Bills of Lading

A charter party concerns the hiring of a ship and its entire cargo capacity to carry
goods by water. The carriage of goods of less than full cargo capacity is
accomplished generally by a contract of affreightment, thus calling into play the
role of bills of lading.
A bill of lading commonly serves three purposes:
1. An acknowledgment by the carrier that it has received the goods.
2. A contract of carriage.
3. A negotiable instrument.
Emphasis is placed primarily on the bill of lading's second purpose a contract of
carriage. A bill of lading is one of the most important documents in the shipping
industry because it is not only a receipt for cargo shipped or received for shipment
on a vessel, but also because it is often evidence of a contract of carriage between
the Company and the owner of the cargo. Most importantly, it is usually the
document proving who owns the cargo.
It is an important document, required to ship goods from one point to another. The
carrier generates and issues a bill of lading to the shipper of the goods, acknowledging the
receipt of goods for shipment in acceptable condition.
In simple words, the bill of lading is written evidence of a contract between shipper and
carrier for the carriage and delivery of sea-consignment, for a definite freight.

What is contained in Bill of Lading?

The bill of lading consist of the following details:
-Details of the carrier, shipper and consignee.
-Place of loading
-Shipping Destination
-Mode of Transportation
-Details of goods, in terms of type, quantity, measurement (weight, dimension, pieces),
units, etc.
-Terms of shipment
Carrier is the transportation company, which provides transportation services. It
may include freight forwarders, third-party logistics companies, owner drivers etc.
The shipper is the person who either supplies the goods or owns them, so the
shipper can be the exporter or his agent.
Functions of Bill of Lading
A bill of lading performs three major functions:
1. It acts as a document of title, which permits the sale of goods in transit and
availing financial credit.
2. It is also a receipt of shipped goods, issued by the carrier to the shipper, stating
that the carrier has received the goods and they are in good condition.
3. It establishes a legal carriage contract between the carrier (transportation
company) and the shipper.
It is a record of the goods being traded, which are shipped and represents the
carrier which takes the goods to their final destination.

