Negotiable Bill of Lading

What Does “Made Out to the Order of” Mean in a Bill of Lading?

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Made Out to the Order of

Majority of the letters of credits are asking for a bill of lading which must be issued made out to the order of the issuing bank.

This condition indicated under field “46A – Documents Required” for the letters of credit that are issued in a swift format.

In simple words bills of lading can be classified under two groups: Negotiable bills of lading and non-negotiable bill of lading. Non-negotiable bills of lading also known as sea waybills.

Negotiable bills of lading can also be classified under two main groups. Negotiable bills of lading and straight bills of lading.

  • Negotiable Bills of Lading: Negotiable bills of lading are the ones that have been issued “to order” or “to order of a named party”. If bill of lading has been issued in a negotiable form, then the buyer of the goods need to surrender at least one original bill of lading to the carrier at the port of discharge. In this scenario bill of lading must be endorsed properly.
  • Straight Bills of Lading: Straight bills of lading are the ones that have been issued in a way to consigned a named party. If bill of lading is issued in a non-negotiable form, then the buyer can get the goods either by,
    • surrendering at least one original bill of lading to the carrier at the port of discharge or
    • in accordance with rules of the national law at the port of discharge which may accept the delivery of the goods to the buyer against proof of identity.

Both “to order” and “to order of a named party” statements make a bill of lading a negotiable bill of lading.

Letter of Credit Examples:

  • Example of to order and blank endorsed bill of lading: Full set signed clean on board ocean bills of lading made out to order and blank endorsed marked ‘freight prepaid’ and notify Import Bank of India indicating letter of credit number.
  • Example of made out to order of bill of lading: Full set of original clean on board bill of lading issued to the order of Arab Bank PLC Algeria notify applicant marked freight prepaid.

L/C Demands a B/L Stating That All Original B/Ls Must be Surrendered

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Bill of Lading Stating That All Originals Must be Surrendered

A negotiable bill of lading is a bill of lading where the consignee’s name is preceded by the words “to order,” thus allowing the consignee to endorse the bill of lading to another party, thereby transferring title of the relative goods to another party. (1)

The importer has to present at least one original copy of the negotiable bill of lading to the carrier’s agent at the port of discharge in order to receive goods from the carrier.

What happens if letter of credit requests presentation of all original bills of lading to the carrier as follows?

  • Bill of lading to clearly indicate that the goods can only be delivered at destination port only on submission of all 3 sets of original bills of lading.

Question Comes from Heidi, Hayward, California, USA:

Can you please take a look at the following L/C language for the required documents of the B/Ls and confirm this will be manageable with the steamship lines?

  • Full Set of clean on board bills of lading made out to the order of opening bank and marked “freight prepaid” and notify applicant.
  • Bills of Lading to show the name and address and telephone/fax numbers of shipping company/agent representing them at port of destination.
  • B/L to clearly indicate that the goods can only be delivered at destination port only on submission of all 3 sets of original bills of lading.

Please advise.

Thank you,

Answer:

Thanks for your question.

Above letter of credit condition, which can be evaluated as a standard format, used by many banks under field 46-A: Documents Required.

The only part that you should be careful is the following one:

  • Bill of lading to clearly indicate that the goods can only be delivered at destination port only on submission of all 3 sets of original bills of lading.

Apparently the issuing bank would like to say:

  • Bill of lading to clearly indicate that the goods can only be delivered at destination port only on submission of all original bills of lading.

The problem with above condition is that it contradicts surrender clauses of the most, if not all, bills of lading in circulation as can be seen on below image.

surrender clause of a bill of lading
Surrender clause of a typical negotiable bill of lading used in port to port container carriages.

Each original negotiable bills of lading is equally represents the title of goods, as a result when one them surrendered to the carrier, the remaining ones becomes void.

For this reason it is highly recommended either correction or deletion of this clause from the letter of credit.

Sources:

  1. International Trade Procedures: A guide to doing business abroad, Wells Fargo Bank, Page: 70

Sea Waybill (Non-Negotiable Bill of Lading)

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sea waybill

Transport documents can be classified under two main groups: Negotiable transport documents and non-negotiable transport documents.

