Table of Contents
INTRODUCTION
Switch Bill of Lading is an important document that is utilized worldwide. Yet, it is also one of the most misunderstood documents among industry practitioners.
It is not that the document is complicated to comprehend, but the fact that it has strong legal implications that ripples across involved parties that make the practice of issuing the Switch Bill of Lading more complex than it is on face value.
In this article, we will try our best to cover the legal aspect of the switch bill of lading, it’s function and why some traders use switch bill of lading.
We will also cover some frequently asked questions surrounding the documentation of the Switch Bill of Lading, and conclude on how best we callous ourselves with the necessary knowledge to handle a Switch Bill of Lading document.
WHY USE A SWITCH BILL OF LADING
Conceal sensitive trade secrets from the consignee
Scenario Analysis:
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Global trading is multi-faceted, a potato distributor may be based in the United Kingdom, but the trade of potatoes may be from India and exported to Norfolk, USA.
The bill of lading, as a contract of carriage between a liner and the charter-party, must contain the shipper and consignee as evidence of a contract.
The trade deal may be negotiated as “CNF”, which lays the responsibility of delivering the cargo to the Port of Discharge, Norfork, on the shipper.
Now the Potato Distributor in the United Kingdom, they do not have an office operation in India, how are they supposed to arrange a “CNF” shipment and also at the same time protect their true cargo source from the actual consignee?
Here is where a switch Bill of Lading comes in handy. A switch Bill of Lading is issued by the Vessel Operator to replace the original Bill of Lading issued.
The replaced bill of lading will have the new amended Shipper or Consignee on it Bill of Lading.
Reflect new shipping arrangements when goods are sold in transit.
This is done in place of High Sea Sales (HSS), HSS is carried out when the consignee has sold the goods in transit at sea to another buyer.
In this aspect of HSS, the consignee has now become the Shipper. An HSS agreement should be signed after dispatch of goods from origin & before their arrival at destination. In other words, the Original Bill of Lading has to be issued and the cargo has left the Port of Discharge.
When this occurs, The Commercial Value of the cargo along with the cost of affreightment is calculated as the new value reflected on the Bill of Lading.
Another point is that once the High Sea Sales is endorsed, where the new buyer has a different port of destination, the Vessel Operator will perform a Switch Bill of Lading to reflect the new Port of Discharge.
A Switch Bill of Lading is utilized to “Split” the Bill of Lading
Split Bill of Lading is similar to a Switch Bill of Lading in two aspects, one of them is that an original Bill of Lading has to exist first before “Splitting” or “Switching”, and another is that both “Split” and “Switch” Bill of Lading involves changing details of the shipper and consignee.
The difference is that in a Switch bill of lading, there is only one named consignee. Whereas a split bill of lading means the dividing of the bills of lading into two or more parts of a shipment to multiple consignees.
A Split Bill of Lading is requested by the original shipper, but the shipper can issue an instruction for the split bill of lading upon the request of the originally named consignee. The details of the description and total cargo volume cannot be altered due to customs valuation purposes.
The initially named consignee usually requests for a split bill of lading when the cargo is sold in-transit to multiple consignees.
KEY POINTS TO CONSIDER WHEN ISSUING A SWITCH BILLS OF LADING
Essentially, a Switch Bills of Lading performs the same function as an Original Bill of Lading. We explained at length of the terms and conditions of the Bill of Lading here. A bill of lading functions as a:
- Document of Title
- Evidence of Contract of Carriage
- Transfer of Goods
If a Split Bills of Lading is issued while the Original 3 sets of Bills of Lading are still in circulation, there will be two conflicting documents of title and two conflicting contracts of carriage.
This is why if a Split Bills of Lading is requested, all copies of the original Bills of Lading must be surrendered to the shipping agent/Vessel Operator before the new Bills of Lading can be issued.
When Letter of Credit is in play
Under the Uniform Custom of Practices (UCP 600) guidelines, if UCP is adopted by the banks issuing the Letter of Credit, they may explicitly state that the bills of lading have to be original and be issued by the original Shipper.
The reason for Letters of Credit to not allow for a Switch Bills of Lading is to prevent multiple parties claiming ownership of the cargo. A Bills of Lading functions as a Document of Title, if there are multiple Bills of Lading in circulation, a vessel operator/charter party has no way to differentiate which document of title should they adhere to.
When Certificate of Origin is in play
If the sole purpose of a Switch Bills of Lading is to conceal the original shipper’s detail, this may be curtailed by the importer’s requirement of a Certificate of Origin.
