BILL OF LADING – Detailed information on B/L and checks to be made by master prior signing same.

What is Bill of Lading

A bill of lading is a receipt for goods placed on board or to be placed on board a vessel, signed by the person, who contracts to carry them or his agent, and is the written evidence of the terms on which the goods are to be carried for a specified freight.

Functions of bill of lading: There are four important functions of a bill of lading :

1. A bill of lading is a receipt for the goods by the carrier.
2. It is written, but not conclusive evidence of the terms of the contract of carriage.
3. It is a negotiable or quasi-negotiable document through the bank
4. It is a document of title.

1.         Receipt of goods:  As per the indian bill of lading act 1856:”every bill ogf lading in the hands of a consignee or endorsee for valuable consideration, representing goods to have been shipped on board a vessel, shall be conclusive evidence of such shipment as against the master or the person signing the same.

2.         Written evidence of terms of contract: Though no document is legally necessary in the contract of affreightment between the carrier and the shipper, in practice the terms agreed are invariably expressed in writing in the form of a charter party or a bill of lading or both. The bill of lading embodies a number of clauses. Regarding the custody and care of cargo during the voyage the ship owners are responsible under the provisions of the carriage of goods by sea act.

3.         Negotiable document: Bill of lading making goods deliverable “to order” or “to order or assigns” are by mercantile custom “negotiable and transferable:. This does not connote true negotiability in law.

4.         Document of title: Because a bill of lading is a document of title, it becomes possible to effect “high sea sales” by the consignee, by endorsing the bill of lading in favour of the purchaser of the goods. High sea sales do not attract sales tax.

Types of bill of lading:  bills of lading are usually classified as follows:

1. Clean bill of lading
2. Claused bill of lading
3. Received for shipment bill of lading
4. Through bill of lading
5. Through transport bill of lading
6. Switched bill of lading
7. Split bill of lading
8. Stale bill of lading

1.         Clean bill of lading:  This bill of lading does not incorporate any adverse remarks regarding the cargo or packing. This signifies shipment is in good order and condition. Buyers generally stipulate in their l/c, for a clean bill of lading. Banks will accept only clean bill of lading before value of goods are released to the shipper.

2.         Claused bill of lading: Here bill of lading incorporates some remarks or adverse marks, e.g. “5 cases broken”. If l/c stipulates a clean b/l, the bank will not accept “claused b/l”. Some times carriers accept a letter of indemnity from shippers to issue a so called clean b/l, but it is not legal.

3.         Received for shipment bill of lading: Here the carrier issues “received for shipment” bill of lading, when the shipper presents cargo, whilst the ship will be arriving and loading the cargo later. This practice is in vogue in the usa. This b/l is negotiable through the banks in the usa.

4.         Through bill of lading:  When the cargo is to be transshipped at an intermediate port by another vessel, the first carrier issues a through b/l, collecting freight covering transit from the port of shipment to the final port of discharge. The b/l is negotiable and the cargo will be released by the second carrier at the final port of discharge against surrender of the through b/l issued by the first carrier.

5.         Through transport bill of lading: The carrier accepts the cargo for an inland discharge destination and issues through transport bill of lading to cover the leg from port to port and port to inland destination.

6.         Switched bill of lading: This b/l is issued to overcome sanctions/political problems. Instead of issuing b/l from mumbai to karachi; b/l is issued from mumbai to dubai and dubai to karachi.

7.         Split bill of lading:  If the shipper, after having shipped the cargo and obtained the bill of lading wants to send the cargo to two consignees, instead of one, he surrenders the original b/l and obtains two new b/l with new quantities.

8.         Stale bill of lading:  When the original b/l reaches the cosignee after the vessel’s arrival at the destination, it becomes stale. Because of such delayed arrival of the b/l, the consignee cannot clear the goods with in free days allowed by the port, thus incurring demurrage on the cargo. Documentary credit rules provide 21 days from the shipment date for negotiating b/l with the bank by the shipper. If the shipper goes to the bank after 21 days, the bank will deem the b/l as “stale” and will not pay the shipper.

9.         Short bill of lading: In this b/l only essential information required will be mentioned, without stating all the terms and conditions of a full fledged b/l. Nevertheless, this b/l is subject to all terms and conditions of a regular b/l. Sometimes “short b/l” term is used to denote a b/l issued under a charter party, serving only as a receipt of the goods received on board the ship.

Contactual rights under a bill of lading:

1. Contract of affreightment
2. Bailment

Checks to be made before signing bills of lading:

The following checks should be made prior to signing the bill of lading:

1.         Bill of lading on the form prescribed by the charter party or in the ordinary form for the trade.

2.         All the contractual terms required by the charter party, appear in the bill of lading.

3.         Correct name of carrying vessel.

4.         Correct description of voyage, i.e. the place of loading and place of discharge. Bills of lading covering the carriage from/to a place other than the place of loading and discharge usually provide for the place of receipt and/or the place of delivery (similar words may be used). If in doubt, the master should check with company that it is correct for the bill of lading to refer to such places.

5.         Place of discharge is safely reachable by the vessel and within any charter party geographical limits.

6.         Correct place and date of shipment, i.e. the day of loading. If the cargo covered by the bill of lading concerned has been loaded over several days, then the day of completion of loading is the correct date.

