• The bill of lading

    Chapter 3 - Cotton marketing - Documentation (‘back office’) 


    A bill of lading (B/L) is firstly a receipt – the carrier acknowledges that the goods have been received for carriage – but it is also evidence of the contract of carriage. The contract commences at the time the freight space is booked. The subsequent issue of the B/L confirms this and provides evidence of the contract, even though it is signed by only one party: the carrier or its agents. A B/L is also a transferable document of title of goods. Goods can be delivered by handing over a B/L provided the shipment was consigned ‘to order’ and all the subsequent endorsements are in order.

    The carrier’s responsibility commences on the physical acceptance of the goods for carriage. If this occurs at an inland point, a combined transport B/L will be issued. If the handover is in a port then a port-to-port bill of lading will be issued.

    The B/L usually contains:

    • The name of the seller at origin (the shipper); the name of the buyer (the consignee); and, specified by the buyer, the name of the party to whom delivery is to be made and who is to be notified of the arrival of the shipment (the notify address).
    • The unique number of the B/L, the name of the vessel, the port of loading, the destination, and the number of originals that have been issued.
    • Details of the cargo and whether shipped LCL/LCL or FCL/FCL, together with the container and seal numbers, where shipment is in containers.
    • A statement that the cotton is on board or shipped (i.e. not simply received by the shipping company for shipment), and that there is no record of damage to the cotton (a clean B/L), and the date of on-board shipment. A ‘received for shipment’ LCL B/L may be acceptable if this has previously been agreed by the buyer. An on-board B/L is a bill that is signed by the captain of the vessel or the captain’s agent when the cotton has been loaded on the ship.

    Bills of lading are issued in sets of identical originals, normally two or three, with a variable number of non-negotiable copies for record purposes only. Each original can be used independently to claim the cotton shipped, although not everyone holding an original bill of lading will automatically be handed the goods by the shipping company at destination. Who is allowed to claim the goods depends on how the bills are made out.

    Under a combined transport bill of lading the carrier accepts responsibility, subject to the normal stipulations in the B/L, for the whole carriage, inland and marine, from door to door, or from door to container yard or container station. The carrier arranges both the marine and the inland transport. An intermodal B/L or combined transport document is a negotiable document issued by a water carrier after receipt of container of cotton on board a rail car or other transport equipment. A typical intermodal B/L might cover the shipment of containerized cotton from the ginnery or the warehouse to a spinning mill overseas. It is customary to issue the ocean B/L or intermodal B/L in three originals made out to order.

    Sellers must provide shipping documents in good time (including a full set of clean on board B/Ls, i.e. bills stating that the goods were received on board ship in apparent good order), enabling the buyer to clear the goods upon arrival. Failure to provide documents in time will incur demurrage and other costs, and could even in extreme cases lead to cancellation of the contract.

    Title to and endorsement of a bill of lading

    Since the B/L is a title document, in theory anybody holding the B/L can take possession of the cotton. The B/L could be issued ‘to order of ___’, leaving the foreign bank insert the name of the buyer after payment has been received, but this is a very dangerous practice!

    When B/Ls are made out, or endorsed, to a named consignee, then only that consignee can take delivery of the shipment. A B/L made out to a named consignee can be endorsed only by that consignee, not by the shipper. Once a consignee has been named, the original shipper no longer has any power to alter the B/L in connection with title to the shipment.

    If the consignee is not known at the time the shipper instructs shipment on a particular vessel, then the B/Ls may also be made out to order. In this case, only the party to whom they are endorsed with the words ‘deliver to ___’ or ‘deliver to the order of ___’ can take delivery. This endorsement is made by the shipper named on the B/L. Occasionally buyers stipulate in their shipping instructions that the goods be consigned to order.

    If the consignee is not known at the time the shipper instructs shipment on a particular vessel, then the B/Ls may also be made out to order. In this case, only the party to whom they are endorsed with the words ‘deliver to ___’ or ‘deliver to the order of ___’ can take delivery. This endorsement is made by the shipper named on the B/L. Occasionally buyers stipulate in their shipping instructions that the goods be consigned to order.

    A bill of lading is a negotiable instrument and can be passed from a shipper through any number of parties, each party endorsing it to assign title to the next party. The only condition is that title can be assigned only by the party shown on the bill as having title at the time. Any failure to respect this condition breaks what is known as the chain of title; all purported assignments of title after such a break are invalid. Before paying for documents buyers will therefore carefully examine the B/L to see that they are named on it as consignee, either on the face or on the reverse in an endorsement. In the latter case, buyers will also make sure that the endorsements show an unbroken chain of title through to them.

    There is one exception to the general rule that a consignee must be named on a B/L to take delivery of a shipment. This is when the bill is a bearer bill. In this case, anyone holding (or bearing) the bills (or one bill of the set) can take delivery. Bills are considered bearer bills when the word ‘bearer’ is entered in the space marked ‘consignee’ when the bills are first made out. Alternatively a title-holder can endorse the bills with the words ‘deliver to bearer’, or a named title-holder endorses the bills in blank (by stamping and signing them without naming any other party in the endorsement). Although this may be simple and convenient, it means that anyone who obtains all or any of the originals (including a thief or a buyer who has not yet made payment) can take delivery of the shipment. Bills of lading are therefore usually made out to or endorsed to a named consignee.

    The greatest security of all is afforded by issuing or endorsing a B/L to a buyer-nominated bank, with an instruction to the bank to endorse and hand the B/L over to the buyer when, and only when, payment has been made.

    Dispatching bills of lading

    Because in theory each original B/L in a set can be used to claim the goods at destination, a buyer will want to be in possession of all the originals in a set before making payment. Documents are often sent in two dispatches, with the B/Ls split between them, simply to minimize the risks of all of them being lost or delayed. Only when the buyer has received both dispatches will payment be made, unless the first contains a bank guarantee for any missing B/L. Many exporters use courier services and send all documents at once.

    If a B/L is lost, or does not arrive in time for the buyer to take delivery (e.g. when transit times are short), then the carrier will usually be able to assist by delivering the goods against receipt of a guarantee. The guarantee safeguards the carrier in case the claimant is not the rightful owner of the goods. Wrongful delivery would constitute a breach of contract. The carrier will therefore insist on a letter of indemnity (LOI) from the buyer, backed by a bank guarantee with wording that meets the carrier’s specifications, usually for an amount of 150%–200% of the actual CIF value of the goods, valid for one to two years. Although there is no express time limit beyond which the holder of a B/L can no longer claim the goods, a guarantee good for one or possibly two years should adequately cover the carrier’s obligations. However, carriers are not obliged to deliver goods against guarantees. 

  • contentblockheader
    Cotton Exporter's Guide

    Brochure - African cotton promotion
  • Region:
    Date from:
    Date to:
  • contentblockheader