The Bill of lading (B/L) is considered as one of the most important documents as to the transportation of goods. For the shipment of any goods, a bill of lading is issued in exchange of the goods and acts as a receipt and a contract.
The B/L is a document signed by a carrier (a transporter of goods) or the carrier’s representative and issued to a consignor (the shipper of goods) that evidences the receipt of goods for shipment to a specified designation and person or company. In other words, a completed B/L legally shows that the carrier has received the goods as described and is obligated to deliver those goods in the same condition to the consignee to the agreed destination.
There are three functions of a bill of lading:
- Evidence of Contract of Carriage
The B/L is the EVIDENCE of the contract of carriage entered into between the “Carrier” and the “Shipper or Cargo Owner” in order to carry out the transportation of the cargo as per the contract between the buyer and the seller.
- Receipt of Goods
A B/L is issued by the carrier or their agent to the shipper or their agent in exchange for the receipt of the cargo. The issuance of the B/L is proof that the carrier has received the goods from the shipper or their agent in apparent good order and condition, as handed over by the shipper.
- Document of Title to the goods
It means that whoever is the holder of the bill of lading has the title to the goods (i.e. rights to claim the goods or further transfer it to someone else). Without the original bill of lading, the goods cannot be taken delivery of at the destination.
The terms of the B/L describe the cargo for identification purposes; state the name of the consignor and the provisions of the contract for shipment; and direct the cargo to be delivered to the order or assigns of a particular person or company, the consignee, at a designated location.
As a document of title to the goods the B/L is negotiable which simplifies and accelerates the process of trading transactions. The holder of the B/L can sell the cargo by transferring the B/L to the new holder, even while the goods are still in transit. The B/L can also be used to facilitate financial transactions as a negotiable instrument for payments between a buyer and seller using Letter of Credits.
Upon arrival of the goods at the destination, the holder of the original B/L will present the original B/L to the carrier to take possession of the goods. On many occasions the vessel will arrive at the discharge port, but the original B/L may not yet be available. In this situation, the carrier often comes under pressure to deliver the cargo without the production of the original B/L.
In principle the consignee has no entitlement on the dispatch of the goods without the presentation of the original B/L. However, in order not to delay the discharging of the cargo, the consignee may request the carrier to discharge the cargo without production of the original B/L and agree to indemnify the carrier against the consequences of doing so. This is done by providing a Letter of Indemnity (“LOI”).
The key features of an LOI should include the following:
- Indemnify the indemnified party (usually the carrier), their servants and agents and hold all of them harmless in respect of any liability, loss, damage or expense of whatsoever nature which they may sustain by reason of delivering the cargo in accordance with the request to do so;
- Provide sufficient funds to defend any claim brought in connection with the delivery of cargo without B/L and
- Provide security in respect of any third party claims brought against the indemnified party, their servants and agents for delivery without B/L should the vessel or any vessel or property in the same or associated ownership, management or control be arrested or threatened with arrest.
A carrier that delivers cargo without production of the original B/L is potentially exposed to risk of mis-delivery of the cargo. Therefore, accepting to discharge cargo against an LOI should be carefully examined to consider the risks involved on a case by case basis, however always ensuring that the consignee is reputable and trustworthy.