Process of Bill of Lading

The process of the bill of lading can be understood with the help of the points
given below:
-An importer (buyer) and exporter (seller/shipper) enters into a sales contract, for
which the importer issues a letter of credit as a guarantee for payment.
-Now, the exporter wants to ship a consignment of goods overseas for which he
approaches a transportation company (carrier) by reserving space on the vessel. It
can be done by the exporter himself or he can hire a shipping agent for the same.
-Thereafter, the carrier tells the date and time of delivery of the goods to the
shipper (exporter).
-On the delivery of goods on board, the person in charge of the ship hands over a
receipt called as mate’s receipt to the Port Trust Authorities. It is a temporary
receipt issued by the officer in charge of the vessel, to indicate that the goods are
loaded in the vessel.
-The exporter has to make payment of the port dues, to collect collects the mate’s
receipt from the Port Trust Authorities. Mate’s receipt needs to be handed over to
the carrier to get the bill of lading.
-Once the dues are clear the exporter or his agent will hand over the receipt to the
carrier’s agent.
-Now, the carrier’s agent will check the details provided in the receipt against the
goods shipped, at the time of loading and recognize the same.
-Once the checking is done, freight will be calculated accordingly. The bill of lading
will be prepared on the basis of mate’s receipt signed by the shipmaster and
provided to the shipper.
-Thereafter the shipper has the option to directly dispatch the bill of lading to the
consignee or through the bank (in case of import/export)
-The consignee may decide to sell the goods when it is in transit or he may also
endorse the bill in favour of the purchaser.
-In the end, the consignee or the endorsee will surrender the bill of lading at the
port of discharge to take the delivery of goods, and issue a delivery order.
It must be noted that the actual negotiable bill of lading is made in three originals, each of
them is signed by the master. Out of which one is kept by the consignor of the goods, one
by the shipmaster and the last one is forwarded to the consignee, who has to surrender
the same, to get the delivery of the goods. On receiving the goods, the other two bills
become null and void.
Various types of B/L :
1. Bearer B/L : which is directly addressed, name of the consignee / bearer is entitled to
take the delivery of a cargo. – It’s a highly risky B/L and hence very rarely used now-a
-days.
2. Order B/L : It is one of the most common B/L’s used presently. – It is usually drawn ”
to the order of _ _ _ _ _ _ _ _ _ _ _ _ _” – It can be transferred to any number of
Consignee’s by a simple endorsement by the current holder of B/L. – It is a negotiable
document. – It serves all the purpose of a B/L
3. Clean B/L : Even though the actual condition of the cargo may be suspect, many letter
of credit transactions require “clean” bills of lading i.e Bills stating that the goods
described therein are in “apparent good order and condition”, with no words indicating
deficiency in the goods. – However, a carrier cannot agree to issue a clean bills of lading
when the goods are not in good condition, even where “letter’s of indemnity are offered
by the concerned parties. – Bills of lading must accurately depict the actual conditions
of the goods and if they don’t then it is considered a fraud.
4. A Foul B/L : This is the bill of lading which is in some way claused or dirty. – This
means that the cargo loaded is not perfect and the ship-owner protects himself
against a claim at the discharge port.
5. Received for Shipment B/L : In liner trades the cargo is actually received into the
custody of the ship-owner or his agent but is not actually on board the vessel at
that time this bill of lading is issued. – It is also called a Custody B/L. – If this is
issued, the shipper may demand from the carrier an endorsement on the B/L when
the goods have been loaded on board stating ” since shipper “. – This is also
common in container trades where containers are taken in the carriers custody at
inland container depots.
6. Shipped B/L : This is issued especially for bulk cargoes and confirms that the
cargo is actually on board the ship. – Any previously “Received for Shipment B/L”
must be surrendered before issuing this.
7. Through B/L or Straight B/L : These are issued where the cargo will only be
carried for part of the voyage by the carrier signing the bill of lading. – The
remainder of the voyage may be over land or another vessel. – With a through bill
of lading, the carrier signing it is only responsible for his part of the carriage and
acts an agent for the shipper for the other parts of the voyage.
8. Owner’s B/L : An owner B/L is the one where the owner has his own format for the B/L.
– Master signs the B/L, on behalf of the ship owner. – Hence, it is the ship owner who is
the shipper in this case
9. Liner B/L : They are normally used on container vessels, where the vessel’s route is
fixed and the vessel is called a “liner”
10. Sea-way B/L : It is simply a receipt for the goods carried on board. – It is not a
document of title and hence cannot be used as a transport /negotiable document. – It
also cannot be used for the purpose of bank or Institutional finance. – The contract of
carriage is produced on the reverse of the sea-way B/L. – The receiver or the consignee is
required only to prove his identity in order to take delivery of the goods. – It is used only
on fixed trades. – The advantage of sea-way bill is, the master does not have to sight the
original B/L’s in order to deliver the cargo. Hence, the problem of transporting the original
B/L is avoided.
11. Combined Transport B/L : Under combined transport B/L, there is an organization
called as CTO (Combined Transport Operator). – This is a B/L, which is used from point ‘A’
to ‘B’ i.e. (door-to-door) and document is called ” Transport Document “. – The
responsibility for the entire transport is taken by an organization known as Combined
Transport Operator (CTO). – The CTO signs the B/L in this type.
12. Charterer’s B/L : The charterer’s format for B/L is used and the master signs on behalf
of the charterer, thus making the charterer, a carrier of the goods.
13. Charter-Party B/L : In C/P B/L, the format used is given in the C/P itself. – Master signs
the B/L under the instruction of the Charterer. – Under this B/L’s, for the shipper, carrier
is the charterer whereas for the receiver / consignee, the carrier is the ship-owner.
Precautions before signing a B/L and procedures for cargo delivery :
1. That the goods as mentioned in the B/L have been actually shipped.
2. The date of shipment is as per the Mate’s Receipt .
3. If the B/L is marked freight prepaid, whether it has actually been paid.
4. Any clausing required as per the Mate’s Receipt.
5. A reference is made to the CP if one exists.
6. That the CP terms are not in conflict with the BL terms.
7. The number of original B/L in the set is stated.
8. The port of discharge is as per the vessel’s itinerary and within accepted trade limits as
per CP.
Procedures for Cargo delivery :
1. The master is duly bound to deliver the goods to the first person presenting a
signed B/L with proof of identity and proof that the freight is paid.
2. Once the goods are released to a receiver, the carrier’s lien for the freight is lost.
3. If the B/L has been transferred by the original consignee, the endorsement on it
