Negotiable Bill of Lading Explained

Sample Negotiable House Bill of Lading


Amazingly, there is so much significance packed into one piece of paper: The Bill of Lading. Perhaps it’s not an exaggeration that most of the physical goods you touch has been recorded on a Bill of Lading, whether in its raw form or finished article. Of all the key aspects of a Bill of Lading, we have to be aware of the negotiability of a bill of lading and what it means to transport goods using a negotiable bill of lading.

A negotiable bill of lading, in a simple anecdote, is an open-ended contract that the consigned party has the right to “transfer” the title or ownership of the transported goods to another party not named in the Bill of Lading. The transfer of goods can be structured in a negotiable bill of lading to facilitate a Letter of Credit finance, or facilitate a sale of goods during transit. To arrange a negotiable bill of lading, the bill of lading has to be an original copy to prevent vessel operators from releasing the cargo to the wrong party.

There are instances where a negotiable bill of lading is mandatory, and where a non-negotiable bill of lading is preferable. In this short article, we will explore what a negotiable bill of lading is and what conditions require the bill of lading to be negotiable.  

What is a Negotiable Bill of Lading?

Let’s get right into it. When a shipment is arranged with a negotiable BL, it generally means that the transfer of goods is not completed yet.

Yes, in every trade there has to be a buyer and a seller. But what if the buyer decides to sell it before receiving the goods? What if the seller is not confident that the buyer will meet the financial obligation to pay for the goods sold?

In both cases, a logistics service provider can issue a negotiable bill of lading to accommodate all the above-mentioned contingencies, which is different from a conventional buy-and-sell trade.

Who can Issue a Negotiable Bill of Lading?

There are generally 2 logistics service providers that can issue a bill of lading: –

  1. Vehicle Operated Common Carrier (VOCC)
  2. Non-Vehicle Operated Common Carrier (NVOCC)

A VOCC owns the ships and planes to transport the goods, they are companies such as Maersk Line, DHL, CMA-CGM, COSCO shipping Line, to name a few.

On the other hand, an NVOCC are third party service providers such as freight forwarders that act as a broker to the VOCC. They too can issue a bill of lading.

Both parties can issue a negotiable BL, with an exception of international trades involving a Letter of Credit, in which case the issuer of the negotiable bill of lading is restricted by the Letter of Credit.

The role of Logistics Service Provider

As we mentioned, whether the Logistics Service Provider is a VOCC or an NVOCC, they will temporarily assume possession of the goods-in-transit until it reaches the intended buyer in the intended port of discharge.

This places the logistics service providers in a crucial position, where they have to ensure that the transfer of goods under its possession is to the rightful owners.

Which is why in a Bill of Lading, there are 3 important details that need to be stipulated beforehand.

  1. Consignor (Exporter)
  2. Consignee (Importer)
  3. Notify Party
Sample Negotiable House Bill of Lading

It is when the Consignee/Importer is either not finalized yet, or that it is financed by a trade facilitator, that the importer cannot be determined before commencing the shipment.

Either way, there has to be a named consignee in the bill of lading, otherwise, the logistics service provider does not know who is the cargo intended for. This is a huge red tape because not only a shipment has to have an intended party, but the customs officer also tracks the flow of goods too for any malicious activities.

Therefore, a “Custodian” consignee is placed on the bill of lading, effectively making the bill of lading an open-ended contract or a “Negotiable Bill of Lading”.

How to determine if a Bill of Lading is negotiable or non-negotiable?

Typically, to differentiate a bill of lading that is negotiable or non-negotiable, we just need to pay attention to the consignee section of the Bill of Lading. A “custodian” consignee will have “To the Order of” written in front of the consignee entity or person.

Ergo, the logistics service provider (LSP) will always refer to the instructions of the “Custodian” consignee, if the custodian consignee orders the Bill of Lading title ownership to be transferred to Consignee X, the logistics service provider will do so, albeit with a form of proof of identity and a letter of indemnity that indemnifies the LSP from any wrongful release of cargo goods.  

When Should you use a Negotiable Bill of Lading?

Once you know the underlining purpose of a negotiable bill of lading, you should be able to piece together which scenario requires a negotiable bill and when it doesn’t.

Sales of Goods During Transit

This form of sales is less common in containerized cargo transportation, but more frequently seen in bulk commodity transportation.

As an example: –

Seller A sells bulk goods to Buyer B.
B, a foreign buyer, B further sells to C and D while the goods are on board the vessel in transit.
Both buyer C and D reside in the same location.
Foreign Buyer B resides in a location other than buyer C and D.

Foreign Buyer B’s entity does not have to be situated at the Port of Discharge of the bulk goods sold by Seller A.

However, to facilitate that trade, the Buyer B has to split the Bill of Lading (Split BL), whereas the original bill of lading’s consignee has to be under Buyer B’s entity name: “To the Order of Buyer B”.

Split Bill of Lading

Both the split bill of lading and negotiable bill of lading has to be approved and issued by the logistics service provider (VOCC or NVOCC)

We will elaborate further below in regards to the risk of performing such a trade.

Letter of Credit

An International trade sale that is funded by a financing bank (Letter of Credit) is the most common use of a Negotiable Bill of Lading. It is also very common in containerized ship transport, there are even countries such as Bangladesh that make it mandatory for all imports and exports to be arranged with a Letter of Credit.

A Financing Bank holds the cargo as a lien or collateral as the bank takes up the risk of buyers defaulting on their payment obligation. Therefore, in the Bill of Lading, you would have the bank as the “custodian consignee”: “To the Order of Bank Z”

This effectively makes the bill of lading negotiable, as the bank technically owns the cargo.

Until all the document requirements drawn out in the letter of credit are fulfilled, the financing bank will issue a letter to release the cargo to the actual buyer.

When you Shouldn’t Use a Negotiable Bill of Lading?

Apart from the two primary reasons listed above:

  1. Sales of Goods During Transit
  2. Sales of Goods funded by Letter of Credit

There is technically no use for a negotiable bill of lading. If the actual buyer is already known, there is no need for the bill of lading to be “open-ended”

That said, we understand that there could be some confusion in terms of which types of bill of lading is negotiable or non-negotiable.

Generally speaking, if you notice that (1) the bill of lading is issued as an original copy; and (2) the consignee is named “To the Order of …”. It is a negotiable bill of lading. Other forms of bill of lading such as seaway bill, a straight bill of lading, original bill of lading, etc… are all Non-negotiable Bill of Lading. Pretty straight forward.

How a Negotiable Bill of Lading is Surrendered in a new tab.

The link above describes how we surrender a negotiable BL.

Useful Link: Be Careful when using Seaway BillOpens in a new tab.

More information

Transfer of Risk

To elaborate further on sales of goods during transit, it is a particularly grey area.

When the cargo is in transit, we have the assistance of INCOTERMs to determine when the risk of transportation of goods is transferred from the seller to the buyer.

As an example, if the cargo is arranged in FOB terms, the risk of transportation is transferred to the buyer when the cargo is transferred onto the vessel, and the buyer assumes the risk of transportation from therein.

More Information: Transfer of Risk in FOB Shipment

But when it comes to multiple sales during transit, the transfer of risk of transportation has to be properly spelled out before finalizing the sales.

Because the intermediary buyer would have no way of inspecting the cargo on whether it is up to the standards of the contract agreement. This could pose a significant risk for all the parties involved in the shipment.

Therefore, it is wise to prepare a marine insurance cover to prevent any unnecessary monetary damages.


Hello! I'm Kelvin, I work as a custom broker and I'm thrilled with having the experience to share my industry knowledge with you. I hope that you enjoy reading them as much as I do posting them.

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