A Bill of lading is a must-have document for any form of international shipment. You may come across this document, but with a differently worded name (Air Waybill, Sea Waybill, House Bill of lading, etc…). We find this rather confusing, especially for first-time importers or exporters! So, we bet it is easier to break down what a bill of lading is into bitesize pieces of information, and then build your knowledge up once you have mastered the core concepts of what a bill of lading is. This no-nonsense guide to understanding your bill of lading should get you started in your international business in no time!
To begin with, a bill of lading is a shipping document that logistics service providers issue to you. The bill of lading acts in three different functions. (1) a Document of title, (2) A receipt of goods, (3) evidence of a contract of carriage. As a general rule of thumb, the logistics service provider issues the Bill of Lading to the exporter
The term “Logistics Service Providers” covers a wide variety of service providers. They could be transporters that arrange the transport of your goods that uses a mix of transportation modes (air, sea, and land) – also known as freight forwarders; they could also be a simple cross-border truck service.
Many resources stress the three main functions, the simplified explanation for those three functions are as follows: –
1. Document of Title – The Bill of lading contains detail that proves who is the rightful owner of the cargo. Since the cargo is entrusted to transporters, the buyer of the cargo needs to prove to the transporter that the cargo belongs to them.
In other words, the document of title enables the ownership transfer of the goods from the exporter to the importer.
This makes sense as international trade differs from a standard buy-sell activity, where the buyer and seller fundamentally meet face-to-face to exchange money for goods.
But this does not happen where the buyer and the seller are separated by the Pacific Ocean. The logistics service provider not only acts as a transporter but also a facilitator to transfer goods.
2. Receipt of Goods – When the shipping agent issues a bill of lading to the exporter, the bill of lading also acts as proof that the goods are received. Transporters or shipping agents only issue the bill of lading if the cargo is in their custody. This is important from a legal standpoint, where the transporters take responsibility for taking “reasonable care” of the cargo hereafter.
3. Contract of Carriage – the bill of lading holds important information relating to the cargo ship. In addition, it also holds the terms and conditions of the carriage. Once the transporter issues the bill of lading, it issues it with established international laws written within them.
In a nutshell, whether you are an importer or an exporter, the bill of lading serves the purpose of: –
1. acting as an intermediary for you to transfer the ownership of the cargo,
2. proofing that the transporter received the cargo in certain apparent condition,
3. tabling out the terms and conditions of the carriage contract between the transporter and you.
But, you already know the three functions of the Bill of Lading from the 257th article you’ve read about this topic. To know the functions of a bill of lading certainly does not exactly explain fully what a bill of lading is.
We want to demystify all the unnecessary information that does not concern you and focus on what EXACTLY does the bill of lading means to you as an exporter or importer.
Important Points to Know First
Before you worry about the stage of arranging transportation of your goods, the more important stage is to have an understanding of who is responsible for the stages of transportation between the buyer and the seller.
In other words, right after the purchase of goods has been concluded and the hands are shaken in agreement; The first question you should ask between your buying/selling counterpart is: –
So who is responsible for transporting the goods?
When goods are transported across borders, it goes through several stages of handling: –
1. Land Transportation,
2. Handling at the Port of Loading,
3. Local Customs at the origin country,
4. Freight services by the sea, land, or air transporters,
5. Handling at the Port of Discharge,
6. Local Customs at the destination country,
7. Port Warehouse Services,
8. Last leg destination transportation.
Luckily there is a standard that is universally accepted that divides the responsibility of transportation between the buyer and the seller. It is called INCOTERM.
INCOTERM and Bill of Lading
We actually don’t have to be familiar with all 11 INCOTERMs. As a matter of fact, we believe that there is a simpler way. Which is termed: –
The reason why we stress understanding INCOTERMs as a primer to understanding Bill of Lading is that a bill of lading actually has a different function for a buyer, as compared to for a seller.
Ok now that is out of the way, let’s dive in.
What a Bill of Lading Means to the Exporter or Importer
Document of Title
We believe it is best to describe a Bill of Lading by giving examples.
For example, a seller is fully responsible for transportation (door-to-door), this means that the seller does not necessarily use a bill of lading as a document of title.
The term “document of title” simply means a document that mentions the ownership of the goods.
When there is a named shipper and a named consignee on the bill of lading, it implies that there is a transfer of ownership from the shipper to the consignee.
But since the transportation is ONLY arranged by the seller, coined by the “Door-to-door” delivery. So, this implies that the buyer does not need a shipping document throughout the entire process of buying and transporting the goods.
On the other end of the spectrum, if the transportation is as an Ex-Work shipment (One of the ICC INCOTERMS), the buyer takes on the responsibilities of end-to-end transportation from the seller’s factory to their own facility.
This then implies that the seller does not see any Bill of Lading throughout the entire process of selling the goods.
For Door-to-Port, Port-to-Port, or Port-to-Door arrangements, the ownership transfer of goods is facilitated by logistics service providers. In this circumstance, both the seller and the buyer utilizes the Bill of Lading as a document of title.
When logistics service providers issue the Bill of Lading, they issue it to the seller first. Sellers then send a Bill of Lading copy to the buyer once certain payment conditions are met. One example for a payment term is: –
50% upon purchase order confirmation,
50% upon Bill of Lading Surrender
In this instance, the logistics service providers have possession of the goods, but the ownership of the goods is not yet identified between the buyer and the seller.
So, the logistics service providers act as a custodian to the cargo.
