What Is A Bill of Lading?
Bill of Lading Definition
Bill of lading is a document issued by a carrier to a shipper, confirming the particular good that has been received on board as cargo transporting it to a destination and delivering it to the consignee.
The word ‘lading’ means ‘loading’. It refers to the loading of cargo aboard a ship. Simply put, the Bill of Lading or BoL or B/L is a receipt.
The document acknowledges that the carrier (or the agent) has received the goods (cargo or shipment). Though the British term refers strictly to shipping, the American definition is not as strict and can be applied to the transportation of any type of good.
To ship any cargo, a BoL is required and acts as a receipt and a contract. A completed BOL legally shows that the carrier (agent) has received the shipment as described and is now contractually bound to deliver the goods in good condition to the consignee. In a sense, it is a service level agreement between the freight company and the client. In case of a dispute, Bill of Lading becomes a very vital piece of documentary evidence. For this reason, all parties have to ensure that all details are filled accurately with no scope of error.
It is a standard-form document that is transferable by endorsement or by legal transfer of possession.
Functions Of Bill Of Lading
The information in a Bill of Lading (B/L) documents the actions of the carrier throughout the shipment. Information like where the shipment is going, the piece count, how it has been billed, and also how the freight has to be handled on the dock and trailers. It could be on a prepaid or collect basis.
A BoL serves these purposes:
- As a cargo receipt: This is the primary purpose of a B/L. It acts as a receipt issued by the carrier (or an agent) when the shipment is fully loaded onto the vessel. A B/L is used as proof of shipment for customs, insurance, and also as proof of fulfilling a contractual obligation. The bill of lading as a receipt of goods is valid proof that the freight company has received the goods from the shipper in proper condition.
- As evidence of the contract of carriage: The B/L from the carrier (or the agent) to the shipper can be used as evidence of the contract of carriage. It is proof that the carrier has received the goods and upon the receipt, the carrier would deliver the goods. In this case, the B/L would be used as a contract of carriage. The contract is irrevocable and the carrier cannot give external evidence to the contract which is accepted by both the carrier and the bona fide transferee.
- As title: When the buyer is entitled to received goods from the carrier of the shipment, the B/L acts as a document of title for the goods. BoL gives the holder of the BoL the right and liabilities to transfer it to someone.
Different Types of Bill of Lading
There are many types of Bill of Lading which can be divided into many 4 main categories.
A) Based on Carrier
1. Master BoL
It is issued by the shipping carrier companies.
2. House BoL
It is issued and signed by the freight forwarder.
3. Switch BoL
It is also issued by the carrier or its agent in exchange for the first set of BoL. It cannot be issued until the first BoL is inactive.
B) Based on Payment
1. Straight BoL
This is used when the money for the goods has been paid in advance and so a carrier needs to deliver the correct merchandise to the right party.
2. Bearer BoL
It is a bill stating that delivery shall be made to the party holding the bill. The creation of such a bill may be explicit or if an order bill fails to nominate the consignee then it can be considered as one whether in its original form or through an endorsement in blank. A bearer bill can be negotiated by physical delivery.
3. Order BoL
When shipping merchandise prior to payment, a carrier is required to deliver the merchandise to the importer. Under such a situation order bill lading is used and at the endorsement of the exporter, the carrier may transfer title to the importer. These order bills of lading can be traded as a security or they may be used as collateral against pledged loans.
4. Surrender BoL
Here the importer does not pay the bank until the maturity of the draft under the relative credit which works under the term ‘Import Documentary Credit’. The bank undertakes to remit the payment to the seller on behalf of the buyer. To receive the payment, the seller must present the documents specified in the terms of the documentary credit to its bank during the validity of the documentary credit. This direct liability is called the Surrender Bill of Lading. (SBL).
C) Based on Shipment Condition
1. A Clean BoL
This is one which states that the cargo has been loaded on board the ship in apparent good order and condition.
2. Claused Bill of Lading
It is also known as a soiled bill of lading. Such a bill of lading bears a clause or notation suggesting that the goods were received by the carrier in poor or damaged condition.
