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Blockchain for Trade Finance

OCEAN BILL OF LADING

The ocean bill of lading is abbreviated as ‘bill of lading’, and it is a written certificate issued by the ship or its agent to prove that the goods have been received and allowed to be shipped to the destination and delivered to the shipper. It is a proof of contract between the carrier and the shipper. It has the effect of a property certificate in law.

Bill of lading sample:

I. CONTENT OF BILL OF LADING


According to Article 73 of the Maritime Law of the People’s Republic of China, implemented on July 1, 1993, the following items should be recorded on the front of the bill of lading:

  1. The name, mark, number of packages or pieces, weight or volume of the goods, and a description of the nature of the danger when transporting dangerous goods.
  2. The name of the carrier and the main business office.
  3. The name of the ship.
  4. The name of the shipper.
  5. The name of the consignee.
  6. The port of loading and the date of receiving the goods at the port of loading.
  7. Unloading port.
  8. The multimodal transport bill of lading with the location of receiving cargo and the location of document cargo.
  9. The date, place, and number of copies of the bill of lading.
  10. The payment of freight.
  11. Name of the carrier or its representative.

II. TERMS OF THE BILL OF LADING


The terms printed on the back of the bill of lading stipulate the rights, obligations and liability exemptions between the carrier and the cargo party. This is the main legal basis for both parties to handle disputes. The main causes include:

  1. Definition clause – defines ‘carrier’, ‘shipper’ and other related parties. Carrier includes the shipowner, who has a contract of carriage with the shipper. Shipper includes the consignee, who is the bill of lading holder and cargo owner.
  2. Jurisdiction clause – states that the court has the right to hear and resolve dispute cases.
  3. Duration of liability – stipulates the period during which the carrier shall be liable for the loss or damage of the goods. Generally, the ocean bill of lading stipulates that the carrier’s liability period starts when the goods are loaded on the ship and lasts until they are discharged from the ship. The container bill of lading is valid from the carrier’s acceptance of the goods until delivery to the designated consignee.
  4. Packages and marks – the shipper is required to provide proper packaging and correct marks for the goods. Expenses incurred due to unclear marks or poor packaging shall be the responsibility of the cargo owner.
  5. Freight and other charges – If the freight is prepaid, it should be paid at the time of shipment; if it is cash on delivery, it should be paid at the time of delivery. If the ship and cargo have any loss, the freight shall be paid, otherwise the carrier can exercise a lien on the cargo and documents.
  6. Transhipment clause – Although the carrier has issued a direct bill of lading, it can still be transhipped freely. This does not require the consent of the shipper. Transhipment fees are borne by the carrier, but the risk is borne by the shipper. The carrier’s liability only includes the section of transportation completed by the ship he owns.
  7. Inaccuracy in particulars furnished by shipper – the carrier has the right to check the quality, weight, size and content of the cargo declared by the shipper at the port of shipment and the port of destination. If it is found to be inconsistent with the actual situation, the carrier may charge a freight penalty.
  8. Limit of liability – stipulates the carrier’s compensation limit for losses caused by the loss or damage of the goods. The compensation amount for each piece or unit should not exceed a certain amount.
  9. General Average (G.A.) – stipulates what rules should be used to adjust the calculation in the event of General Average. The York Antwerp Rules 1974 are generally adopted internationally. In China, bills of lading are routinely set in accordance with the Beijing Adjustment Rules 1975.
  10. American clause – stipulates that the transportation of goods to and from United States ports can only be applied to the Carriage of Good by Sea Act, 1936. The freight is carried out according to the rates registered by the FMC. If the bill of lading clauses have some conflicts with these rules, the US law shall prevail. This clause is also called the ‘Local Clause’.
  11. On-deck cargo, live animal, and plants – For the acceptance, handling, transportation, custody and unloading of these three kinds of goods, the shipper shall bear the risks and the carrier shall not be responsible for any loss or damage.

III. CLASSIFICATION OF OCEAN BILL OF LADING


There are different classification standards used to divide the Bill of Lading into many types:

Category 1. Classification according to the title of the consignee of the B/L

 

1. Straight B/L

The name of the consignee is specified and the goods can only be delivered to and received by this named consignee. If the carrier delivers the goods to a person other than that specified on the bill of lading, the carrier shall be responsible even if that person possesses the bill of lading. This type of bill of lading loses the convenience of the transferable circulation of goods, but it can avoid possible risks during the transfer process. It is generally only suitable for the transportation of valuables and is rarely used in international trade.