should be checked.
4. Cargo must be delivered to a bonafide holder of a B/L. If the B/L is open, then
cargo can be delivered to anybody who presents it, provided the master has not
been informed of any theft or fraud.
5. If the B/L is straight, the master should check that the person claiming delivery is
the same as named in the B/L.
6. If the B/L is negotiable, it is very important that the master checks whether the
B/L is properly endorsed, and the person claiming delivery is entitled to the goods.
7. Once the master has done this, he has to endorse the B/L as accomplished, and
date and sign the B/L with this remarks. As soon as one B/L is accomplished all the
other original B/L’s become null and void.
Difference between Mate’s Receipt and B/L :
1. It is a receipt issued and signed by the carrying ships Chief officer for the goods
received on board, whereas a B/L is not signed by the chief officer.
2. Details of the B/L are based on the details of the Mate’s Receipt. Therefore both
should tally.
3. Details of the Mate’s Receipt should be from the ship’s tally and should show the
actual quantity and condition of the goods received. Whereas details on the B/L
are as per the Mate’s Receipt.
4. Endorsements on a Mate’s Receipt have no significance, whereas those on the
B/L are very significant.
5. It is not a document of title for the goods shipped as it does not contain a
contract of carriage, whereas a B/L is a document of title.
6. Does not pass any title by its endorsement or transfer, whereas B/L does.
7. The shipper usually presents the signed Mate’s Receipt to the agent in exchange
for the signed B/L before the vessel sails.
From P&I Guidelines UK:
The following details summarise the key points masters and officers must bear in
mind when being asked to issue or sign mate’s receipts and bills of lading, or when
authorising a third party to issue bills of lading on the vessel’s behalf. It also covers
situations where a request is made to deliver cargo without production of a bill of
lading or to carry a bill of lading on board the vessel.
Contents of the bill of lading
In order to protect the Company’s interests as well as their own, the master or
chief officer should check that both the mate’s receipts and the bills of lading are
correctly drawn up before they are signed. If a third party such as the agent or the
charterer’s representative has been authorised to sign the bills of lading in
accordance with the mate’s receipts, the master should pay particularly close
attention to ensuring that the information shown on mate’s receipts is accurate.
Date on the bill of lading and mate’s receipt
Both documents should state that the cargo was either shipped on board on a certain
date or “received for shipment” on that date. “Received for shipment” means that the
vessel has effective control over the cargo. In both cases the date shown on the bill of
lading must be the date when the cargo actually came on board the vessel or came under
the vessel’s control as the case may be. If the bills of lading or mate’s receipts show any
other date, the Company should be contacted immediately or further advice. Incorrectly
dated bills of lading or mate’s receipts may expose the Company to liabilities up to the full
value of the cargo and such liabilities may not be insured.
Weight and quantity of cargo
The master or chief officer should ensure that the quantity of cargo as stated in the
mate’s receipts and bills of lading (both the weight and the number of packages or units)
corresponds with the vessel’s own figures as determined by ally sheets, boat notes,
draught surveys, ullage calculations and similar records. In the event of a difference
between the vessel’s figures and the figures shown on the mate’s receipts and bills of
lading, the Company should be informed immediately. Pending the Company’s reply, the
documents should not be signed or authorised to be signed.
In certain cases it may be possible to clause the mate’s receipts and bills of lading
with the ords “said to be......., weight and quantity unknown” or “said to
weigh......., weight and quantity unknown”, particularly in the case of bulk cargoes.
However, this should not be done without obtaining approval from the Company
first.
Description of the cargo
The cargo should correspond with the description given in the mate’s receipts and
bills of lading. If there is any doubt, the documents should not be signed or
authorised to be signed and the Company should be contacted immediately.
Condition of the cargo
Mate’s receipts and bills of ladings normally state that the cargo is shipped or
received for shipment in “apparent good order and condition”. These words mean
that, in the opinion of the master, the external appearance of the cargo suggests
that it is in good condition and undamaged.
If the cargo does not appear to be in good condition externally or seems to be
damaged, the mate’s receipts and bills of lading should not be signed or authorised
to be signed and the Company should be informed immediately.
If the Company cannot be contacted, the master or chief officer should ensure an
accurate description of the cargo’s external condition is recorded on both the
mate’s receipts and the bills of lading. Describing the external condition of the
cargo on the mate’s receipts alone is not sufficient.
Other terms in the bills of lading and mate’s receipts
It is important to ensure that the bills of lading comply with the terms of the
charter party, especially if they are to be issued in a particular format or if the
charterer’s own standard form is to be used. If there is any doubt, the mate’s
receipts and bills of lading should not be signed or authorised to be signed and the
Company should be contacted immediately.
Authorising agents to sign bills of lading
If the charter party allows the agents to sign the bills of lading on the master’s
behalf, the master should instruct the agents in writing to sign the bills in
accordance with the information stated on the mate’s receipts. A copy of this
instruction should be retained on board.
Letters of indemnity
The master may sometimes be asked to sign or authorise the signing of mate’s
receipts or bills of lading which state that the cargo is in apparent good order and
condition when this is clearly not the case, or show an incorrect quantity shipped
or received for shipment, or have been dated incorrectly. In return for doing so the
master may be offered a letter of indemnity. Such indemnities are almost always
worthless and accepting them may mean that the master is party to a fraud. If a
letter of indemnity is offered it should not be accepted and the Company should be
contacted immediately.
Original bill of lading retained by the master
It may sometimes be agreed between the Company and the charterer or cargo
owner that the master is to retain an original bill of lading on board against which
the cargo may be delivered. In such cases the bills of lading need to reflect this
arrangement. The master should contact the Company for advice about what
details should be recorded on the bills of lading before they are signed or
authorised for signature.
Non-production of original bill of lading
Delivering the cargo without the production of an original bill of lading may expose
the Company to expensive and uninsured liability claims for misdelivery. If delivery
is requested in such circumstances, it should be refused and the Company should
be contacted immediately.