• Documentation

    Chapter 3 - Cotton marketing - Contracts 


    Trade in cotton involves the passing of documents of title from the seller to the buyer. Most cotton trade involves a bill of lading, which will be accompanied by a selection of documents specified by the buyer and available to the shipper.

    In the case of cotton lots sold from warehouse storage at the port of shipment or some other storage location within the country of origin, otherwise known as ‘spot’ sales, the title document would be a warehouse warrant or receipt. The receipt must be issued by the secure and bone fide warehouse company under the direct instruction of the seller, and the cotton should be free of all encumbrances, unless otherwise agreed between the parties.

    Electronic documentation is playing a larger role in trade these days. The contractual responsibilities remain the same between the parties, and only the logistics are influenced.

    All shipment documentation must comply with the terms and conditions of the contract, accounting for any amendments, and the terms of any payment instrument, for example L/C payment terms and conditions.

    Shipment documents should provide an accurate picture of the shipment details and contain all required clauses and signatures. Wherever possible amendments should be kept to a minimum. If they are unavoidable, any documentary amendments should be duly endorsed by an authorized signatory.

    Bill of lading: is a negotiable document of title, signed by the captain of the vessel or his or her named agent as receipt for the cotton goods received on board the vessel (the contract should specify the port of loading). The details usually contained in this document include:

    • The full title and address of the shipper (seller);
    • The title and address of the consignee (the buyer or receiver of the shipment);
    • The ‘notify party’ – this can be the same as the consignee or may, for example, be a representative of the buyer at the port of discharge;
    • Bill of lading number and date;
    • Name of the vessel and voyage number;
    • Port of loading;
    • Destination/discharge port and any final delivery address;
    • Cargo details – whether LCL/LCL or FCL/FCL, together with the container and seal numbers;
    • A statement that the cotton is ‘on board’ (shipped on) the vessel, as opposed to ‘received for shipment’.

    Bills of lading are produced in sets. The number of original copies in the set is recorded on all originals and copies. Usually there are three in a set so, for example, the expression used may be ‘3/3 original bills of lading’, meaning a full set. One reason for having several originals is to address the situation where the shipper sends the originals in two dispatches to minimize the risks of loss or delay during transit.

    Any one of the original bills of lading may be lodged with the shipping line office or the local representative or agent operating for the line at the port of discharge to claim release and take delivery of the containers. Release is permitted only to the party named on the bill of lading.

    Non-negotiable copies are also supplied in varying quantity as required. They hold no value in terms of title to the goods.

    Endorsement/assignment of a bill of lading: may be assigned to a third party. Any assignment would have to be duly evidenced to the shipping company. It is important to check the assignment record to ensure the title is correct at the time of passing to any third party.

    If the consignee is shown on the bill of lading only the consignee can take delivery and the original shipper has no further control over the shipment. The consignee may however decide to endorse the bill of lading to a third party.

    If a consignee is not identified at the time of shipment the expression ‘consignee: to order’ may be used. The bill of lading is then endorsed on its reverse side by the named shipper to show that the document is freely negotiable to any bone fide holder or to a declared consignee nominated by the buyer at a later date. It is prudent that the name of the consignee be stated in the required section at the time of presentation of documents to avoid any ambiguity or confusion regarding title of the shipment.

    Other documentation

    Certificate of origin: a standard documentary requirement under L/C. It is issued by the local chamber of commerce, usually in the country of origin.

    Phytosanitary certificate
    : a general certification that the goods are free of any specified infestations, issued by the applicable official institution in the country of origin.

    Fumigation certificate: a certification that fumigation has been performed by specialist operators or an accredited organization in the country of origin. This is performed in either the warehouse or the actual containers prior to shipment on the vessel. Most cotton producing countries require cotton imports to be fumigated in advance of shipment, although it can sometime be arranged at the port of discharge.

    Phytosanitary and fumigation clauses are sometimes certified within the same certificate depending on the payment instrument and its demands. The clauses are often dictated by the L/C wording. It is important therefore to ensure that the clauses meet the precise L/C stipulations.

    Weight /packing list: a buyer may demand a listing of the individual gross weights of each bale, known as ‘bale/bale weighing’, or the total weight per container. In other cases a more general list may be acceptable providing a summary of the total number of bales, gross weight, tare and the resulting total net weight of the shipment.

    Insurance certificates: are required under a CIF contract. The seller must provide an insurance certificate, issued by a first-class insurance company, showing that insurance has been covered in accordance with the terms of the sales contract. The certificate must enable the buyer to claim any losses direct from the insurance company. The certificate entitles the holder to the rights and privileges of a known and stipulated master marine insurance policy that may cover a number of shipments. The certificate therefore represents the policy and is transferable with all its benefits by endorsement in the same manner as bills of lading. 

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    Cotton Exporter's Guide

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