2. Bearer B/L, Open B/L, Blank B/L

The consignee is not specified, the B/L instead indicates the word ‘Bearer’ or leaves the consignee column blank. This kind can be transferred or withdrawn without any endorsement procedures. The carrier delivers the goods to whoever holds the bill of lading, which makes loss or theft dangerous and high-risk. Therefore, this kind of bill of lading is rarely used internationally. 

3. Order B/L

This kind states ‘To order’ or ‘Order of…’ in the ‘Consignee’ column on the front of the bill of lading. There are three kinds:

  • Shipper’s Order B/L – consignee column is filled with only ‘instruction’. This type still belongs to the seller before the shipper has designated the consignee or assignee. The shipper can use the negotiating bank or the consignee as the assignee and transfer the bill of lading to obtain the payment.
  • Straight Order B/L – consignee column is filled with ‘xx instructions’, where ‘xx’ can be either the name of the bank or the shipper.
  • Select Instruction B/L – consignee column is filled with ‘xx or instructions’, where ‘xx’ can be either the name of the bank or the shipper. This is a transferable bill of lading. The holder of the bill of lading can transfer it to a third party by way of endorsement without the approval of the carrier, so this type of bill of lading is welcomed by the buyer. Instruction bills of lading are widely used in international shipping business.

Category 2: Classification according to whether the goods have been shipped

  1. Shipped B/L, Onboard B/L

This is issued to the shipper by the carrier, or its authorized agent, based on the chief mate’s receipt after the goods are loaded on the ship. If the carrier issues an onboard bill of lading, it confirms that he has loaded the goods on board. The name of the ship and the time of shipment should be stated.

Sellers are generally required to provide an onboard bill of lading in international sales contracts. According to the International Rules for the Interpretation of Trade Terms, revised by the International Chamber of Commerce in 1990, the seller shall provide an onboard bill of lading for any contract for the sale of goods established under CIF or CFR terms. In international trade with a letter of credit as the payment method, the seller is also required to provide an onboard bill of lading.

2. Received for Shipment B/L

This is issued by the carrier, at the request of the shipper, when the carrier receives the goods from the shipper but has not yet shipped them. When this type of bill of lading is issued, it indicates that the carrier has confirmed that the goods have been placed in the carrier’s custody and stored in a warehouse or site under the carrier’s control, but have not yet been shipped. Therefore, this type of bill of lading does not specify the name and time of shipment.

Under the documentary credit payment method, banks generally refuse to accept this type of bill of lading. However, when the goods are loaded on board, the carrier needs to add the name of the ship, the date of shipment, sign and seal it. Then the bill of lading becomes an onboard bill of lading.

The advantage for shippers, is that they can obtain the negotiable bill of lading sooner, allowing them to mobilize funds and accelerate the transaction process. For carriers, it is conducive to soliciting business and broadening the supply of goods. However, this type of bill of lading also has certain disadvantages. Firstly, because it has no date of shipment, it is likely that the cargo owner will suffer losses due to delayed arrivals. Secondly, the ship is not named, making it difficult for the holder of the bill of lading to apply to the court for arrest of the ship if the carrier breaches the contract. Thirdly, who is responsible for the damage of the goods after the bill of lading is issued and before the goods are loaded is unclear, leading to liability disputes. For these reasons, in trade practice, buyers are generally unwilling to accept this type of bill of lading.

With the development of container transportation, carriers receive more and more goods inland. Freight stations cannot issue onboard bills of lading however, so generally after receiving the container at the port, the port will issue ‘station receipts’ to the shipper. The shipper may hold ‘station receipts’ and change these from the sea carrier into ‘received for shipment bill of lading’. In container transportation therefore, banks can still accept the settlement of the payment with this bill of lading. From the perspective of the carrier’s responsibility, the ‘received for shipment bill of lading’ of the container is the same as the ‘onboard bill of lading’. This is because the period of responsibility for containerized goods starts when the goods are received at the port.

Category3: Classification according to whether there is an endorsement on the B/L

  1. Clean B/L

At the time of shipment, if the appearance of goods is in good condition when the carrier issues the bill of lading, the bill of lading will not include any damage to the goods, poor packaging, issues with the number of pieces, weight or volume, or other remarks that hinder the settlement of foreign exchange. This kind of bill of lading is called a clean bill of lading.

The use of a clean bill of lading is very important in international trade. If the buyer wants to receive the goods in good condition, he must require the seller to provide a clean bill of lading. In trades with documentary credit as the payment method, usually the seller can only obtain payment by submitting a clean bill of lading to the bank. The clean bill of lading is a condition that the consignee must have when transferring the bill of lading, and it is also a necessary condition for fulfilling the delivery obligations stipulated in the goods sales contract. If damage is found when the cargo is unloaded at the port, the carrier will be responsible for compensation (unless it is due to reasons that exempt the carrier).

