If we search the meaning of the term “bill”, it is defined as a printed or written statement of the cost for the goods or services delivered or to be delivered. The term “ lade” means to put the cargo onto a ship or other form of goods carrier.
Thus, a bill of lading in shipping is a record of the traded goods which have been received on board. It is a document that establishes an agreement between a shipper and a transportation company for the transportation of goods. Transportation Company (carrier) issues these records to the shipper.
A bill of lading indicates a particular carrier through which the goods have been placed to their final destination and the conditions for transporting the shipment to its final destination. Land, ocean, and air are the means used for bills of lading.
The Importance of Bills of Lading
The carrier need not require all originals to be submitted before delivery. It is therefore essential that the exporter retains control over the full set of the originals until payment is effected or a bill of exchange is accepted or some other assurance for payment has been made to him.
A bill of lading, therefore, is a very important issue when making shipments to move the cargo or freight from one point to the other. On one hand, it is a contract between a carrier and shipper for the transportation of goods and on the other hand, it serves as a receipt issued by a carrier to the shipper.
Hence, the bill of lading is considered a legal document that provides all the vital details to the shipper and the carrier to conveniently process the freight shipment through different maritime countries and invoice it correctly.
The original copy of the bill of lading is provided to the carrier, and a copy of the same should also be ascribed to the packaged freight.
Negotiable and Non-negotiable bill of lading?
Negotiable bill of lading:
In this type of bill, clear instruction is provided to make the delivery of the goods to anyone having possession of the original copy of the bill, which itself signifies the title and control of the freight. In this type of bill, the buyer/ receiver or his/her agent has to acquire and present an original copy of the bill of lading at the discharge port. In the absence of an original bill copy, the freight will not be released.
Non-negotiable bill: This type of bill of lading fixes a specific consignee/name of the receiver to whom the freights will be shipped and delivered. It, however, does not itself serve the owner of the goods. Under this type of bill, the assigned receiver/ buyers can claim the cargo by confirming their identity.
Purpose of Bill of Lading:
The bill of lading document is meant to act as a transport document enacting as the evidence of the contract of carriage of the goods. A negotiable bill of lading has the following legal qualities:
- It acts as a piece of evidence for the carriage contract containing the terms and condition under which the goods transportation will be carried out
- It represents as a receipt which endorses that the carrier has received the cargo as per the contract and the goods are received in good condition.
- It is a document of title, permitting the sale of goods in transit and the raising of financial credit.
- Most of the local and international system does not consider a bill of lading as a document of title. It provides the right for the delivery to be made to the possessor.
Types of Bill of Lading
The bill of lading can be classified on the basis of “how it is executed” and “Method of operation”-
On the basis of execution:
1. Straight bill of lading reveals that the goods are consigned to a specified person and it is not negotiable free from existing equities. It means any endorsee acquires no better rights than those held by the endorser. This type of bill is also known as a non-negotiable bill of lading, and from the banker’s point of view, this type of bill of lading is not safe. This type of bill is prominently used for military cargo.
2. Open bill of lading – This is a negotiable bill of lading where the name of the Consignee can be changed with the consignees’ signature and thus transferred. This can be transferred multiple times. A switch bill of lading is a type of open bill of lading.
3. Bearer bill of lading is a bill that states that delivery shall be made to whosoever holds the bill. Such bill may be created explicitly or it is an order bill that fails to nominate the consignee whether in its original form or through an endorsement in blank. A bearer bill can be negotiated by physical delivery. They are used for bulk cargo that is turned over in small amounts.
4. Order bill of lading is the bill uses express words to make the bill negotiable. This means that delivery is to be made to the further order of the consignee using words such as “delivery to A Ltd. or to order or assigns. The cargo is only delivered to the bonafide holder of the bill of lading, and it has to be verified by an agent who issues delivery order and the verified bill of lading. The order bill of lading:
– is the most modern type bill which is widely used all over the world
– ensures the safety of delivery of cargo to a bonafide holder of B/L
– Since the ship visits several foreign ports where the language, practice, procedures may be different the master might be inconvenienced during the delivery of the cargo. People might fraudulently collect the cargo.
– To overcome this difficulty and avoid future cargo claims and litigations, the consignee or the holder is required to surrender the bill of lading to the ship’s agent at the discharge port who will verify the genuineness of the bill of lading. When satisfied the agent will issue a delivery order and the verified bill of lading. Now any person can collect the cargo from the ship by surrendering the bill of lading and the delivery note to the ship.
As the bill of lading is made to “to order” of the consignee, it is a negotiable instrument of title. This means that the ownership of the bill of lading can be transferred from one person to another by authorising signature and delivery of the bill of lading.
All goods which have not been paid in advance and are shipped under “To order” of the bill of lading can be categorised into two types:
- To Order, Blank Endorsed: not consigned to any named party but ‘To Order’ of the consignor, with the intended – consignee’s name given under ‘notify party.’ The consignor must stamp and sign (endorse) this B/L so that its title can be transferred.
- To Order, Bank: consigned to a bank with the intended consignee’s name given under ‘notify party.’ The bank endorses the B/L to the intended consignee against payment of (or a pledge to pay) the amount of the accompanying bill of exchange. ‘To Order’ B/Ls are used commonly in the letter of credit transactions and may be bought, sold, or traded, or used as security for borrowing money from banks or other lenders.
ON the basis of Method of Operation:
- Received for shipment bill of lading–This bill is sent from agent /charterer to shipper. The endorsement of this bill ensures that the carrier has received goods but does not confirm it is onboard of the assigned vessel
- Shipped B/L – This bill of lading is Issued when cargo is loaded on board. It binds the shipowner and the shipper directly
- A clean bill of lading is one which states that the cargo has been loaded on board the ship in apparent good order and condition. Such a bill of lading will not bear a clause or notation which expressively declares a defective condition of goods and/or the packaging. The opposite term is a soiled bill of lading. It reflects that the goods were received by the carrier in anything but good condition.
- Through B/L – This bill of lading is a legal document that allows for direct delivery of cargo from point A to point B. The bill allows transportation of goods both within domestic borders and through international shipment as it serves as a receipt of the cargo, a contract of carriage, and sometimes title for the products as well
- Combined transport B/L – This bill gives information about cargo being transported in large containers by sea and land, i.e. through multi-model transport
- Dirty bill of lading: If the shipowner raises an objection about “the condition of the cargo is in good order”, he/she can include a clause thereby causing the bill of lading to be “claused or dirty” along with the remarks as per the finding of the cargo condition. E.g. torn packing, broken cargo, shortage in the quantity of the goods etc.
Sets of Bill of Lading:
This is an old practice where the bills are signed in the sets of three originals to facilitate the goods are timely delivered even when the original is lost. They are stated as the first original, second original, third original on top of the bill. A duplicate copy with a stamp – “Non-negotiable” may also be distributed.
The master will sign the original bill of lading, and when the master of agent signs the three-bill of lading, all other copies are considered void. This clause is clearly written on the bill of lading which is supplied in sets.
This is a reason why the bank, negotiating a letter of credit that covers the cargo, will always ask for the full set of B/Ls. This is to prevent other B/L holders from legally claiming the cargo before the bank does.
Bill of lading as Contract Of Carriage:
The contract between the carrier and the shipper is already created before issuing the bill of lading when the cargo is loaded on the ship. This is done to safeguard the shipper in case the cargo is damaged before loading it on board the vessel and to help the shipper in the claim process. For the carrier and the consignee, the bill of lading will act as the actual contract of carriage.
The popularly used conventions and rules which covers the contract of carriage for carrying goods by sea :