One of the most important documents in shipping and logistics is the Bill of Lading, it has all the necessary details of the cargo delivery. Ever since the 13th-century bill of lading has been used by merchants and cargo carriers.
In modern shipping, sea transportation has turned into a super-highway of trade. Ships are more complex and shipping routes shorter and more frequent. Subsequently, the scopes and types of bill of lading are also extended to cover different transportation needs.
There are many forms of bill of lading. In our experience, we have handled seaway bills more and more frequently. It is good to focus on when the seaway bill can be a useful document as a replacement of the traditional bill of lading and when to avoid using the seaway bill altogether.
If you have not already known, a bill of lading has these three core aspects. But feel free to skip to the disadvantages of using a seaway bill if necessary.
- Negotiability of contract
- Document of Title
- Contract of Carriage
These three building blocks form the bill of lading’s function, which is a contract of carriage between the carrier and the shipper to transport goods. Seaway bill, in its essence, has the same core aspects to the Bill of Lading. Like the Bill of lading, a seaway bill has the following details:
- Shipper details
- Named consignee details
- Cargo Description
- Port of Loading and Port of Discharge
- Terms and Conditions
However, the primary difference of the seaway bill is its function as a contract of carriage and the inherent terms and conditions
Functions of the Seaway Bill
Let’s look at the three aspects of the seaway bill and its differences with other forms of Bill of Lading.
Document of Title
Documents of title equal the right to possession (not ownership) of the cargo. Intuitively, when transportation of goods occurs, the title or ownership of the goods is transferred from one party to another.
Shippers now generally do not follow the cargo in-transit to the destination, subsequently, carriers issue documents of title to signify the owner’s interest to transfer ownership to its intended party.
Since a seaway bill is non-negotiable, a Seaway bill does not function as a document of title, and the reason is that in legal terms, there is no transfer of title of goods. Therefore, a seaway bill does not function as a document of title.
This is an important distinction because as a seaway bill does not function as a document of title, and the delivery of goods is strict to the named consignee only, the named consignee does not need a to present a document of title to collect the cargo. The carrier only needs proof of consignee identity and it will release the delivery order to said-consignee.
Contract of Carriage
Bill of lading is a form of evidence of a contract of carriage. Interestingly, the most commonly adopted carriage of goods by sea convention, the Hague/Hague-Visby Rule, dictates that a contract of carriage only becomes a contract of carriage if the:
“Contract of Carriage” applies to the contract of carriage covered by a bill of lading or any similar document of title.
Since we discussed that a seaway bill does not function as a document of title, does this mean that a seaway bill, by standard convention, is not a contract of carriage and therefore not a bill of lading?
Not exactly, this only indicates that a seaway bill is not governed by Hague/Hague-Visby Rule, unless the terms and conditions, at the privy of the service provider, choose to enforce the liabilities detailed in the Hague/Hague Visby Convention.
This implicates that a Seaway Bill is evidence of a contract of carriage, just that the service provider has the liberty to choose to adopt any or none of the conventions in force. Such as the Hamburg Rule, the US COGSA, The Rotterdam Rule.
A Bill of Lading is either negotiable or non-negotiable. The term “Negotiable” generally goes hand in hand with the term “To Order Of”.
A bill of lading is set to be negotiable by stating “To Order of” a named party in the Bill of Lading, meaning to say that at the time of the cargo shipment, the final delivery of cargo and the transference of title of goods to a given owner is not yet known.
The final cargo owner will not be known if:
- Cargo is purchased with a letter of credit issued by the bank. So, until the bank has received the required documents and the agreed payment, the bank will endorse the Bill of Lading to be released to the intended consignee.
- Cargo transfers ownership during transit. Transportation by sea may take weeks, and in the midst of the delivery process, the consignee can sell the said cargo to another buyer.
In the two cases above, a Negotiable bill of lading or a “To Order” bill of lading is necessary to facilitate the trade.
The Seaway Bill is non-negotiable. By design, the seaway bill is not a document of title as discussed and therefore the consignee does not require an original bill of lading in exchange for the goods.
Bringing it all together
After inspection of the 3-core aspect that forms a bill of lading, the seaway bill is built as a Non-Negotiable, evidence of a contract of carriage that does not function as a document of title.
The intended purpose of a seaway bill, built-in with these 3 aspects, is to expedite the cargo releasing process.
Application of a seaway bill makes sense when the consignee is already known, payment terms between two parties are well arranged in advance, and the transit time of cargo is short.
It all boils down to the ability of the named consignee to not need to collect the cargo by surrendering an original bill of lading, subsequently speeding up the cargo releasing process.
But is it worth the risk? Here are the disadvantages of using a seaway bill.
Disadvantages of Seaway Bill
Releasing Cargo to the Wrong Person
As we discussed, a seaway bill is intended to expedite the release of cargo by not requiring a display of an original bill of lading. This feature can be exploited by disingenuous freight forwarders. To the less engaged shipper, freight forwarders are able to arrange for a seaway bill with the freight forwarder’s company name as the named consignee. Once the vessel has berthed, all the scam freight forwarder needs to do is to accept the cargo unbeknownst to the actual consignee.
This also can happen when the consignee masks themselves as genuine buyers requesting for a seaway bill arrangement, upon receiving the cargo, the fraud consignee therefore vanishes, leaving the shipper dumb-founded
Disputes in Payment Terms
Another disadvantage of arranging a seaway bill is that the shipper is vulnerable to consignees that do not adhere to the payment terms. One scenario that can occur that is somewhat similar to the above is that cargo is arranged as 50% cash up-front, 50% upon receiving the goods. In this case, the shipper is at the mercy of the consignee to honour the terms of payment in this shipment.
Anything can happen, there can be disputes in payments or bankruptcy or any other instance where consignee did not pay for the remaining balance. In these cases, the consignee still gets to receive the cargo if the seaway bill is arranged.
Non-standardized Terms and Conditions
Having mentioned that a seaway bill is in fact not a document of title, and more of a document of delivery, the terms of the known conventions for the carriage of goods at sea may be selectively applied by the carrier/shipping agent.
The Hague/Hague-Visby Rule may stipulate a time suit to file a claim for any liability claims from non-delivery, misdelivery, delay, loss, damage or any fault or negligence. The said time suit is within one year of the delivery of cargo. In extreme examples, some seaway bills may shorten the time suit to file a claim.
There are also instances where a seaway bill expressly incorporates a lower limit liability claims, lower than the Hague-Visby Convention limit of an amount of 666.67 Special Drawing Rights (SDR), or 2 SDRs per kilogram gross weight, whichever is the highest.
Granted, seaway bills rarely skew afar from the known rules of contracts of carriage of goods by sea, but it is important to know that it is up to the carrier/shipping agent to adopt whichever convention they see fit if the national law permits.
Seaway bills are convenient when it comes to expediting the release of cargo without an original Bill of Lading. However, this convenience comes at a cost where the inherent risk involved is relatively higher considering the facts mentioned.
We recommend using a Straight Bill of Lading. in instances where a speedy release of cargo is needed, the shipper can always arrange for a Telex Release Bill of Lading where the Bill of Lading is surrendered at the port of origin instead.