  • Unclean B/L, Foul B/L

When the cargo is loaded on the ship, if the carrier finds that the cargo is unpackaged, damaged, leaked, stained, or unclearly marked, the chief mate will make a note on the receipt and transfer this note to the bill of lading. This kind of bill of lading is called an unclean bill of lading.

When the carrier accepts the goods, if the appearance of the goods is in poor condition, it needs to be recorded on the mate’s receipt. And then the record also needs to be recorded on the bill of lading after the bill of lading is officially issued. In international trade, the bank refuses to settle any deals with an unclean bill of lading.

Category 4: Classification according to different modes of transportation

1. Direct B/L

In this case the goods are shipped from the port of loading directly to the port of destination, without transiting. The goods will be directly transported by the same ship to the port of destination, which is advantageous to the buyer because it saves costs, reduces risks, and also saves time. Therefore, usually the buyer only agrees to transhipment when direct is not possible. If the letter of credit prohibits transhipment, the buyer must obtain a direct bill of lading in order to settle the exchange.

2. Transhipment B/L

The ship which is loaded at the port of departure, does not directly sail to the port of destination, the goods are transferred to another ship at a midway port. Due to the midway transhipment of the goods, there are higher costs, risks, and slower delivery times. Generally, the letter of credit will stipulate that transhipment is not allowed, however, the buyer has to agree to transhipment if there are few or no direct ships.

The responsibility of the transhipment can be divided into the following three situations:

(1) The carriers on the first voyage and the second voyage are both responsible for the cargo independently.
(2) The carrier of the first voyage shall bear the expenses after the cargo is transhipped but is not responsible.
(3) The carrier on the first voyage shall be responsible for the cargo all the way through.

3. Through B/L

The transportation of goods needs to be completed by two or more transportation methods such as land-to-sea, sea-to-air or sea-to-sea. Sea-to-sea (ship-to-ship) combined transportation, also called transhipment, includes ships delivering goods to a port and then transporting them from the port via an inland river to the destination port by barge. However, the scope of combined transportation is not limited to maritime transportation.

4. Multimodal Transport B/L, Intermodal Transport B/L

This type of bill of lading is mainly used for container transportation. It refers to shipments that go through two or more different modes of transport. One of the modes of transport that constitutes multimodal transport must be international maritime transport. A carrier takes responsibility for the entire transportation, and is also responsible for transporting the goods from the receiving place to the destination and consignee. Moreover, the carrier needs to collect the bill of lading issued for the entire freight. The items in the bill of lading not only include the port of departure and the port of destination, but also the list of transportation routes, as well as the place of receipt and delivery.

Category 5: Classification according to the simplified/traditional contents of the B/L

1. Long Form B/L

The long form bill of lading refers to the matters recorded in the bill of lading format and printed on the front of the bill of lading and the back of the bill of lading, which contains detailed terms on the rights and obligations between the carrier, the shipper and the consignee. This type of bill of lading is normally used in the shipping business.

2. Short Form B/L, Simple B/L

This refers to a bill of lading without detailed clauses on the rights and obligations between the carrier, the shipper and the consignee on the back of the bill of lading. It generally has the words ‘Short Form’ printed on the front and usually contains the following clauses: receipt, storage, transportation and freight of the goods. It usually includes a bill of lading under a charter party and a bill of lading under a non-chartered party.

  1. Charter Contract:
    When transporting bulk cargo by way of voyage charter, both parties must first enter a voyage charter contract in order to clarify their rights and obligations. After goods are loaded, the charterer requires the ship or its agent to issue a bill of lading for the receipt of the goods. This type of bill of lading is called ‘bill of lading under the charter party.’

Because banks are unwilling to bear additional risks, they are generally unwilling to accept such bills of lading. Uniform Customs and Practices for Documentary Credits stipulates that unless stated in the letter of credit, the bank will reject the bill of lading under the charter party.

  • Non-charter Contract:
    In order to simplify the preparation of the bill of lading, some shipping companies only issue a short form bill of lading to the shipper and keep the long form bill of lading for the shipper’s inspection. This kind of short form bill of lading is generally printed with ‘terms and exception clauses are subject to the terms printed on the company’s formal full bill of lading.’ In accordance with international trade practices, banks can accept short form bills of lading as they have the same legal status as the long form bill of lading.

Category 6: Classification according to the time of issuance

  1. Anti-dated B/L

This refers to a bill of lading that is issued by the carrier or its agent, at the request of the shipper, after the goods are loaded on the ship and before the actual date of shipment.

