A bill of lading acts as a legal document between the shipper (consigner) and the carrier of the goods. It also works as insurance of goods receipt for the buyer (importer) before making the payment. A negotiable bill of lading is one form of such a legal contract that comes with the flexibility of transferable ownership of the bill.
What is a Negotiable Bill of Lading?
In a negotiable bill of lading, the holder of the original bill can claim the possession of the goods shipped. Any bill of lading serves as the acknowledgment of the delivery of the goods. The shipper (exporter) of the goods may explicitly nominate the recipient of the goods as the importer only, or keep the nominated open.
In a blank or open recipient bill of lading, the holder of the original bill can take possession of the goods. As the receiver changes hands before the goods reach the final destination, the term negotiable comes into play.
The transferability clause of a negotiable bill of lading makes it possible for the buyer (importer) to consign the shipped goods to another party. In international trade, it can happen when the importer (intermediary) is different from another buyer. In long-distance shipments, the contract can be used by the carriers from the originators and the freight forwarding agents. The blank recipient column makes it possible to deliver the goods to a third-party.
Who Should Endorse Negotiable Bill of Lading?
An endorsement of a bill of lading is the acknowledgment of the possession of the shipment. When the bill of lading is non-negotiable only the recipient mentioned in the bill can receive and endorse the bill of lading. With a negotiable bill of lading, the recipient is left blank; hence the endorsement can take place from several parties.
The endorsement like the B/L and other trade documents also serves as the legal transaction. In many cases, the release of trade payment is linked with the delivery of the goods. Depending on the terms agreed upon by both parties, the endorsement will require different steps. For example, the consignee may validate the goods are in good condition before making the endorsement.
As there are different forms of negotiable bills of lading, the endorsement party will vary according to the type of negotiable bill.
An endorsement of Bill of Lading will happen as:
- Blank Endorsement: it happens when the negotiable bill of lading does not specify the recipient. The holder of the original bill of lading can endorse the receipt of the goods. Usually, the goods transporters (carriers or freight forwarders) would make such endorsements and return an original copy to the shipper.
- To Order of the Shipper: It states the shipper of the goods must endorse the bill of lading.
- To order of the consignee: The consignee or the trade recipient of the goods will make the endorsement of the bill.
- To Order of the Bank: International trades take place through the use of a Letter of credits and guarantees. The exporter may nominate the issuing bank to endorse the bill of lading.
Goods carrier or freight forwarders can only endorse the bill of lading if it is blank or nominated. The bank usually endorses the bill of lading with large trade volumes where the release of funds through LC takes place.
Why Endorse Negotiable Bill of Lading?
Negotiable bills of lading usually take the form of the blank endorsement with multiple original copies. The possession of the goods from originating place to the shipment and consignee changes hands. The final endorsement needs to come from the buyer (importer) of the goods though. The endorsement may come directly or through the issuing bank or any third-party. The purpose of the endorsement serves as the legal transaction acknowledging the delivery of the goods with specified terms.
Without the endorsement of the bill of lading, the trust deficit between the importer and exporter will remain intact. The endorsement becomes particularly important if the bill is a clean bill of lading. In that scenario, the nominated party must also verify the good condition of the goods shipped.
In either case, the legal endorsement secures all parties involved in the trade. The shipper can claim the payment once the goods are delivered and endorsed. The exporters can claim the trade payment for the release of LC after receiving the endorsement and bills of exchange.
How to Endorse Negotiable Bill of Lading?
The purpose of an endorsement is to provide legal cover to all parties in the shipment of goods. Depending on the type of Bill of lading, the nominated entity will endorse the bill of lading. The endorsement can happen electronically or through paper stamping and signatures. However, the electronic endorsement of negotiable bills of lading has limited functionality in international trade.
The procedure of endorsing the negotiable bill of lading follows the steps:
- The exporter (or seller of goods) requests an application of endorsement.
- The freight forwarder or carrier issues a notice of readiness for the shipped goods.
- The nominated party (importer) presents the accompanying documents such as an original bill of lading, invoices, PO, and bill of exchange.
- The exporter needs to secure the payment procedure before the endorsement usually through an LC.
- Depending on the bill of lading terms, the nominated party, either recipient of the goods or the bank verifies the genuineness and completeness of the accompanying documents.
- A negotiable bill of lading may issue a blank endorsement nomination. In that case, the importer will make the endorsement.
- Under a “to order of bank/carrier” the relevant party will make the endorsement on the bill of lading.
- The exporter can then approach the bank with endorsement, bill of exchange, invoices, PO, and other trade documents to release the letter of credit funds.
With a blank endorsement, the carrier and the freight forwarders will endorse the bill of lading. The first endorsement may take place as soon as the carrier takes possession of the shipment. The final endorsement, however, must come from the nominated bank or recipient of the goods (importer) to complete the trade contract.
Endorsement of bill lading may happen as electronic or by stamp and signature. It serves as a legal transaction and accompanies the legal documents with international trade. It is usually used to mark the completion of goods shipment and ensure the trade completes as the agreed terms.