What is a Bill of Lading and its Types?
This blog was originally published on Trademo.com/blog
If you have skimmed through the basics of global trade, you might have come across a document called a Bill of Lading. So what does it mean? Simply put, a Bill of Lading is a document that establishes an agreement between the shipper and the carrier for the transport of goods to the consignee. A shipper (also known as the consignor) is an individual or organization that deals with the shipment at the supplier’s end and the carrier (also known as the shipping line) is the organization responsible for the transportation of the cargo.
The Bill of Lading is issued by the carrier, or its agent, to the shipper. A Bill of Lading also serves as a receipt for the cargo accepted for transportation and as a document of title for the goods. As a legally binding document, it can also serve as a lawful statement in the event of a dispute. It is presented at the destination during the shipment’s delivery.
What does it contain?
A Bill of Lading contains details on the shipper, carrier, consignee, and the shipment, among other details. Here is a full list of what you can expect to find:
- The Bill of Lading number
- The name and address of the shipper
- The name and address of the consignee (the individual or organization that deals with the shipment at the receiving end)
- The name and address of the notify party(the individual or organization that needs to be notified prior to or upon the arrival of the shipment at the destination port)
- The name of the vessel
- Information on the carrier
- Information on the freight forwarder (the logistics provider)
- Details on the goods (description, units, dimensions, weight, etc.)
- The date of pick-up
- The nature of the packaging material
- Indication of hazardous material and permission to carry the same
- Instructions for the carrier
Types of Bill of Lading
There are several types of Bills of Lading. Let’s examine each of these in more detail.
Based on the Issuer
House Bill of Lading
Also known as the Forwarder’s Bill of Lading, a House Bill of Lading is issued by an Ocean Transport Intermediary, such as a freight forwarder, or by a non-vessel operating common carrier (NVOCC), to the supplier following the receipt of the cargo. The consignor should be the actual seller, sender, or exporter of the cargo while the consignee should be the actual buyer, receiver, or importer.
Master Bill of Lading
The Master Bill of Lading is also known as the Carrier Bill of Lading. It is issued by the carrier or shipping line to the shipper only if they are working directly with the carrier or otherwise to the ocean transport intermediary like the freight forwarder. It is one of the most reliable maritime shipping documents. It is printed and signed by the carrier and issued to the shipper after confirming the receipt of the cargo. The details of the cargo and carrier must be identical to those mentioned in the House Bill of Lading.
However, unlike a House Bill of Lading, wherein the consignor is identified as the actual sender, seller, or exporter and the consignee is identified as the actual buyer, receiver, or importer, in a Master Bill of Lading, the consignor is identified as the agent, freight forwarder or NVOCC of the actual seller, and the consignee is identified as the agent, freight forwarder, or NVOCC of the actual buyer. However, this depends on whether the freight forwarder has introduced the House Bill of Lading for the shipment. Shippers can choose to ship their cargo to the receiver directly using the Master Bill of Lading without the House Bill of Lading being issued. In this case, the consignor is the actual shipper and the consignee is the actual receiver. Such an arrangement must be determined between the shipper and the consignee.
Based on Execution
Straight Bill of Lading
The Straight Bill of Lading is also known as the Consignment Bill of Lading or Seaway Bill. This is a non-negotiable Bill of Lading — the shipment is consigned to a specified receiver and cannot be delivered to anyone except the consignee.
A Straight Bill of Lading is used when the goods are already paid for in advance, such as in the case of gifts or donations. It is also used for items that do not require payments, such as exchanges or returns. The shipping company delivers the shipment to the consignee on seeing their identification, which is typically agreed upon prior to the delivery. With a Straight Bill of Lading, the shipper chooses the means of transportation.
While using a Straight Bill of Lading, the original bill need not be presented by the consignee to the carrier to receive the shipment. This could lead to payment risks under the letter of credit and cash against documents payments methods. The Bill also leaves banks vulnerable to fraud risks, particularly under letters of credit payments since they stand to lose control of the goods being shipped. On the other hand, since the buyer does not need to present the original Bill of Lading, this removes demurrage or detention costs.
Open Bill of Lading
Unlike a Straight Bill of Lading, an Open Bill of Lading is negotiable. The name of the consignee can be changed several times. However, it needs to be accounted for thoroughly. The buyer’s name must be endorsed along with their signature so that in the event of misuse, the issue can be traced easily.
Order Bill of Lading
This is a negotiable Bill of Lading and one of the most used across the world. It is used when a delivery is made in line with a further order from the consignee. The ownership of the bill is transferrable and the delivery must be collected by the party that holds the Bill of Lading, which has to be verified by an agent who issues the delivery order.