Bill of lading has always been a negotiable transport document for centuries.

Road transport document, air transport document and rail transport document are relatively new transport document types and all of them are non-negotiable by their nature.

Non-negotiable transport documents generally called as waybills; such as air waybill, road waybill and rail waybill etc.

Non-negotiable transport documents share two out of three basic functions of a negotiable bill of lading:

  • Non-negotiable transport documents are receipts for the goods as negotiable bills of lading;
  • Non-negotiable transport documents evidence the terms of the contract of carriage (by way of clauses usually printed on one side of the document) as negotiable bills of lading;
  • But non-negotiable transport documents are not said to be “negotiable documents of title” unlike negotiable bills of lading.

What Are The Main Differences Between a Negotiable Bill of Lading and Non-Negotiable Transport Documents?

The main difference between a negotiable bill of lading and non-negotiable transport documents is how the goods are delivered to the consignee.

Under negotiable bill of lading, the goods can only be handed over to the consignee, if and only if, at least one negotiable bill of lading copy is surrendered to the carrier’s agent at the port of discharge.

Under non-negotiable transport documents, however, the carrier delivers the goods to the consignee without demanding any original copies of the transport documents, by having authentication of the consignee’s company information.

negotiable bill of lading and non-negotiable transport documents

Sea waybill is a non-negotiable bill of lading, invented by the transportation industry very recently, to respond the market, that demands a more flexible marine transport document than a conventional bill of lading.

What Are The Advantages and Disadvantages of a Sea Waybill?

The main advantages of a sea waybill over a traditional negotiable bill of lading is its flexibility and ease of use.

Advantages of a Sea Waybill

Importers can clear the goods from the customs without needing to present at least one original copy of the bill of lading, when sea waybill is selected as a transport document.

This will reduce procedures and increase efficiency, and may help to eliminate or at least limit demurrage and detention charges at the port of discharge.

advantages and disadvantages of a sea waybill

International trade has been increased in volume for the last couple of decades significantly; furthermore vessels are becoming faster and ports are getting quicker.

For example, one container vessel can travel around all major European Ports within a week.

It would not be possible for exporters to dispatch export documents, especially the bills of lading, within a such short period of time.

Consequently, importers may face to pay high amounts of demurrage and detention charges.

Actually, sea waybill has been invented to prevent such inefficient processes.

Disadvantages of a Sea Waybill

Main disadvantage of a sea waybill against a negotiable bill of lading is that it reduces exporter’s control over the goods, because of the fact that importer can clear the goods from customs without surrendering an original bill of lading.

This makes sea waybill not suitable for cash against documents and letter of credit payments and increases fraud risk.

How to Use Sea Waybill in Letters of Credit Transactions:

Non-negotiable Sea Waybill is covered under article 21 of UCP 600.

A non-negotiable sea waybill, however named, must appear to:

  1. indicate the name of the carrier and be signed by:
    • the carrier or a named agent for or on behalf of the carrier, or
    • the master or a named agent for or on behalf of the master.
  2. indicate that the goods have been shipped on board a named vessel at the port of loading stated in the credit.
  3. indicate shipment from the port of loading to the port of discharge stated in the credit.
  4. be the sole original non-negotiable sea waybill or, if issued in more than one original, be the full set as indicated on the non-negotiable sea waybill.
  5. contain terms and conditions of carriage or make reference to another source containing the terms and conditions of carriage (short form or blank back non-negotiable sea waybill).
  6. contain no indication that it is subject to a charter party. (source : UCP 600)

Special Hints Regarding the Sea Waybill From ISBP (International Standard Banking Practice):

  1. To comply with UCP 600 article 21, a non-negotiable sea waybill must appear to cover a port-to-port shipment but need not be titled “Non-negotiable Sea Waybill” or similar.
  2. If a credit requires presentation of a non-negotiable sea waybill (“Sea Waybill”, Non-negotiable Port-to-Port transport Document” or similar) covering sea shipment only, UCP 600 article 21 is applicable.

Sea Waybill Example:

You can find a sample sea waybill below in blank format.

Please keep in mind that this sea waybill format is not suitable for letter of credit, because it does not contain any reference to contract of carriage.sea waybill example