS graduate like me was getting frustrated in understanding them. But after spending almost 2 years in this industry I now feel that the jargon used is not really the problem, every industry have their jargon. The real problem is the missing documentation for the jargon. Even though the handling of containers and cargo at terminals have been automated to a great extent the freight forwarding and customs clearance industry still works on paper pushing and piles of a legal paper trail. One of the very first documents and jargons around which I encountered in these piles at a freight forwarder’s office was Bill of Lading and the follow-up conversation he was having with shipping line and the shipper. In coming years with advent, advancement and mainstreaming of blockchain based smart contract and digital notarisation the documentation will become simple and easy but till then this article will help all the newbies in this industry to get through the jargons around bill of lading
What exactly is a Bill of Lading?
As already said the bill of lading is the single most important document in this industry. It was introduced in ancient times and since then the role and purpose of the bill of lading have changed a lot. Bill of lading is issued by the cargo carrier to the owner of the cargo and it serves following roles and purposes:
Proof of contract of carriage
It is often confused as the contract between the buyer and seller of the cargo or as the contract between the cargo owner and cargo carrier but both the versions are wrong. As the contract between the buyer and seller was established as soon as the buyer placed an order and seller issued a sales order for the same. And the contract between the cargo owner and the cargo carrier is established at the very moment of booking when the cargo carrier issued a booking confirmation.
It serves as the proof of 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.
Cargo Receipt
It is principally used as a receipt which is issued by cargo carrier in exchange when the cargo is handed over to the carrier. It serves as the evidence the cargo carrier has received all the goods mentioned in the bill of lading. It is used for various purposes viz. as proof of export for customs organization of a country, for marine insurance and also as commercial proof of completing a contractual obligation etc.
Title to the goods
When used as a document of the title it confers prima facie title over the goods to the named buyer or lawful holder of the document.
In simple words, 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. Thus it makes the bill of lading a negotiable document will ponder of this over in next section itself.
Different Types of Bill of Lading According to the Roles
Based on the various roles and purposes discussed in the previous section bill of lading can of different types.
Straight Bill of Lading: When a bill of lading is issued by the carrier to named consignee (buyer) in originals it is termed as straight bill of lading. Cargo is only release the named consignee at the declared destination and it only happens upon surrender of at least 1 of the original copies issued.
It is non negotiable and non transferrable document and it serves as the proof of contract of carriage and cargo receipt but not as document of title of goods in this form.
It is issued in the case when the negotiations are still open between shipper (seller) and consignee (buyer) directly or via bank for payment release and cargo release. Once negotiations are settled shipper (seller) surrenders his original copy (proof of shipment has sailed) to his beneficiary bank or to his LC (letter of credit) advising bank in order to get payment from his consignee (Buyer)
Seaway Bill: When a bill of lading is issued by the carrier to name consignee(buyer) but “without any original printed copies issued” it is termed as seaway bill. It is non negotiable and non transferrable document and it serves as the proof of contract of carriage and cargo receipt but not as document of title of goods in this form. So how is it different from straight bill of lading?
It is used in the case when the transaction is happening between related companies or sister concern companies. Example General Motors Germany Ltd. sending spare parts to General Motors India Ltd.
It is issued in the case when the transaction is happening between different companies but no negotiations are required directly or via bank for release of cargo and payment.
“To Order” Bill of Lading: When a bill of lading issued doesn’t have a named consignee and in the consignee section “To order” is mentioned then its is called a To Order Bill of Lading.
It is negotiable and transferrable document.It serves as the proof of contract of carriage, cargo receipt and as document of title of goods.
One of the most important aspects of a To Order B/L is that it can be used as a negotiable instrument for payments between a buyer and seller using Letter of Credits.
Destination office of Cargo carrier will only release cargo when at least 1 of the issued originals are surrendered and after checking the endorsements on the back of the Bill of Lading. As it is possible for this type of Bill of Lading to be transferred to another company.
Various ways in which To Order Bill of Lading is surrendered at final port of destination
To Order or To Order of Consignee
Shipper’s endorsement stating on the authorised letter head the bill of lading “To The Order of Consignee”and Client’s company stamp and sign in case he is taking the final delivery or his endorsement stating, Deliver “To The Order of Next Consignee”, if the cargo has been further sold in high seas (will cover high seas sales in upcoming article).To Order of Bank
Shipper’s endorsement stating Deliver “To The Order of Bank” and banks’ endorsement stating, Deliver “To The Order of Consignee” and Consignee’s company stamp and sign in case he is taking the final delivery or his endorsement stating, Deliver “To The Order of Next Consignee”, if the cargo has been further sold in high seas.
Different Types of Bill of Lading According to how it is titled
Port to Port Bill of Lading: It is issued in the case when 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 Bill of Lading.
Combined Transport Bill of Lading : It is issued in the case when the shipment involves multiple modes of transport from the Place of Receipt to Place of Delivery and all these movements are carried out by carrier or by other parties contracted by the carrier. Carrier takes responsibility for any loss or damage for the entire transport including the sea and other mode of transport..
Through Bill of Lading: It differs from Combined Transport Bill of Lading in the case that 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 but are not responsible for any loss or damage.
Common misconception around types of Bill of Lading
Telex release and Express release are not types of bill of lading they are methods of releasing bill of lading.
A Telex Release is simply a EDI message which is sent by the carrier or agent at load port to their office or agent at discharge port informing that the shipper has surrendered one or all of the original bills of lading that have been issued to them, based on this the discharge port agent can release cargo to the named consignee shown on the bill of lading without presentation of any original bills of lading.
Telex release is requested only in the case of Straight Bill of Lading and never on a Negotiable To Order Bill of Lading.
A Express Release is simply issued in the case of sea way bill which I have explained earlier.
Hope I was able to clear the mystery around the most versatile document of international forwarding and I tried to make it as easy as possible for a newbie and the few jargons like Letter of Credit, Incoterms etc, which I used in this article I will be covering the topics in detail in upcoming articles. Do share your thoughts and corrections if you feel I was wrong somewhere.
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