Bearer Bill of Lading
This bill mandates that the cargo will be delivered to whoever holds the bill. As a negotiable Bill of Lading, it allows a third party to receive the shipment on behalf of the consignee. The Bearer Bill is typically used for bulk cargo that is turned over in smaller amounts. It is either specially created as such or is an order bill that does not indicate the consignee in its original form or through a bank endorsement.
Clean Bill of Lading
A Clean Bill of Lading declares that the cargo was delivered by the carrier in good condition, in the right quantity, and without damage during transport. It is issued by the carrier following a thorough quality inspection after the transportation. After it is issued, responsibility for poor packaging or damage of goods falls on the consignee. A Clean Bill of Lading is important because the consignee has no other way to determine the quality of the goods on arrival.
Clause Bill of Lading
A Clause Bill of Lading, also called a Soiled or Dirty Bill of Lading, is issued to indicate damage or loss of cargo. The carrier conducts a thorough inspection of the goods and then lists the damages or discrepancies to the cargo. The consignee then has the right to reject the shipment and refuse to pay for it.
Based on Transportation
Inland Bill of Lading
An Inland Bill of Lading is signed when goods are to be transported over land, rail, road, or inland waterways. It only covers the transportation of the shipment domestically. Therefore, in the case of international shipments, which typically involve three or more parties, the cargo is consigned to a third party rather than the actual buyer. The third-party could be the international carrier, a packaging company, a warehouse, or a freight forwarder. An Inland Bill can be either negotiable or non-negotiable. If negotiable, then the carrier holding the bill can re-route the shipment. If not, it must be delivered to the consignee specified in the bill.
Ocean Bill of Lading
An Ocean Bill of Lading is specifically issued for overseas and maritime transport of goods. It enables the shipment of cargo over international waters.
Through Bill of Lading
This Bill of Lading enables a carrier to use multiple channels and distribution centers to transport goods between two destinations, both domestically and internationally. Therefore, it could include both an Inland Bill of Lading and an Ocean Bill of Lading. Goods are transported either through single or multiple transportation methods.
Multimodal Bill of Lading
This Bill of Lading is used when at least two modes of transport are used to carry the shipment. The cargo is transferred under one document without breaking up the unit load. A Multimodal Bill of Lading is similar to a Through Bill of Lading but with one key difference. The latter is issued by the sea carrier, which is only responsible for the sea passage. A Multimodal Bill of Lading is issued by the Multimodal Transport Operator (the shipping lines, freight forwarders, or NVOCC operators). The MTO is responsible for the goods throughout the entire transit period.
Based on Method of Documentation
Received for Shipment Bill of Lading
A received Bill of Lading is issued by the carrier to confirm the receipt of the cargo prior to loading. However, it does not indicate the placement of the cargo on the ship. This Bill of Lading is typically used for shipments that have a short transit period. At such times, the consignee may not be couriered the Bill of Lading on time to receive the shipment. Carriers can issue the Received for Shipment Bill of Lading to provide the consignor with more time to send the Bill of Lading across to the consignee.
Shipped on Board Bill of Lading
While the Received for Shipment Bill of Lading indicates that a cargo has been received for shipment, a Shipped on Board Bill of Lading indicates that the goods have been received and loaded onto the vessel. It is issued after the vessel has departed the port of origin.
Other Important Types
Switch Bill of Lading
A Switch Bill of Lading is issued when goods are shipped among three parties in three different countries. This Bill is typically when the importer purchases the goods from a middleman rather than the manufacturer. It is also used when the original trading conditions have been modified, when the destination port has been altered, or when the middleman does not wish to disclose the identity of the actual exporter.
Under such conditions, there are two sets of documents — (i) The original Bill of Lading that covers the sale between the manufacturer and the middleman; and (ii) The Switch Bill of Lading that covers the sale between the middleman and the importer. The latter will be an edited version of the former and is issued after the first Bill of Lading has been surrendered, to prevent multiple parties from claiming the shipment. This is a type of Open Bill of Lading.
Charter Party Bill of Lading
A Charter Party Bill of Lading is issued by a shipper to the shipowner to charter the latter’s vessel for a specific voyage or time. This makes it different from a conventional Bill of Lading, wherein the carrier owns the vessel. Should a dispute arise between the two parties, the shipowner has a right to the vessel and the cargo upon it.
Stale Bill of Lading
In international shipping practice, the shipper must present the Bill of Lading to the bank within 21 days of the shipment. In some cases, the consignee specifies the number of days. Either way, the Bill of Lading becomes ‘stale’ if it is presented after this period and will be rejected by the bank since it cannot access the document before the arrival of the shipment.
The Bill of Lading is the most important shipping document. Therefore, it is important to understand its many forms. A careful study of these is vital before you begin your exports or imports business.
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