A Certificate of Origin is a product of a bilateral or multilateral trade agreement between two or more nations that promote international trade between the countries by reducing the import duty applicable to the cargo.
Preferential Trade Agreements are normally issued by the Port of Loading’s Chamber of Commerce and one of the details required to be displayed on the certificate of origin is the shipper name itself.
The requirement for the shipper/manufacturer to be on the certificate of origin is for the Chambers of Commerce to determine by the Rules of Origin that the cargo is manufactured by the country of the Port of Loading.
Hence, if a switch Bills of Lading is done to conceal the shipper, depending on the INCOTERM, the certificate of origin is required for customs declaration purposes and will be sent to the consignee. This defeats the purpose of even concealing the shipper details all-together.
When Other Supporting Documents are in play
Similarly for the requirement of the Certificate of origin, documents such as:
- Phytosanitary Certificate
- Fumigation Certificate
- Health Certificate
- Certificate of Analysis
- Material Safety Data Sheet
They may be required by the importing country, depending on the nature of the product, there could be even more supporting documents required by the importing country to clear customs.
These certificates are mostly applied, issued or certified by the manufacturer/original shippers themselves.
Once again, if the sole purpose of a Switch Bills of Lading is to conceal the original shipper’s detail, and depending on the agreed INCOTERM, the original shipper details will surface to the knowledge of the intended final consignee anyway.
When Letter of Indemnity is in play
Vessel Operators/Charter party may request a Letter of Indemnity to indemnify themselves from any fraudulent claims or legal action against them when issuing a Switch Bills of Lading.
However, it is not so much as the presentation of the Letter of Indemnity that indemnifies the Vessel Operator, rather the validity of the Letter of Indemnity that is more significant.
A valid Letter of Indemnity, endorsed by the bank, and/or the principal shipper is preferable to a Letter of Indemnity that is not endorsed by any party, ensures that the Letter is legally enforceable.
FREQUENTLY ASKED QUESTIONS ABOUT SWITCH BILL OF LADING
When does the liner/carrier issues the switch bill of lading?
Vessel Operators/Carriers/Charterparty only should issue the Switch Bill of Lading after the original Bills of Lading is surrendered to the principal office. They may request supporting documents such as the letters of indemnity prior to issuing.
By and large, since a “received” bills of lading are issued when cargo is turned over to the Charterparty, a switch bill of lading can only be issued when the cargo is in the possession of the Charterparty.
What details in the switch Bill of Lading can I change?
Only the shipper details, consignee details and the Port of Discharge may be changed, other details that the consignee requests to amend in the Bills of lading are strictly upon the approval of the vessel operator/Charterparty.
In the instance of a “Split” Bill of Lading, where multiple consignees are involved, switch bills of lading can be issued where the quantity of the cargo differs. However, a “split” Bill of Lading normally is issued as partial bills of lading and the total quantity of the cargo can never be different from the original bill of lading
Can I avoid duty and tax from switching bill of lading?
The straight forward answer is, no.
Some consignee performing a triangle shipment via switch Bills of Lading may want to alter the port of loading in order to utilize preferable import duty and tax in another country. Vessel Operators/Charterparty will not bear the risk of misrepresentation by altering the true Port of Loading on behalf of the consignee
Besides, customs clearance almost always requires supporting documents like Certificate of Origin, Health Certificate, Certificate of Analysis, etc… The consignee has no option to avoid tax by switching Bills of Lading if these documents are required.
What date should the switch Bill of lading show?
The date of the Original Bills of Lading.
CONCLUSION
A Switch Bills of Lading should never be used as a tool to avoid tax, misrepresent cargo ownership, or perform fraudulent activities. Moreover, the Vessel Operators and Custom Officers are vigilant to not fall for these traps.
It is up to the freight forwarder to perform due diligence when acting on behalf of the shipper, by giving proper advice on the legal implications of a switch bill of lading. Furthermore, when acting on behalf of the consignee, be vigilant and protect the consignee from unwanted losses.
RESOURCES
http://customsandforeigntrade.com/What%20it%20is%20&%20How%20it%20Works.pdf
https://shippingandfreightresource.com/what-is-a-switch-bill-of-lading-and-when-and-why-is-it-used/
https://www.hellenicshippingnews.com/split-bills-of-lading-and-ships-delivery-orders/
https://www.letterofcredit.biz/index.php/2018/12/01/what-is-congenbill-bill-of-lading/
https://www.internationallawoffice.com/Newsletters/Shipping-Transport/Malaysia/Shearn-Delamore-Co/High-Court-rules-on-liability-for-loss-of-cargo#
