Bill of Lading

A bill of lading (BL) refers to a mandatory legal document released by a shipping agency or carrier to the shipper for transporting goods. It is issued as evidence that the carrier has received the consignment and undertaken to deliver it to the destination as per agreed terms. It also serves as proof of ownership of shipped goods.

A BL is one of three vital documents used in international trade. It reads the shipment details, including the consignment’s type, weightage, cost, quantity, and delivery address. Besides, it also bears the signature of the shipper, receiver, and carrier. Thus, a BL confirms the shipment of stipulated goods from a seller to a buyer through a shipping agent in accordance with its tariff.

• A bill of lading is a transit document issued by the carrier or the shipping company to the consignor while shipping the goods or the consignment to the consignee.
• It serves three essential purposes, i.e., it acts as a transit receipt, a document of title for the shipped goods, and evidence of the contract between the consignor and the shipping line.
• It bears the shipment details, including the shipper and the consignee's name and address, freight details, value of goods, and the signatures of the consignor, carrier, and consignee.

A bill of lading is simply a transit receipt issued by the carrier during the cargo shipment from the sender to the receiver. It is a document used to ensure that the importers receive their merchandise while the exporters receive their payments. In addition, it is a legal document representing the agreement between the shipper and the carrier for the transportation of the consignment.

Once a buyer and seller enter into a contract to trade goods, the seller or shipper ships the goods through a shipping agent or carrier to the buyer. First, the shipper's custom house must approve the 'let export' order for the subject consignment. Then, it is the responsibility of the carrier to issue the BL after confirming receipt of cargo from the shipper.

Now, the consignment/cargo is under the carrier's custody, and it has official permission to transport the goods from the origination port to the destination port. On obtaining the BL from the shipping agent, the shipper sends it to the buyer. The buyer uses it to receive the shipped goods at the destination. Typically, both the buyer and seller use the services of a bank to effect payment and collection.

The banks and brokers act as mediators in the dealing to safeguard the interest of both parties. Thus, the payment is released through a third party only when the consignment reaches the receiver in the expected condition, quality, and quantity.

A BL may be negotiable or non-negotiable. A negotiable BL can be transferred to the third party, while a non-negotiable BL cannot be. Anyone possessing a negotiable BL can take delivery of the goods from the carrier. However, a carrier can release the goods only to the consignee named in a non-negotiable BL.

Thus, BL is the carrier’s record of transportation of goods in return for payment of transportation charges. The freight is the aggregate of all the charges associated with the transport of a consignment, according to the applicable tariff on the BL. In addition, it includes the cost of storage and demurrage. The freight expense is calculated based on the particulars provided by the shipper.

Moving on to the BL format, let us see how a generic BL looks like:

The above BL template has the following sections to be filled in:

Let us assume that ASD Inc., a spice distributor in the U.S., imports some of its spices from one of the biggest suppliers, XYZ Ltd., in Mexico. The companies enter into a contract whereby ASD orders 20 packages of spices. XYZ takes the order for shipment to the carrier, PQR Line. Accordingly, PQR Line issues the following BL:

As evident, the BL serves as a PQR’s record of the receipt of the goods from XYZ Ltd. In addition, it specifies shipment details like commodity type, quantity, and address of the consignor and consignee.

Besides, it also acts as an agreement between XYZ and PQR to transport the specified goods from Mexico to the U.S. in return for payment of the agreed tariff. ASD, the consignee or buyer, can receive the delivery of the packages by presenting a signed original copy of the BL.

A recent report in Bloomberg discusses the introduction of the electronic bill of lading (eBL) by container shipping and logistics company MSC Mediterranean Shipping. The company seeks to use blockchain technology to revolutionize the shipping industry.

With its eBL, MSC aims to provide its customers with a paperless, online environment for managing shipping documents. The company's move is expected to make the shipping process fast and secure by doing away with physical transactions.  

The BL is a transport document that legally binds all the involved parties, i.e., the sender or shipper, the carrier, and the receiver. Also, it serves the following purposes:

• Shipment Receipt: It certifies that the shipper has handed over the goods to the carrier in good condition for shipment.
• Contractual Evidence: A BL acts as proof of the carriage contract between the shipper and the carrier or shipping agency.
• Document of Title: A BL is a document of title that states the ownership or possession of the goods in transit.

BL can be different depending on its terms and conditions. These are as follows:

1. Master BL: Master BL is issued by the principal carrier to a freight forwarder to deliver the shipper's goods at the destination. In turn, the freight forwarder gives a House BL to the shipper. Both the bills hold all the shipment details, such as terms of transportation, name of the shipper, consignee, carrier, etc.
2. Straight BL: It is a non-negotiable document wherein the consignee pays off in full for the consignment, which is a risk on their part. From a banker's perspective, it is not a safe form of carriage contract. 
3. Clean BL: The carrier examines the goods in the consignment and releases a clean BL to state that the goods received for transit are in the mentioned quantity, proper packaging, and sound condition.
4. Claused BL: It implies that the carrier has spotted some damage or quality issue in the consignment or found that the quantity is not apt, such as some parts or the entire goods are missing. The problems are mentioned in the BL for the consignee and the payment releasing bank.
5. Container BL: Such a BL declares that the goods are delivered in a protected container from the origination port to the destination port.
6. Received for Shipment BL: The carrier provides it as an acknowledgment before loading the vessel with the consignment. Such a BL is converted to shipped BL on loading.
7. Shipped BL: This form of a BL is released when the cargo is loaded for transit, and it replaces the received for shipment BL.
8. Through BL: It permits the carrier to transport the consignment through multiple distribution centers, including a combination of the ocean and inland BLs.
9. Short-form BL: It is a document with limited information; the terms and conditions of the carriage contract are not mentioned.
10. Order BL: In such a BL, the consignee allows and mentions a third party to accept the delivery of goods on their behalf.
11. Bearer BL: In a bearer BL, the consignee's name is stated as the bearer, and the delivery of goods is made to the person who presents the BL document at the destination.
12. Inland BL: An inland BL is created for transit goods via roads, railways, or inland waterways within the country.
13. Overseas BL: It is a BL formed for the international shipment of goods, i.e., from one nation to the other.

This has been a Guide to the Bill of Lading and its definition. Here we explain Bill of Lading along with its format, purpose, types and examples. You can learn more about financing from the following articles -

• Bill of Materials
• Bill of Sale
• Bills of Exchange
• Goods in Transit