Bill of Lading (B/L)

Introduction to Bill of Lading

When buying goods internationally, there is a distance between the buyer and the seller. The exchange of goods and the payment for the goods therefore cannot take place at the same time. The seller wants to ensure that he does not transfer ownership of the goods without receiving payment, and the buyer wants to make sure that he does not pay without getting ownership of the goods that he was expecting.

The seller uses the Bill of Lading (B/L) as proof that he has delivered the goods for shipment at the agreed place. The Bill of Lading (B/L) also confirms the quantity and apparent condition of the goods in the Bill of Lading (B/L).


In the old days, the Bill of Lading was a document issued by the captain of the vessel for goods carried onboard his vessel. This is not practical today where instead the document is issued by an agent acting on behalf of the captain (the principal carrier).


The Bill of Lading (B/L) is issued by an ocean carrier, also known as a vessel-operating common carrier (VOCC) or shipping line.

When a Bill of Lading (B/L) is issued (a document of title), the carrier will only release the goods at destination to the party who can present an original Bill of Lading (B/L) that covers the goods. The Bill of Lading (B/L) becomes the ‘key to the cargo’.

When the buyer has paid for the goods, the seller will transfer the original Bills of Lading (Bs/L) to the buyer. If the buyer does not pay for the goods, the seller can keep the original Bills of Lading (Bs/L) and in this way control that the buyer does not receive the goods from the carrier. (In some cases, the buyer will require to receive the originals before paying).

In cases where the payment for the goods is facilitated by a bank through a Letter of Credit (L/C), the bank at origin may require that they obtain title to the goods in the period between paying the seller and obtaining payment from the buyer or the buyer’s bank. This is why the B/L is sometimes consigned “to order of [bank]”. If it happened that the buyer could not pay for the goods after all, the bank would be able to recover some of their loss by selling the goods.

In other cases, the Bill of Lading (B/L) is used because goods are sold during transit and there is a need to have a negotiable/transferable document to cover the shipment. The original consignee will endorse the Bill of Lading (B/L) to the new consignee who can then obtain release of the goods.

It is important to note that although the Bill of Lading (B/L) is used to facilitate the payment of goods between seller and buyer, the carrier does not take part in the change of ownership of goods. This is only a matter between the seller and the buyer. The carrier follows the rules and obligations as stated in the B/L and contract of carriage (ships and releases goods in accordance herewith).

 

Functions of Bill of Lading

Basically, a Bill of Lading has 3 functions:

Receipt for cargo

The Bill of Lading (B/L) is a receipt by the carrier that the goods are in his custody. The Bill of Lading (B/L) acts as a receipt between the shipper and the carrier until such time as title has been passed to a third party (the consignee). Then it becomes an independent contract between the carrier and the third party. The third party assumes the rights, responsibilities and obligations identical to those of the shipper.

Evidence of contract of carriage

It is common to hear the Bill of Lading (B/L) referred to as the ‘contract of carriage’. However, the contract of carriage is always the underlying agreement between the carrier and the customer to carry his goods. The Bill of Lading (B/L) is merely evidence of this. The Bill of Lading (B/L) evidences a contract of carriage between the ocean carrier and the shipper/consignee in the Bill of Lading (B/L).

Document of Title

A B/L is a document of title. This means that the legal right (the title) to the goods covered by the B/L can pass from one party to another by means of endorsements. The carrier will only release the goods at destination to a rightful holder of a duly endorsed original bill of lading. At the time the B/L is issued, the shipper will advise the carrier who the B/L should be consigned to - i.e. who the consignee on the B/L is.

 

The Endorsement of Bill of Lading

An endorsement is a signature (and company stamp) on the Bill of Lading (B/L) (and preferably also a clear written statement that the B/L is being endorsed to “Company ABC”). The endorsement is written on the original Bill of Lading (B/L) document by the party who is shown as the consignee on the Bill of Lading (B/L) but now wishes to transfer this right to another party.

When obtaining the endorsed Bill of Lading (B/L), the new consignee now assumes all rights, obligations and responsibilities that were previously vested in the first consignee. This also includes the right to transfer the Bill of Lading (B/L) to yet another party by adding a new endorsement on the Bill of Lading (B/L) document. In this way, a chain of endorsements may take place.

The ocean carrier will check the endorsements on the original Bill of Lading (B/L) document before releasing the goods at destination. As we can see, it is not always the first consignee (as printed on the Bill of Lading (B/L) when it was issued) that actually take delivery of the goods at destination. Because of this function ad document of title, a Bill of Lading (B/L) is often referred to as a “negotiable document” but “transferable document” is actually the more correct term.

 

Originals and Copies of Bill of Lading

The fact that the carrier Bill of Lading (CBL) functions as document of title places great importance on the Bill of Lading (B/L) document. All parties involved (shipper, consignee and carrier) rely on the document to decide who can take delivery of the goods at destination.

