Bill of Lading

For starters, we will go over one of the most important documents with regard to sea freight. Perhaps, you have already come across the term Bill of Lading (for short B/L), or its similar counterpart the Sea Waybill? With this post we will provide you with everything you need to know about Bills of Lading and Sea Waybills, how they differ from one another, and which one is more favorable for you.

An introduction to the Bill of Lading

The Bill of Lading or B/L is a multifunctional document in international trade and relates specifically to sea-borne cargo.

Most national laws on sea carriage are based on the International Conventions, which regulate Bills of Lading: Hague Rules (1924), The Hague-Visby Rules (1968), and finally the Hamburg Rules (1978). Naturally, these conventions were created to serve as a set of uniform rules for issuing Bills of Ladings, as well as other transport documents, and for the involved parties’ rights, responsibilities and obligations when taking part of a trade and being under a contract.

The functions of a Bill of Lading

In short, a Bill of Lading has three primary functions:

1. It functions as receipt of cargo
2. It functions as document of title
3. It functions as evidence of a contract of carriage

Receipt of cargo

The Bill of Lading first works as a receipt between the shipper and the carrier. Then, when the title has been passed to a third party (you), it becomes a contract between the carrier and the third party. The contract is that the carrier must surrender the cargo against the surrendering of the original B/L, by the rightful holder.

Document of title

Bills of Lading are often spoken of as ‘negotiable’, however, it is more correct to refer to them as ‘transferable’, meaning that the title to (ownership of) the goods can be passed from one party to another up until delivery. Whoever the B/L has been endorsed to and rightfully holds the B/L at destination has the right to take delivery of the cargo.

When transferring a B/L to a third party, the rightful holder must endorse it. The endorsement is carried out by writing on the B/L who the title to the goods is being transferred to, and by signing the endorsement.

Evidence of a contract of carriage

As stated, Bills of Lading work as evidence of ‘the contract of carriage’, which is the agreement between the carrier and the customer, letting the carrier carry the customer’s cargo. The contract specifies the terms, conditions, and obligations of both the shipper and the carrier in relation to the transportation of the specific cargo.

For all the above reasons, and for your own good, it is recommended that all agreements are always recorded in writing as to eliminate disagreements on responsibilities and ownership of the cargo at any given time and place.

What a Bill of Lading regulates

Basically, a carrier has three primary responsibilities under a Bill of Lading:

1. Ensure correct description of the cargo
2. Release the cargo to the entitled party at the proper location
3. Care for the cargo while it is in his possession

Correct description of the cargo

The Bill of Lading is a fundamental document in most international trades, and any third party buyer will purchase in accordance to the cargo description written on it. Therefore, it is crucial that the carrier indicates any misdescriptions supplied by the shipper in the B/L. If the carrier fails to do so, he undertakes the responsibility on behalf of the shipper in relation to the ‘bona fide purchaser’ (a purchaser who purchases in good faith.

An example:
You have bought 1,500 T-shirts from a supplier in China. The shipper goes to deliver the T-shirts to your carrier, and states that the boxes contain 1,500 T-shirts – but – in fact the shipper only delivers 1,000 T-shirts.

Unknowingly, the carrier specifies the cargo details on the Bill of Lading, including the amount (1,500 T-shirts), and issues the B/L to the shipper in exchange for the goods. What he should have done, was to check the cargo to ensure the correct description of the cargo.

When you have paid your supplier the full amount for your 1,500 T-shirts, he will surrender the B/L to you.

As your goods arrive at destination, you must hand back the B/L to the carrier as accept of delivery. However, now you realize that the shipment only consists of 1,000 T-shirts, which means that you are missing 500 T-shirts in accordance to what it says on the Bill of Lading.

In a case like this, the carrier is now obliged to compensate you for the missing 500 T-shirts, as he did not check the cargo prior to issuing the Bill of Lading. However, the carrier is also justified to make a claim (recourse) against the shipper to get his money back – if he can prove that the shipper in fact only delivered 1,000 T-shirts.

In practice, carriers today often put ‘said to contain’ on the B/L in order to avoid this issue. In this way they cannot be held responsible for neither the quantity or the quality of the cargo upon receipt of the cargo, unless loss or damage occured while it was in the carrier’s possession.

Release the cargo to the entitled party at the proper location

The person who presents an original Bill of Lading at the predetermined destination has the the immediate right to accept delivery of the cargo (unless anything else suggests bad faith). Subsequently, the carrier who receives this Bill of Lading is free from any responsibilities as he delivers the cargo, should it occur that the holder of the Bill of Lading was in fact not the proper receiver.

On the contrary, if the carrier releases the cargo without receipt of a Bill of Lading it jeopardizes his position against the rightful owner of the cargo. Should the carrier release the cargo without the receipt of an endorsed B/L, he may be exposed to unlimited liability, including consequential damages.

Moreover, the carrier’s responsibility to release cargo to its entitled party also implicitly assures the shipper (seller) that his cargo will not be delivered until payment is secure, as well at the process assures the consignee (buyer) that by paying delivery of the corresponding goods will take place.

Care for the cargo while it is in his possession

The responsibility to care for the goods is both regulated in the law, as well as effects of common sense and decency. This obligation also links to the carrier’s responsibility to ensure a proper description of the cargo.

What does a Bill of Lading contain?

