Commercial Law

Bills of lading: Meaning, types, and uses

Foluke Akinmoladun MCIArb(UK)

Introduction:

The transport by sea of goods is unique in that, while the ship is on passage, the goods loaded in the vessel are, the ship’s sole responsibility and inaccessible to anyone except the crew. A great deal of the smooth operation of international trade depends upon taking proper advantage of these two facts.

Therefore, the subsequent carriage of goods on board a vessel is usually covered by a contractual arrangement referred to as a contract of affreightment. The contract of affreightment is the basis upon which the owner or charterer of the vessel accepts to carry goods or cargo on board a vessel on terms that majorly include an obligation to safely deliver the cargo at a named destination and to a named or an identifiable receiver. The terms of carriage are often spelt out in an internationally and commercially accepted document referred to as the “Bill of Lading.”

Meaning:

A bill of lading is defined as a document which is signed and/or issued by a carrier, shipmaster or by a duly authorised person, acknowledging that specified goods have been received onboard a vessel as cargo for conveyance to a named place for delivery to an identified consignee. The term derives from the noun, “bill”, a schedule of costs for a service supplied or to be supplied and from the verb “to lade” which means to load a cargo unto a ship or other form of transport. The word “lade” is of Old English and of West Germanic origin and related to Dutch and German word- ‘laden’, which means ‘to load’.

Historically, a bill of lading developed primarily as a document which constituted proof that certain specified goods were placed on board or received for placement on board a named ship for shipment. The strict liability terms of carriage under common law (which is the UK Court made law derived from principles embedded in cases and is different from laws made by the parliament of England); applied to carriage of goods. Over time, ship owners and carriers started introducing exception and qualifications into the bill of lading with the effect that their liability will be limited or reduced with respect to quantity, quality and safe delivery of goods. Progressively, the need to balance interest between carriers and cargo interests by the global nature of the shipping industry, began to take on national and international dimensions. This lead to the introduction of the bill of lading laws in several countries and various carriage of goods by sea conventions(often referred to as regimes) such as The Hague Rules, Hague-Visby Rules, Hamburg Rules and recently, the Rotterdam Rules.

Uses:

The functions of a bill of lading are as a document of title or as evidence of a contract. It is also used as a receipt for goods covering both quantity(set out in the body of the bill of lading) and the quality (covered by the words ‘in apparent good order and condition’). This ordinarily enables the consignee to claim against the carrier if there is a shortage or if the cargo is damaged. 

Today most cargo is shipped in containers and in case of full container loads (FCL), the question of quantity and quality is in the hands of the shipper. This part of the bill of lading will simply contain a container number, together usually with the seal number. In addition, the words, ‘said to contain’ when describing the cargo will be included. The consignee then has no claim against the carrier provided the container is undamaged and the seal is intact. Liability exists if it can be proved that the contents have been damaged as a result of the container being badly handled.

With less than container load(LCL) cargo, the carrier’s responsibility as regards the quantity and quality is the same as for break-bulk or conventional cargo. In the case of the break-bulk cargo, technically, the bill of lading does not begin to operate until the cargo crosses the ship’s rail at the time of loading. With container cargo, however, the receipt element of the bill of lading and also the carrier’s liability, comes into effect much sooner, possibly at the shipper’s premises. This is why a container’s bill of lading states, ‘received’ rather than ‘shipped’ above the carrier’s signature. In addition, the bill of lading needs a further endorsement to say when shipment actually took place in order to become a shipped on board bill of lading.

Payment for cargo may be arranged via the banking system through a documentary letter of credit. In such a case, the second part of a bill of lading’s role as a document of title comes takes effect. This time, it is used as security for payment. In such a case, the bill of lading is not made out to a named consignee but in the part of the bill of lading that , the words, ‘to order’ will appear. Such a document has to be endorsed by the actual shipper and thereafter does not need any further endorsement. It is now open and title to the goods belongs to anyone holding the bill of lading. Theoretically, they can claim the goods even if the bill of lading was found on the road. However, in practice, shipping lines and their agents are wary of handing goods to anyone who may have obtained the bill of lading illegally.

Once a cargo has been discharged and delivered to the person entitled to it, the bill of lading will no longer be a valid and effective document of title since it can no longer be transferred. The ability to transfer a bill of lading and the possession of the goods, which it represents, makes a bill of lading a much-valued commercial document. Where the parties have agreed on payment to be done by letter of credit, the issuing bank, that is the buyer’s bank, will not pay the seller’s bank unless it is satisfied with the documents, which the seller has tendered. 

No one has access to the cargo while it is on board a ship at sea. During this time, the bill of lading becomes a negotiable document enabling a named consignee to sell the cargo and pass title to the cargo by endorsing the bill of lading by signing on the back. There is no limit to the number of times a bill of lading and title to the cargo can change hands in this manner, but it must take place while the cargo is still on the ship. Although title to the goods may be transferred from one person to another, the actual contract remains between the original shipper and the carrier. 

There are various types of bill of lading and their forms develop with the needs of commerce and trade. There are different criteria on which bill of ladings can be defined and differentiated. Few of these criteria being the “place from where carriers takes the responsibility of the cargo” (Port to port, Multimodal and through bill of ladings); or if the owner of the cargo can sell the cargo before it reaches by transferring the title of the bill of lading (Negotiable and non-negotiable bill of lading).