If the actual shipment date is later than the shipment date specified in the letter of credit, and the bill of lading is issued according to the actual shipment date, the shipper cannot settle the foreign exchange. The carrier could keep the dates consistent, at the request of the shipper, and use the date of shipment in the letter of credit on the bill of lading to avoid breaking the contract. Issuing this bill of lading, especially when there is a long backlog, can be interpreted as the carrier not dispatching as quickly as possible, and thus the carrier could bear the responsibility for the delay. The carrier therefore needs to bear certain risks when issuing this bill of lading.

  • Post-date B/L

This is issued by the carrier or its agent, at the request of the shipper, after the cargo has been loaded on the ship. However, the date of issuance recorded on the bill of lading is later than the date when the goods are actually loaded on board. Since the bill of lading is issued on a later date, it is called ‘post-date bill of lading’.

  • Advanced B/L

Advanced bill of lading refers to the case when the shipment of goods has not yet been completed or the validity of the letter of credit is about to expire. For timely settlement, the shipper requires the carrier or its agent to issue a clean bill of lading on board in advance.

This type of bill of lading is often used when the shipper fails to prepare the goods in time or the shipping schedule is delayed, and the ship cannot arrive at the port on time to accept the cargo. The shipper can use the bill of lading to settle the foreign exchange with a letter of guarantee.

However, the issuance of a clean bill of lading without inspection by the chief officer, may increase the carrier’s liability for compensation. In addition, after the bill of lading is issued, the original shipping vessel may be changed for various reasons or the goods may be lost, damaged or returned from customs. This will enable the consignee to refuse to accept the goods and may cause litigation. The carrier bears the liability for cargo damage and loss, which makes it high-risk for the carrier.

  • Stale B/L

Stale bills of lading have two meanings.

  • Firstly, it can indicate that the exporter is delayed in handing over the bill of lading to the bank after shipment. According to Article 42 of the 1993 revision of Uniform Customs and Practices for Documentary Credits published by the International Chamber of Commerce No. 500 ‘If there are no special provisions in the letter of credit, the bank will refuse to accept documents submitted more than 21 days after the issuance date of the transport document in any case, the bill of lading shall not be later than the expiry date of the letter of credit .’
  • The second meaning is that the issuance of the bill of lading is later than the arrival of the goods at the port. Therefore, the trade contracts of near-ocean countries generally stipulate the clause ‘Stale B/L is acceptance’.

Category 7: Classification according to charging method

1. Freight Prepaid B/L

Transaction CIF and CFR price conditions are freight prepaid. It is stipulated that when the goods are consigned, the freight must be paid in advance. The bill of lading can be obtained after the freight is paid, but if the goods are lost after payment, the freight will not be refunded.

2. Freight to Collect B/L

For goods traded in FOB terms, whether it’s the buyer’s booking or the buyer’s entrusted seller’s booking, the freight is payable at destination. After the goods are delivered to the port of destination, the consignee can only pick up the goods if the freight is paid.

3. Minimum B/L

This is issued for goods on each bill of lading to collect freight at a minimum charge. If the shipper consigns too few goods in batches and the freight amount calculated is lower than the minimum charge specified, the carrier will charge the freight according to the minimum charge. The bill of lading issued for this shipment is the lowest freight bill of lading.

 

Category 8: Classification according to the issuance of the B/L

  1. Shipping Company B/L
    Issued by the shipment company.

This is usually for the entire container. In general, a shipping agency bill of lading does not have the legal status of a bill of lading. It is only a receipt for the forwarding agent to receive the consigned goods, not a transferable certificate of property rights, so it cannot be used to pick up the goods from the carrier. In this case the consignee replaces the house bill of lading at the port of destination with a shipping company’s bill of lading before picking up the goods. The bank will reject this kind of bill of lading unless it is issued by the forwarding agent as the carrier (including the NVOCC) or the carrier’s agent, or the ‘International Federation of Freight Forwarders Association’ approved by the International Chamber of Commerce.

  • Non-Vessel Operating Common Carrier (NVOCC) B/L

Issued by the NVOCC or its agent.

  • House B/L
    Issued by the forwarder.

In order to save costs and simplify procedures, sometimes the forwarding agency will consolidate the goods shipped by different shippers on a set of bill of ladings, and the carrier will issue a group of bill of ladings to the forwarding agency. Since there is only one set of bill of lading, each shipper cannot obtain the bill of lading separately, so the transport agent needs to issue the transport agent’s bill of lading to each shipper. Due to the development of container transportation, the use of this type of bill of lading for LCL cargo organized by transport agents improves efficiency. Thus, the use of this type of bill of lading is becoming more common and is usually used by those importing goods from abroad.