D) Based on Mode of Transportation
1. Inland BoL
This allows the carrier to transport the consignment by road, air, or rail across the land.
2. Ocean BoL
It is used when cargo has to be sent overseas across seas.
3. Through BoL
This B/L enables the carrier to carry the cargo across different distribution centers. It can need an inland or ocean BoL
4. Multimodal BoL
It is used in the case where more than one mode of transportation will be used.
Legal Frameworks And Conventions Governing Bill Of Lading
- Common law regarding the carriage of goods by sea;
- The Hague-Visby Rules are applicable “only to contracts of carriage covered by a bill of lading or any similar document of title insofar as such document relates to the carriage of goods by sea” (See Art. I (b)). The Carriage of Goods by Sea Act (COGSA) 1971 echoes this in sec, 1(4).
- The Rotterdam Rules relating to the BoL.
- Bill of Lading Act 1855 (which was replaced by the COGSA 1992);
- Carriage of Goods by Sea Act (COGSA) 1992.
Important Terms in Bill of Lading
- Shipper/Exporter: This information is provided by the shipper. It includes the full name and address of the shipper/exporter.
- Consignee: This information is furnished by the shipper. It includes the full name and address of the final recipient of the shipment.
- Notify Party: This information is furnished by the shipper which has the full name and address of the party to be notified of shipment status. This may be the consignee or a clearing/forwarding agent that handles the clearance on behalf of the consignee.
- Mode Of Initial Carriage: It mentions the transportation mode where the carrier first receives the goods until the port of loading. This could be any mode of transport like land (truck/train) or waterway or multiple.
- Place Of Initial Receipt: It mentions the location where the carrier takes possession of the cargo. It is mostly the city with the zip code.
- Vessel Name: It is the vessel name and voyage number which will be delivering the cargo to the consignee at the final destination. This is usually the mother vessel that completes the main journey.
- Port Of Loading: This the port where the cargo will be loaded on board the ship.
- Port Of Discharge: This is the port where the cargo will be arriving.
- Point And Country Of Origin: It is the point and country of the shipment origin.
- Place Of Delivery By Carrier: It is the city where the carrier will be delivering the shipment to the consignee.
- Booking No.: It is a unique number for each shipment provided by the shipper.
- Bill Of Lading No.: It is a unique control number to reference the Bill of Lading.
- Forwarding Agent/FMC No.: It has the complete details of the freight forwarder and its license number.
- Export References: Reference number is provided by the shipper to identify his cargo internally in its organization such PO number.
- For Delivery Of Goods Please Present Documents To: This has the complete detail of the shipping agent at the destination who handles cargo release.
- Domestic Routing/Export Instructions: It is the actual terminal where the cargo will be loaded onto the shipping vessel.
- Freight Payable At: This could be ‘Origin’ or ‘destination’ depending on whether freight has already been prepaid or will need to be paid upon collection at the destination.
- Type Of Movement: This mentions if it will be Door-to-door or CY/CY or CFS/CFS or CY/CFS or CFS/CY
- Marks & Numbers/Container Numbers (information to be provided by shipper): These are the markings that are on the outer packing of the shipment for identification purposes. For FCL (Full Container Load), it is the container number, and for LCL (Less than Container Load), it is the label on the outside part of the carton or the pallet.
- No. Of Packages: The shipper provides this number. Again, for FCLs, this will be the number of containers and for LCLs, this will be the number of packages.
- Total Number Of Pkgs: The shipper provides a total of packages.
- Description Of Packages And Goods: Again, this information is provided by the Shipper which mentions the description of the packages, the specifics of the commodities to e shipped in its smallest units, the type of packages, and the quantity per package. The shipper also adds the handling instructions like Fragile/Glass or temperature awareness or Up arrow labels or Hazard labels or special handling labels.
- Gross Weight: The total gross weight (kilograms) for each item per line is mentioned by the shipper. In case of shipping to/from the US, then both kilograms and pounds are listed.