7.         Accurate description of the goods as shipped – marks, apparent order and condition, including packing condition and adequacy, and number, quantity or weight). Is clausing of the bill of lading necessary? Check for statements which conflict with the description of the goods.

8.         Correct name of the shipper. The consignee may or may not be named or the words “to order” or “bearer” may appear this is usually of no concern to the master when signing.

9.         Charter party incorporation clause inserted, as applicable

10.       Claused “shipped on deck” if cargo so carried.

11.       Protective clauses inserted as required by the company, e.g. “shipper’s load, stow and count” (for containers), retla rust clause (for steel shipments), “carried on deck at shippers risk without responsibility for loss or damage howsoever caused”.

12.       Carriage terms inserted as required by the company, e.g. “free in, free out”, “liner in, liner out” etc. Such terms set out the carrier’s period of responsibility for caring for the cargo and who is responsible for paying for the load and discharge operations. The terms may be abbreviated, e.g. fifo, lilo etc. If the master is in doubt as to what these mean, he should seek the company’s clarification and instructions.

13.       The number of original bills of lading stated to exist is correct. The master should only sign the correct number of originals and should also ensure that each is identical and marked or stamped original.

14.       Bill of lading copies should be marked/stamped non-negotiable copy.

15.       If a cargo value is stated in the bill of lading, the master should inform the company immediately as extra insurance may be necessary and/or additional freight may be due. P&i cover generally excludes bills of lading with a stated cargo value.

16.       Any carriage instructions, e.g. carriage temperature, inserted in the bill of lading should be checked against other documents in the master’s possession, e.g. mate’s receipt, voyage orders, shipping order etc. If the master is unsure about the carriage instructions, he should clarify them with the shipper and the company.

17.       For shipments to the united states the bill of lading should show a series of numbers and/or letters which are unique to the carrier and bill of lading.

18.       Any freight statements appearing in the bill of lading should be clarified with the company if the master is in any doubt.

19.       The master should sign in the place designated for signature in the bill of lading or if there is no such place, at the bottom of the bill of lading face. The master should not sign or stamp anywhere else in the bill of lading, especially not next to the shipper’s description of the cargo as this as may be interpreted as an acceptance of the description.

Signature under duress

If the master feels that he has signed a bill of lading under duress or threat of any kind, he must inform the company as soon as it is safe to do so. He should also make a detailed report of the circumstances involved.

Incorrect/inaccurate bill of lading signed

If the master feels that a bill of lading has been signed which contains incorrect or inaccurate information, he should inform the shipper and the company immediately (confirming in writing).

Ship’s copy

A copy of the signed bill of lading marked/stamped non-negotiable copy should be retained by the ship for comparison with the original bill of lading presented for delivery.

Early departure procedure (EDP)/signing blank bills of lading

Predominantly in the tanker trade, a shipper, loading terminal or charterer may request the ship to follow early departure procedure (EDP). Amongst other things, EDP usually involves the master issuing a signed but otherwise blank bill of lading form. Alternatively, the bill of lading may be completed except for the quantity or weight. Clearly this procedure exposes the company to significant liabilities. Accordingly, if the master is requested to follow EDP and/or sign a blank bill of lading he should refuse and contact the company immediately.

Ten golden rules for the delivery of cargo (FAQ ON B/L’S)

1. Bills of lading:

Always obtain the original bill of lading and not a “non negotiable copy”

2. Bills of lading:

Always obtain the correct bill of lading.

A container or a parcel may contain cargoes, for which more than one bill of lading have been issued for part cargoes. Release only that amount of cargo which is on the bill of lading. 

3. Delivery of cargo against an indemnity:

One of the agent’s option, when original bill of lading is not available, is to give delivery against a letter of indemnity (bank guarantee)

The indemnity does not relieve the carrier of liability to the cargo owner; it only provides for compensation for amounts which the carrier may have to pay to the original bill of lading holder.

4. Has your principal given written authority to release & agreed to the wording of security?

It is important that the ship’s agent obtain his principal’s written authority to release cargo without bills of lading; he should also follow the wording and security recommended by the ship owner.

5. Has the cargo owner authorised release in writing?

The ship owner’s agent should check both with his principal and shipper to ensure that the ship owner had agreed to the release without the original b/l and the shipper had given permission to the receiver to take delivery of cargo without original b/l and his authorization.

6. Is it counter signed by a first class bank?

Before releasing the cargo against indemnity counter signed by a bank, it should be checked whether the bank is first class or not. Additionally the agent should contact the bank to confirm that the bank had issued the indemnity/ counter signed it.

7. Is it addressed to the carrier & his principals?

Agents must always ensure that the letters of indemnity cover all parties who may seek to rely on them.

8. Does it contain adequate financial & time limit?

Agents should always be careful to ensure that the letter of indemnity covers all claims and costs which could be incurred.

The general rule under english law is to obtain a letter of indemnity valid for 7 years, the 6 year statutory period, plus 1 year allowed for the serving of a writ.

9. Do the goods itemised correspond exactly to those in the delivery order?

The quantity to be delivered should only be that mentioned in the letter of indemnity and not more.

10. Is it an original document?

The agent should check whether the letter of indemnity is original or any faxed or photocopy of same. He should not release cargo against copy of letter of indemnity.