The different types of bill of ladings are based upon Negotiable and non-Negotiable documents, which are the major form, that bill of lading come in. The main difference between the two types is title (ownership) of the one can be transferred to another party while the other is consigned to a named party and hence he/she has to be the final recipient of the cargo as the title of this type of bill of ladings cannot be transferred. Negotiable and non-negotiable types of bill of ladings should not be confused with the “negotiable” and “non-negotiable” copies of signed bill of ladings.

The main types of bill of lading thus are:

  1. Received bill of lading
  2. Shipped bill of lading
  3. Transhipment bill of lading
  4. Groupage and house bill of lading
  5. Combined transport bill of lading
  6.  Straight bill of lading:
  7. Order bill of lading
  8. Bearer bill of lading
  9. Switch bill of lading

Types of Bill of ladings based upon carriers responsibility

  1. Port to port bill of lading (also called Ocean bill of lading)
  2. Multimodal or Combined bill of lading
  3. Through bill of lading (subsuming bill of lading)
  1. Received bill of lading

This is a bill of lading for cargo that has not shipped yet. It is in charge of the carrier though. It may be in the dock warehouse or at the container freight station or inland container depot. A buyer ender a cost and freight arrangement may not ordinarily accept such a bill of lading for financial settlement through the bank.

  1. Shipped bill of lading

These are preferred by banks, which facilitate financial settlement of international trade because they provide the best evidence that the cargo described on the face of the bill of lading is actually on board the carrier’s vessel.

  1. Transhipment bill of lading

Many carriers do not have direct service between the port of loading and that of discharge, owing to the distance and in some cases owing to the size of the ship involved. For such cases and other such instances, a transhipment bill of lading is issued at a cost to the last carrying vessel. The major challenge however, with transhipment bill of lading is that it increases the risk of damage to cargo.

1. Groupage and house bill of lading

Where several importers bring in goods together from the same country or area, they can have all their goods shipped in one container through the process of cargo consolidation. Here the carrier will issue only a groupage bill of lading to the shipper. The shipper in turn issues various house bills of lading, which are distributed to the respective part owners contents of the container. The house bill of lading thus serves as the receipt for the cargo.

  1. Combined transport bill of lading

This is a bill of lading used for the transportation of cargo that is not restricted to only one mode of transportation. The consignment will be transported with at least two forms of carriage. This type of bill of lading has become particularly important because many major shipping lines do door-to-door carriage and thus have logistics departments that are engaged in the management of door-to-door cargo movements. 

  1.  Straight bill of lading:

The straight bill of lading is specified to the particular party and the specified party cannot re-assign it to anyone else. The party only has to take the delivery of the cargo and the cargo cannot be sold by transferring the bill of lading to another party’s name.

  1. Order bill of lading

This is the bill of lading that one would mostly come across onboard. The bill of lading is to the consignee or to his order. That is the named consignee will be the owner of the cargo or he can order the shipment to be delivered to another party by endorsing the bill of lading to that party. As the title (ownership) of the bill of lading can be transferred, Order bill of lading is negotiable document.

  1. Bearer bill of lading

The bearer bill of lading is the one in which the bearer of the bill of lading is the owner of the cargo and there is no consignee named in the bill of lading. This kind of bill of lading is very seldom found, as there are huge risks involved in the misuse of this kind of bill of ladings. Again, as the title (ownership) of the bill of lading can be transferred, Order bill of lading is negotiable document.

  1. Switch bill of lading

This can said to be the duplicate bill of lading for a cargo of which the bill of lading was already issued. Switch bill of lading is generally requested by the consignee from the owner of the vessel when the consignee does not wish to reveal to the new buyer the identity of the shipper of the cargo.

Types of Bill of ladings based upon carriers responsibility

  1. Port to port bill of lading (also called Ocean bill of lading)

In this kind of bill of ladings, Carriers responsibility starts at port of loading and ends at port of discharge.

  1. Multimodal or Combined bill of lading

This kind of bill of lading covers more than one mode of transfers (for example, Ocean and rail or Ocean and road) and covers all the mode of transfers. Carrier has the responsibility from place of receipt to place of delivery of the cargo. Carrier can hire/sub contract to carry the cargo in one or more mode of transfers.

  1. Through bill of ladings

The main difference between multimodal and through bill of lading is that in through bill of lading there is only one mode of cargo movement but has different legs, like sea and inland waterways. Whereas in multimodal bill of lading there has to be at least two modes of cargo movement (like sea and land). With respect to carrier’s responsibility, in through bill of lading, carrier is responsible only for their leg of sea transport. Many believe there is no difference between the Multimodal and through bill of ladings, which is not correct.

Without a doubt, bill of lading is by far the most important contract of carriage. Its commercial viability and usefulness makes it an important document of evidence of title and carriage of goods. The use of the bill of lading has evolved over time to accommodate the new trends in cargo business particularly multimodal transport and is coming in different forms outside the paper form with the electronic form increasingly becoming popular. An understanding of the meaning, use and types of bills of lading is important in the maritime business.

Foluke Akinmoladu is Managing Solicitor,Trizon Law Chambers

Foluke.a@trizonlawchambers.com

 

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