- Measurement: For FCL, this information is not needed generally but for LCL, the shipper needs to mention the dimension of each package being shipped.
- Freight Charges: It mentions the full list of freight charges such as ocean freight, terminal handling, etc.
- Prepaid: The amount that has been prepaid by the shipper is mentioned in this section which is the ocean freight price and other extra charges at the origin.
- Collect: It is the amount that needs to be paid for cargo collection. If the freight prices has not been prepaid, then that amount needs to be collected along with the DTHC charges (Destination Terminal Handling Charges ) and other any local charges.
- By & Dated: These are the Signature or stamp by the individual representing the shipping line.
Disadvantages of Paper Bill of Lading
Though paper BoL serves a very important role in the shipping industry, it comes with some inherent risks associated with paper system costs, authenticity, and delay. Let’s explore each aspect closely.
2) Authenticity: A BoL can be easily forged due to the sheer number of parties involved and the complex shipping process. This can lead to theft or other illegal things.
3) Delay: BoL is sent using a mail system which is slow compared to the modern transportation system used for cargo delivery. The carrier can only deliver to the cargo when the consignee produces the original BoL. In case of the dealy ion receiving the BoL by the consignee, the carrier has to deliver the goods in return for a letter of indemnity. This adds extra administrative load on the carrier and the liability still hangs on it.
Electronic Bill of Lading
Electronic BoL presents an ideal solution to the disadvantages of a paper BoL but has met some resistance due to various reasons. But slowly, more and more companies and organizations are adopting electronic BoL. In 2015, BIMCO, the world’s largest international shipping association, added an electronic bill of lading clause to its NYPE 2015 time charter form. The International Group of P&I Clubs also gave approval for three electronic trading systems: Bolero, e-title, and essDOCS.
Advantages of Electronic Bill of Lading
The electronic bill of lading or e-bill has the potential to addresses many of the drawbacks of the paper BoL system.
1) Electronic BoL is fast. In fact, electronic BoL can be sent instantly via the internet to any destination which lowers the administrative costs and delays that plague the paper B/L. In the case of multiple transfers of ownership during the transport, an electronic bill of lading can be even more effective
2) In an electronic bill of lading the modifications or corrections can be made very efficiently and cost-effectively as compared to the traditional BoL.
3) Electronic BoL provides a higher level of security which minimizes any chances of forgery. The introduction of blockchain has made this system even more secure and unpenetrable by hackers.
4) As mentioned earlier, paper BoL is very expensive. Electronic BoL saves paper and costs involved in mailing BoL physically to different locations.
Disadvantages of Electronic Bill of Lading
1) A paper Bill of Lading is a physical document of title which can be negotiated and transferred as the possession of the boL is proof of title to the cargo. This is not the case so for Electronic bill legally speaking.
2) Electronic BoL needs to be accepted and adopted by all the parties involved. Therefore, it has taken time to take off.
3) Electronic and internet-based systems are susceptible to hacks, malware attacks, viruses, e-theft, and internet/computer outages.
Why Is Bill of Lading Important?
Particularly related to the case of a buyer, the bill of lading is used as a document of title. Suppose a buyer is supposed to receive goods from a carrier. The bill of lading then acts as the document of title for the goods. Two types of Bill of Lading can be used as a document of title. They are straight bill of lading and order bill of lading.
Legally, a seller cannot sell anything that is not solely entitled to him. So if the goods he is trying to sell turn out to be encumbered, maybe due to mortgage or charge or is stolen property, the bill of lading will prevent him from being granted the full title of the holder.
The Bill of lading can also be used as evidence of a contract of carriage between a carrier and a shipper. Basically, when a bill of lading is used as a cargo receipt, it is issued by the carrier when the goods have been loaded onto the vessel.
So far the maritime industry has been reliant on paper. Despite the inefficiency that comes associated with paper bills of lading the community has shied away from electronic bill of lading (eB/L) which is the legal functional equivalent of a paper bill of lading, due to their traditional nature. However, it has been proposed that Blockchain technology3 is the answer to the necessity for a speedy, hassle-free, and reliable trade transaction.