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How to safeguard cargo release using the correct type of bill of lading

Safeguard Cargo Release

I receive a lot of questions from readers about how to safeguard cargo release, as some of them have either lost their cargo or their money due to cargo being released at destination to someone other than the legitimate consignee..

Wrongful release is a reality and this could happen to anyone if proper safeguards in terms of documentation is not followed..

Such releases may not always be due to the fault of the shipping line (as widely considered) or that proper release protocol has not been followed (although this also happens) by the destination agent..

A lot of these issues could be due to the improper consigning of the bill of lading or the type of bill of lading that is released..

Let us consider some of the scenarios where shippers fail to safeguard cargo release and themselves :

  1. Issuing a Straight Bill of Lading on a first time trade showing the buyer as the consignee without receiving the payment for the cargo in full
  2. Issuing a Sea Waybill of Lading showing the buyer as the consignee when the trust between seller and buyer has not been fully established
  3. Issuing instructions to the line to issue Telex Release without first receiving the payment for the cargo in full

 

1. Risk of issuing a Straight Bill of Lading (when the bill of lading is issued in Original, but consigned to a company or individual) :- A Straight Bill of Lading may not be as straight as imagined, because of the considerable differences between various legal jurisdictions when it comes to its legal identity..

For example, the US COGSA does not require the presentation of the original straight bill of lading for release of cargo whereas certain Scandinavian and Chinese jurisdictions require same.. UK COGSA has also been shown to be fickle in this aspect..

Moral of the story : If you are embarking on a first time trade with the buyer and you as the seller haven’t received your payment in full then DO NOT issue a Straight Bill of Lading..

A Straight Bill of Lading is a NON-NEGOTIABLE & NON-TRANSFERABLE DOCUMENT and only acts as

  • Evidence of Contract of Carriage
  • Receipt of Goods

and not as Document of Title to the Goods..


2. Risk of issuing a Sea Waybill of Lading (when there are no originals issued and consigned to a company or individual)  which is usually issued

  1. for inter company shipments like from ACME Company Hollywood to ACME Company in the Middle of the Australian Outback or
  2. where the shipment takes place between two different companies but there are no negotiations required between the two either directly or via bank for release of the cargo and
  3. the shipper doesn’t need to submit an original B/L to anyone to secure his payment

Since no originals are issued in the case of a Sea Waybill, no surrender is required and the consignee can secure cargo without presentation of any original bill of lading..

Moral of the story : if you are embarking on a first time trade with the buyer or you as the seller are yet to develop the required level of trust with your buyer, then DO NOT issue a Sea Waybill of Lading..

A Sea Waybill of Lading also is a NON-NEGOTIABLE & NON-TRANSFERABLE DOCUMENT and only acts as

  • Evidence of Contract of Carriage
  • Receipt of Goods

and not as Document of Title to the Goods..


3. Risk of instructing the line to issue Telex Release instruction to the discharge port agent (when original bills of lading are issued but surrendered by the shipper generally at the POL)..

Telex Release is a message that is sent by the shipping line or agent at load port to their office or agent at discharge port advising that the shipper or exporter has surrendered one or all of the original bills of lading that have been issued to them, and that the cargo can be released to the consignee shown on the bill of lading without presentation of any original bills of lading..

I have come across cases where the seller has not even collected the original bill of lading from the shipping line and has no intention to collect the originals but asked the shipping line to issue telex release instructions to the discharge port agent..

This is risky behavior because once the telex release instructions have been given and actioned, it may be difficult and tricky to recall or stop a telex release once it is issued..

Moral of the story : if you are embarking on a first time trade with the buyer or you as the seller are yet to develop the required level of trust with your buyer, don’t be in a rush and ask the shipping line to issue telex release to release cargo to consignee..

 

So, what then is the correct type of bill of lading to issue in order for the seller or shipper to safeguard cargo release..??

The answer is a NEGOTIABLE (or ORDER) BILL OF LADING about which I have discussed in detail in my previous article “What is a Bill of Lading“..

When a B/L is issued in Original and consigned “TO ORDER” or “TO ORDER OF SHIPPER” or “TO ORDER OF XYZ BANK” it is termed as “Negotiable B/L or Order Bill“..

Cargo covered under a negotiable or order bill maybe released by the Destination port agent only after at least 1 of the issued originals are surrendered and after checking the endorsements on the Bill of Lading, as it is possible for this type of B/L to be endorsed or transferred to another company..

The endorsements on a negotiable bill of lading would be as below

Bill of Lading consigned toEndorsements Required on a Negotiable bill of lading
To Order or To Order of ZYX
  • Shipper’s endorsement stating DELIVER TO THE ORDER OF “ZYX Client” (who could be the actual receiver) and
  • ZYX’s company stamp and sign in case he is taking the final delivery or
  • ZYX’s endorsement stating, DELIVER TO THE ORDER OF “ABC Client” (if the cargo has been further sold)..
To Order of XYZ Bank
  • Shipper’s endorsement stating DELIVER TO THE ORDER OF “XYZ BANK” and
  • XYZ bank’s endorsement stating, DELIVER TO THE ORDER OF “ZYX Client” (who could be the actual receiver) and
  • ZYX’s company stamp and sign in case he is taking the final delivery or
  • ZYX’s further endorsement stating, DELIVER TO THE ORDER OF “ABC Client” (if the cargo has been further sold)..

By issuing a To Order Bill of Lading, preferably consigned as “To Order of Shipper” in this case, the seller/shipper can avoid all ambiguity and this will allow them to ensure that they receive the full value of the cargo before it is released to the legal receiver/consignee..

A Negotiable or Order Bill of Lading is the only bill of lading that fulfills all 3 roles of the Bill of Lading..

  1. Evidence of Contract of Carriage
  2. Receipt of Goods and
  3. Document of Title to the goods

If you have any other viewpoints on how to safeguard cargo release, I (and other readers) would be interested to hear..

In case you are wondering why I am only talking about safeguarding the shipper or seller, please do read my free Beginner’s Guide to Importing where I have covered the safeguards an importer must take to protect themselves from many issues..


Article republished after critical updates

 

The post How to safeguard cargo release using the correct type of bill of lading appeared first on Shipping and Freight Resource.

Source: shippingandfreightresource.com

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