Commonly, a Bill of Lading is issued in three original documents, and must specify the following:

1. Details on the shipper, the notify party (in most cases the forwarder) and the consignee
2. Port of loading and/or place of receipt (where the cargo is handed over from shipper to carrier)
3. Port of discharge
4. Final destination and place of delivery
5. The vessel’s name and voyage number
6. Marks and numbers as mentioned on the consignments or the container number
7. A cargo description
8. Quantity, including weight and measurements
9. Freight details (if these are to be included in the B/L)
10. Carrier’s signature

An example of B/L in practice

Your company in the UK wants to purchase goods from a supplier in China. The supplier delivers the goods to your chosen carrier (a freight forwarding company), and in return he will obtain a Bill of Lading as receipt for the cargo. The goods will now board the ship, and be on its way to you.

When the supplier has received the full amount due for the goods, he will forward the Bill of Lading to you.

If you wish to do so, you are now entitled to resell your goods to anyone you wish, while it is in transit, by endorsing the B/L to a new owner.

As the goods arrive at destination, you (or a new owner) must present the Bill of Lading back to the carrier, in order to prove ownership and take delivery of the goods.

Presenting the Telex Release

A telex release is a confirmation given by the carrier at the port of origin to the destination port, that allows release of the cargo without submitting a hard copy of the original Bill of Lading. This used to be done by telex, hence the name. Today, this is usually done via email, but sometimes it is also possible to simply update the confirmation in the shipping line’s internal system.

Naturally, using a telex release is both faster and less complicated than requesting the B/L to be sent by courier to the consignee and later handed back to the arrival agent at destination, which can in some cases delay delivery of your cargo.

A typical situation where you could benefit from a telex release is when:

1. You have agreed with your supplier that you will only pay for the goods once it has been shipped (the B/L is the receipt for that), and
2. The supplier wants to maintain title to the goods until he has received your payment, and
3. You do not intend to sell the goods to a third party while it is in transit (i.e. you know that you will be taking delivery of the goods).

In this case, we recommend you to request your supplier to arrange for a telex release from the carrier, as this will transfer the ownership of the cargo to you (the consignee), and you will be able to take delivery of the goods without having the original B/L. In this way you will save both the hassle and the money of having the original B/L sent to you.

In practice, the shipper will surrender the original Bill of Lading to the carrier at the loading port, and instruct the carrier to issue a telex release. Then the load port agent will advise the agent at the discharge port that the original B/L has been received and the cargo covered under it can be released to the nominated consignee without submitting an original B/L.

Introducing the Sea Waybill

The Sea Waybill (sometimes also referred to as an Express Release) is a document issued by the carrier to the shipper in exchange for the cargo.

In many ways a Sea Waybill is identical to a Bill of Lading, but, on a few essential points it is also fundamentally different. In the following we will address these differences.

The functions of a Sea Waybill

A Sea Waybill has two functions:

1. Evidence of a contract of carriage
2. Receipt for cargo (between carrier and shipper)

As you can see, the purpose of the Sea Waybill is similar to the one of the B/L, however, unlike the B/L, the Sea Waybill does not function as ‘document of title’, which makes a significant difference.

Not functioning as ‘document of title’ entails that the Sea Waybill is non-negotiable, or in better terms non-transferable. This means that the cargo carried on it cannot be transferred (sold), and the cargo can therefore only be issued to a specified consignee nominated by the shipper. Should the shipper wish to change his instructions, any such requests must be made in writing and is dependent on the carrier’s accept.

As a consequence, it does not require submission of the Sea Waybill to the carrier in order for the cargo to be released. However, as the cargo can only be delivered to a – by the shipper – specified consignee, the exchange becomes irrelevant anyway. Nonetheless, the carrier is still obliged to assure the identity of the consignee upon delivery, why the consignee must prove his identity to take delivery.

When is a Sea Waybill used?

It is common to use a Sea Waybill instead of af B/L when the consignee has paid for the goods in advance, ie. before the goods are shipped. Also, many trades are done under a Sea Waybills when the recipient of the cargo is known to the shipper, for example when shipping between related companies, or if there is a high degree of trust between the shipper and the consignee.

Sea Waybills are also often favorable to use when no transfer (sale) of the cargo is expected during transit (this requires an original Bill of Lading). This way the goods are shipped directly to the nominated consignee, and there is no need for the cargo to be ‘released’, as no Bs/L are issued when using a Sea Waybill. This saves a significant amount of time spent on paperwork as well as money spent on courier fees.

Bill of Lading or Sea Waybill – Which is the best option for me?

The key difference between the Bill of Lading and the Sea Waybill is the fact that B/L is ‘negotiable’ and the Sea Waybill is not.

It is our experience and general perception that 95% of transport buyers that use our website to import goods, could benefit from using a Sea Waybill instead of a Bill of Lading. In the following we will summarize why.

The businesses that benefit from Transporteca’s services are usually small or medium-sized, and are either new to the world of shipping, or have limited import needs.

Therefore, when importing our customers will most likely always:

1. Have paid for their goods up front
2. Have no need to sell their goods during transit

If the two above criterias are met, then a B/L loses its relevance, and is really not necessary. This because a B/L secures that payment of the goods is received before delivery can take place, and also that the goods are delivered to the rightful owner of the goods (should the ownership have shifted in transit).

Using a Sea Waybill as alternative to an original B/L in this case will greatly simplify the process, i.e. you will avoid the cost and the hassle of transferring the original documents. Accordingly, we always recommend you to ship the cargo under a Sea Waybill.

If your supplier insists on issuing the original Bill of Lading, and you are not planning on selling the goods during transit, then we recommend you to ask him for a telex release, which again, will make the paperwork and the process of transferring the documents a lot easier.

In conclusion, a Sea Waybill is almost always preferable for our customers – if you have paid for your goods prior to shipping, and if you are also the consignee, ie. no transfer of the goods will be done during the voyage.