Category 9: Special B/L

1. Omnibus B/L

Two or more batches of the same or different goods from the same loading port and the same consignee are combined onto one bill of lading. In order to lower the freight cost, the shipper or the consignee often requires the carrier to combine the goods with other separately issued goods and issue only one bill of lading.

2. Combined B/L

Two or more batches of liquid bulk cargo (of equal type and quality) that belong to different consignees, from the same loading port and to the same discharge port, are combined into the same liquid cargo tank. The bill of lading is issued to the consignees of each batch of goods. A main consignee is determined however; usually the consignee with the largest batch. This main consignee is responsible for sharing the cargo amongst each consignee and the natural loss of goods.

3. Separate B/L

Multiple, separate bills of lading can be issued for each consignee when the goods have the same batch, mark, type of cargo and grade and are within the same shipping order. This is more convenient for the consignees in picking up the goods at the destination port.

4. Switch B/L

Under the conditions of direct transportation, at the request of the shipper, the carrier promises to exchange a set of bills of lading issued at the port of departure with a set of bills issued at an agreed midway port. The original bill of lading is marked ‘receive this bill of lading at the midway port’ and another bill of lading is issued at the midway port as a ‘switch bill of lading’.

This is used when the trade contract stipulates a certain port as the port of loading, and the seller has to load at a port other than the specified one due to stocking reasons. It ensures that the order still complies with the trade contract and the letter of credit regarding the port of loading request.

5. On Deck B/L

The cargo is loaded on the open deck.

6. Parcel Receipt B/L

Suitable for a small amount of goods such as luggage, samples, etc.

7. Container B/L

The main freight document for the transportation of containerized goods. The operator, or his agent responsible for container transportation, will issue this to the shipper after receiving the goods.

IV. THE ROLE OF OCEAN BILL OF LADING


1. Goods receipt

The bill of lading is a receipt issued by the carrier to the shipper, confirming that the carrier has received the goods listed in the bill of lading and has been loaded on the ship, or that the carrier has taken over the goods and the goods have been loaded on the ship.

2. Proof of transportation contract

It is the proof of the shipping contract between the shipper and the carrier. The reason why the carrier carries the relevant goods for the shipper is because there is a certain right and obligation between the carrier and the shipper. The rights and obligations between the two parties use the bill of lading as the proof of the transportation contract.

3. Document of title

The bill of lading is the proof of the ownership of the goods. Whoever holds the bill of lading has the right to require the carrier to deliver the goods and has the right to possess and handle the goods.

V. CIRCULATION OF OCEAN BILL OF LADING


The ocean bill of lading, as the document of title, can be transferred as long as it meets certain conditions. There are two ways to transfer: blank endorsement and registered endorsement.

However, the circulation of a bill of lading holds less legal weight than a bill of exchange. A new assignee of a bill of lading will not enjoy the rights of the former endorser like the legitimate holder of a bill of exchange. So, if a person fraudulently obtains a bill of lading and endorses it to a transferee, this transferee cannot obtain ownership of the goods.

On the contrary, with the circulation of a bill of exchange, the rights of the transferee of the bill of exchange are protected, and he will be entitled to all the rights on the bill of exchange. In view of this difference, some legal scholars believe that the bill of lading is only ‘Quasi-negotiable’.

VI. OPERATION PROCESS OF OCEAN BILL OF LADING


In most cases, ocean bills of lading are documents of title. After the seller (shipper) delivers the goods to the carrier (ship), the carrier issues a set of bills of lading to the seller.

A set of bills of lading may have more than 1 original, usually 1-3 originals, and any of these can be used as proof of delivery. Therefore, a buyer should ask the seller for the full set of originals. After the goods are delivered, the bill of lading can be provided to the consignee through banks (documentary L/C or collection and settlement), by post, or directly handed over to the consignee.

The consignee should pay attention to the notifying party on the bill of lading. After the goods listed in the bill of lading arrive at the port, the ship will notify the notifying party, and the notifying party will notify the consignee to pick up the goods at the port with the bill of lading. The time for the delivery person to collect the money depends on your agreed settlement method. If it is an irrevocable sight letter of credit, then after the bill of lading and other negotiation documents are delivered to the bank, the bank can verify the payment and negotiate payment to the shipper. If it is an Usance letter of credit or another settlement method, it must be analysed in detail.

  • Lack of industry standardisation
  • Lack of market transparency
  • Inefficient logistics
  • Error-prone processes
  • High costs
  • Lack of regulatory oversight
  • High enter barriers to trade financing
  • System complexity
  • Reliance on intermediaries

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