The carrier will normally print a Bill of Lading (B/L) document in 3 originals and a reasonable number of copies. It is only an Original Bill of Lading (B/L) document that can be transferred to another party. The copies may be pre-printed ‘Copy’ or ‘Non-Negotiable’. Both are non-transferable document. Although 3 originals have been issued, the carrier will release the goods at destination to whoever presents one duly and properly endorsed original Bill of Lading (B/L).

The carrier must exercise due care to check that the Bill of Lading (B/L) is properly endorsed to the party who submits it. If this is the case and the carrier is in good faith, he can release the goods. The change of ownership of the cargo is a matter between the seller and the buyer only. The carrier is not involved. If the seller has sold the goods twice, it is a matter between the seller and the two buyers.

 

Carrier’s Responsibility under a Bill of Lading

The 3 main areas of responsibility of the carrier under a B/L are:

Responsibility for correct description of the goods

Any third party buyer may purchase goods by relying on the description of the goods in the Bill of Lading (B/L) (quantity, condition, etc.). The description of the goods on the Bill of Lading (B/L) is usually supplied by the shipper or his agent. (The carrier will not know what is inside a container or carton packed by the shipper). It is however essential that if the carrier knows that the description of the goods supplied by the shipper is not correct (for example that cartons are damaged), the carrier clearly notes the discrepancy on the Bill of Lading (B/L) or refuses to accept the cargo and issue the Bill of Lading (B/L).

If the carrier does not note the discrepancy on the Bill of Lading (B/L), the carrier ‘steps into the shoes’ of the shipper and assumes responsibility, on behalf of the shipper, to the buyer of the goods. This means that if there was a dispute between the carrier and the buyer of the goods, the buyer could file a claim against the carrier. The carrier would need to file claim against the shipper but may not be able to prove that the goods were not received as stated in the Bill of Lading (B/L).

 

Responsibility to release the goods to the properly entitled party at the proper location

Whoever presents a duly and properly endorsed Bill of Lading (B/L) at the correct destination is entitled to take delivery of the goods. The carrier receiving a Bill of Lading (B/L) and being satisfied that the proper endorsement is in place, when releasing the goods, is relieved of any responsibility should it later appear that the Bill of Lading (B/L) holder was in fact not the proper receiver.

The carrier must of course also ensure that the person who submits the Bill of Lading (B/L) and take delivery of the goods is a representative of the consignee (e.g. an employee or an agent of the company to whom the Bill of Lading (B/L) has been consigned).

Release of the cargo without receipt of a properly endorsed Bill of Lading (B/L) compromises the carrier’s responsibility towards the true owner of the goods. This may expose the carrier to unlimited liability inclusive of consequential damages. In other words, the carrier may be required to compensate the rightful consignee not only for the value of the goods but potentially also for additional costs such as loss of sales profits.

If the carrier is in doubt about who the rightful owner of the Bill of Lading (B/L) is, e.g. because there has been a chain of endorsements and the carrier is not familiar with all signatures and stamps of the intermediate consignees, the carrier should in principle contact these parties to check. The carrier may can also contact the shipper and/or the notify party on the Bill of Lading (B/L) to hear their views.

If the release of the goods is requested at a destination different from the one mentioned on the Bill of Lading (B/L), the carrier should first receive the full set of Bills of Lading (Bs/L) (all originals) for the particular shipment. The full set of an issued Bill of Lading (B/L) has an intended destination. Since release is possible against any one of the bills of lading in a set, then only by receiving all the issued originals can the carrier assure himself that no other lawful holder of an original Bill of Lading (B/L) can present the Bill of Lading (B/L) at the destination and rightfully claim title to the goods.

It is a critical situation when the full set of Original Bills are lost. By releasing the goods without obtaining a duly endorsed original Bill of Lading (B/L), the carrier will expose themselves to unlimited liability, include consequential damages, in case a rightful holder of the Bill of Lading (B/L) later turns up and expects to receive the cargo. On the other hand, the consignee may in fact be the legal owner of the goods after having paid the shipper and the carrier will be under pressure from the consignee to release the goods as soon as possible. In such a situation, the carrier will typically ask both the shipper and the consignee to confirm that they agree to the issuance of a new set of bills or release of goods without the bills. In addition, the party who has asked for a new set of bills (the shipper or the consignee), or has asked to have the goods released (the consignee), is asked to sign a Letter of Indemnity (LOI) and this must be backed up by a first class bank guarantee which is valid for a minimum of 6 years or whatever the Bill of Lading (B/L) filing period is in that country. The process must be approved and release signed off by appropriate management team. It is a commercial decision by the carrier whether they will release the goods on this basis or not.

 

Responsibility to care for the cargo while in the carrier’s custody

The duty of care of the goods is both regulated in law and is based on common sense. If the goods arrive damaged at destination and no note has been made on the Bill of Lading (B/L) regarding the condition of the cargo, it is the carrier’s responsibility. If the carrier wants to claim against the shipper, it is the carrier’s responsibility to prove that the goods were not damaged while in his custody.