Ocean Bill of Lading: Meaning, How It Works, Types and More

An ocean bill of lading is a legal document or contract between the shipper and a carrier through waters. The document can be used as a legally binding instrument. It is also a useful document for the exporter that can be presented to the bank for clearance of payment such as through a letter of credit.

An ocean bill of lading serves as a contract between the exporter and the shipper. It also serves the interests of the importer and helps secure the trade deal. Depending on the trade contract, it can be modified to different types.

What is an Ocean Bill of Lading?

An ocean bill of lading is a contract between the shipper and the carrier that includes shipping terms and details of goods such as type, quantity, and destination. It also serves as a receipt for the receiver at the destination. Thus, the document must have representation of all three parties.

The bill includes all relevant details related to the goods including the route and final destination. Often, it is difficult for the shipper to open and inspect goods in detail for quantity and damages. In that case, the shipper issues an “as-received” note to the receiver. The bill can serve as an important trade document for both parties in a trade deal as well. The issuing bank of a letter of credit also requires a copy of the bill of lading along with other documents to proceed with the payment.

How Does an Ocean Bill of Lading Work?

An ocean bill of lading is issued by the shipping company. The shipper has to seek clearance from customs for the shipment of goods. Once approved, the carrier can issue the bill of lading. It can be issued as a “received for shipping” or “on the board” bill as required by the shipper.

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Once the shipper receives the bill of lading, it then sends a copy to the receiver. The receiver (import of goods) would then use the copy to receive goods. The receiver would also confirm its issuing bank for payment clearance, provider the trade terms allow so.

Thus, a bill of lading serves different purposes to three main parties in a trade deal.

  • It acts as a legal document or contract between the shipper and the carrier.
  • It is used as a receipt of goods by the receiver.
  • It acts as a title document for the shipped goods.
  • It is used as a confirmation document (along with other requirements) by the banks for releasing payments.

An ocean bill of lading is issued with three original copies for each party. All three parties must sign the copies to complete the shipment process.

Types of Ocean Bill of Lading

An ocean bill of lading can be customized according to the needs of the shipper and receiver. Also, it can take different forms for the means of shipment used in the process. For instance, it can also embed an inland bill of lading along with an ocean bill of lading if the goods need to be carried over through a land route as well.

Here are some common types of ocean bills of lading.

Straight Bill of Lading

The straight bill of lading is a non-transferable document in which only the named receiver can claim possession of the goods. The receiver needs to present an original copy and proof of identification to receive the shipment.

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To Order Bill of Lading

It is issued as a transferable shipment document. It can be endorsed to the order as specified and then used for receiving the shipment of goods.

Clean/Claused Bills of Lading

These types of bills are categorized by the carrier when receiving the goods. If the carrier does not find any damages or loss of products in goods, it will issue a clean bill of lading. Otherwise, the carrier will mention the defect and issue a claused or dirty bill of lading.

On the Board/Received for Shipment Bills

If the bill is issued immediately after receiving the goods, it will be issued as received for shipment. If it is issued after the goods have been put on board the vessel, it will be issued as on the board bill.

Advantages of Using an Ocean Bill of Lading

An ocean bill of lading serves several advantages to all parties in international trade.

  • It acts as a legal document between the shipper and the carrier.
  • It offers valuable information to all three parties related to the status of the shipment of goods.
  • It is a useful instrument in international trade.
  • Banks use it for clearance of payment along with other documents.
  • It can be customized to different types according to the needs of the parties.

Disadvantages of Using an Ocean Bill of Lading

An ocean bill of lading can come with some limitations as well.

  • For certain types, the goods can be wrongly claimed by another party other than the original beneficiary.
  • Some types of ocean bills of lading can be risky for banks.
  • Issuing certain types of bills of lading can be complex, for instance, a clean bill of lading with larger quantities of goods.
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Conclusion

An ocean bill of lading is an important legal document that serves different benefits to all three parties in a trade deal. It can be customized to different types according to the needs of both parties. It’s a useful legal instrument that facilitates international trade.

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