What is a Bill of Lading?

By definition, the term lading means arranging the transportation of goods on a carrier of any type. Hence the term Bill of Lading (B/L) would mean the documentary evidence of goods transported through any means of carriage.

Bill of lading is used commonly in both domestic and international trade. Domestic examples of the B/L may include any local goods transportation between the buyers and suppliers. A wholesale distributor receives the order, contact the freight forwarder and the transporter of the goods will create a Bill of Lading, and ship the goods to the receiver.

What is the Bill of Lading (B/L)?

The goods carrier or the freight forwarders issue the documentary evidence of the goods they ship or forward to the destination ordered.

It is a legal document that describes all the details of the shipment including date, quantity, destination, and the consignor/consignee details.

As mentioned, the transport or carrier of goods issues the B/L. the bill must include all the important details relating to the goods including the quantity, size, dimension, final destination, and the receiver details.

Purpose of Bill of Lading

It serves as a legally binding document for all three parties involved in the transportation of trade goods. Without a legal document, the carriage or transportation of the goods in the correct order would become impossible.

It serves as:

  • A receipt of goods for the shipper or the exporter from the freight forwarder.
  • When the goods are delivered to the consignee, the same B/L acts as the confirmation of the goods delivery.
  • The consignee then sends the document endorsement to the shipper (exporter) who can now claim the payment in the form of a Letter of Credit or Guarantee.
  • It serves as the payment order or charge receipt for the shipper and secures them for the payments.
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The main purpose of the Bill of Lading is to serve as a legal document that binds all the parties involved in the trade. The exporter is at risk of payment failure and loss of goods, the shipper concerns about the payment; the importer is at risk of not receiving the goods. In a sense, a B/L along with other important documents serves as a part of the legal binding in trade contracts.

Why it is Important in International Trade?

A bill of lading serves the same purpose of legally documenting the goods for both domestic and international trades. However, it is far more important in international trades. The supplier and the importer both have their concerns and trust deficit. It bridges that gap.

A bill of lading in the international trade typically acts as:

  • A document of title by nominating the ownership and the receiver explicitly
  • The B/L serves as a legal contract between the shipper and the carrier
  • It also plays an important part in releasing the Payment for the exporter after the endorsement of goods receipt
  • The B/L acts an insurance coverage for the goods transported
  • It secures the payment terms for both the shipper (from the importer) and the carrier (from the shipper)

The best use of the B/L is to serve as a binding contract for all three parties involved in international trade. Most of the international trade payments are made through the LC and LG mechanism. The exporter can present the documentary evidence before the bank to claim the payments. The importer also secures the interest by matching the Purchase orders against the B/L and the payments through LC.

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Negotiable Vs Non-Negotiable Bill of Lading

A negotiable bill of Lading

In this type of B/L, the possession of the holder of the original bill claims the receipt of the goods shipped. It includes all the important details about the goods shipped. The goods can be handed over to the receiver (a freight forwarder or consignee) upon showing the original bill. It serves where the goods need to be shipped through multiple resources from origin to the destination.

Non-Negotiable Bill of Lading:

This type of B/L comes with strict instructions about the receiver of the goods. The goods can only be delivered to the recipient of the goods mentioned in the B/L. In a sense, it does not transfer the contract of the goods carrier to any third-party.

Types of Bill of Lading

Bills of lading can be categorized in many ways. By means of transportation, by type of contract, and by nature of the contract.

Bills of Lading by means of Transportation

Ocean bill of Lading

It is used when the shipper needs to make sure the payment is released upon receiving the exported goods at the final destination. The shipper keeps the original bill of lading unless the payment is cleared. As the name suggests, it works with international shipment through international waters.

Sea Way bill of Lading

It serves as a non-negotiable bill of lading and the shipper may not hold the control as much as with the ocean B/L.

Inland Bill of Lading

It is used when the mode of transportation is through inland means by rail, trucks, or any other carriage transport. The destination of delivery can be international or domestic.

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Master Airway Bill of Lading

This type of B/L is used when the mode of transportation is air. MAWBL works as a non-negotiable legal document meaning only the nominated receiver can claim the possession of the goods.

Bills of Lading types by Contract

Straight bill of lading

In this type of B/L, the shipment is delivered only to the consignee and the payment is released instantly once the goods are received.

Clean bill of lading

This contract requires the shipment to be delivered in good condition. The carrier is legally bound to deliver the packaged goods in good condition. These contracts are usually expensive than others.

Dirty clause bill of lading

If any shipment ends up in an objection from the receiver or consignee the contract is termed as dirty or claused. Usually, the negotiable B/L where the transportation changes hands end up as dirty bills of lading.

Switch bill of lading

If the trade happens immediately to another party, the importer or the buyer issues another B/L. This second B/L is termed as the switch bill of lading.

Conclusion

A bill of lading is a legal document that secures the terms of transportation of goods. It is particularly important in international trade where the payment is released upon goods delivery or receipt. The consignee and the shipper can both work mutually on the B/L terms. The carriage or the goods transporters can also claim the document as a legal contract for their payment claims.

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