Once the seller is satisfied with the payment arrangement, the seller then “Surrenders” the bill of lading to the logistics service provider.
The surrendered bill of lading is an indication that the logistics service provider can “release” the cargo to the importer, or the consignee as indicated in the bill of lading.
The buyer subsequently surrenders their copy of the bill of lading in exchange for the transported cargo.
Briefly speaking, a bill of lading primarily indicates to the logistics service provider who is the owner of the goods in transit. Since transporter possesses the goods, they have to be careful that the handover of the goods is by the instruction of the seller.
Bill of Lading as a receipt
This is a more straightforward concept. Sellers or Buyers (depending on the INCOTERM) need this document to indicate that the cargo is handed over to the logistics service provider.
This document is necessary to prove that the cargo is handed over to the service provider.
To issue a receipt of goods shipped is one thing, but to ascertain the condition of goods received is an entirely different matter.
As a start, it is very inefficient for transporters or logistics service providers to check every consignment to see whether the cargo is received in good condition.
So, the logistics service provider does not “check” the cargo conditions at all. They receive the cargo as-is.
However, the cheeky part is that logistics service providers will insert clauses to lend some indication that basically means: –
“Although we received the cargo, we are not entirely sure what we received”
This is why you would see terms and jargon such as: –
1. “Said to Contain”
2. “In apparent good condition”
Why is this relevant to you? An exporter or importer. We will explain further in the section below
Contract of Carriage
Logistics Service Provider offers transportation in exchange for freight premium. Similar to any other service rendered, certain rules and regulations dictate the carriage of goods at sea.
These terms and conditions generally outline the limited liabilities of the logistics service provider when performing the cargo carriage.
This is where “receipt of goods” and “contract of carriage” go hand-in-hand. In an instance where the cargo is damaged or missing during transit.
And there you have it, a no-nonsense guide to what a Bill of Lading is. Before getting into the nitty-gritty details about every line item in this document, which is not necessary, what we had outlined is the bare essential knowledge you need to have a firm grasp of before embarking on starting your international business.
Other Useful Information
Now that we had addressed what a Bill of Lading is, it’s time to understand further as to: –
1. What kind of information is shared on the Bill of Lading
2. What types of Bill of Lading there is
3. Should you even be worried about what type of bill of lading you are getting.
1. What kind of Information is shared on the Bill of Lading
Let’s debunk all the technical jargons you see on that piece of paper, a paper that is written in ancient Hieroglyphics.
You’ve understood the concept that the Bill of Lading is a document of title, a receipt of goods, and a contract of carriage. The logical conclusion is that any information that is printed on the Bill of Lading points towards elaborating on those 3 core functions.
(1) – Shipper, Consignee, and Notify Party
These 3 columns are the most important information on the document. Precisely due to one of the primary functions that we stressed in this article, that the document is used to facilitate the ownership transfer.
The Bill of Lading names the shipper as either “Seller”, “Consignor”, or “Exporter”. All these terms mean the same thing.
The shipper named in the Bill of Lading can be explained, once again, base on the three functions of the Bill of Lading.
- Document of Title – the shipper refers to the initial owner of the cargo.
- Receipt of Goods – the logistics service provider notes to the shipper that the cargo is received.
- Contract of Carriage – The shipper undertakes the terms and conditions of carriage set out by the logistics service provider.
Consignee can also be labeled as “Buyer”, or “Importer”. These have the same meaning.
The consignee refers to the intended owner of the cargo.
The notify party does not own the cargo but maybe a party that is involved in the purchase of the goods or a party that is involved in arranging transportation for the goods.
(2) – Description of the cargo consignment
One great rule of thumb to know is:
Regardless of the size, weight, or quantity of the cargoes in transit, as long as there is only one known buyer at the end of the delivery, a seller will only need one Bill of Lading.
Yes, that’s right, you can even charter an entire ship to transport goods, as long there is only one known buyer, you only need one Bill of Lading.
It is the same for the other end of the spectrum too, regardless of how small your consignment is, you only need one Bill of Lading too.
There are a few key information that is listed about the Cargo: –
1. Size of the consignment
2. Weight of the consignment
3. Unit Loading Device (Pallet, Container, Flexibag, etc…)
4. Description of the Cargo
Therefore you may come across a description that writes: –
“1 x 20’GP CNTR STC 500 BAGS in 25 Pallets of Cocoa Powder”
Direct Translation: –
“This consignment is for 1 20’ft general container “Said to Contain” 500 Bags in 25 pallets of Cocoa Powder”
And there it is, STC means “Said to Contain” in short.
You would see also: –
1. Gross Weight – the weight of the cargo including packaging, loading unit but excluding the container weight.
2. Net Weight – the weight of the cargo excluding packaging, loading unit, and the container weight.
3. Volume – the volumetric weight of the cargo, used to quantify how large the cargo is.
(2) – Shipping Information
Importers and Exporters are not the only users of this document, but also the logistics service providers as well. The ones that arrange the transportation need unique identifying information that allows them to track the cargo via this document.
Users of this document that tracks and arranges the cargo transportation needs to know the following: –
1. Port of Loading – Cargo’s origin port
2. Port of Discharge – Cargo’s destination port
3. Container Number – Unique identifying number to track the container
4. BL Number – Unique identifying number to track the vessel
5. Vessel Details – Ship ID
6. Shipping Agent Details – NVOCC, Shipping Agency that is appointed by VOCCs to handle documentations
All the information above is a good-to-know for importers and exporters of the cargo. But for logistics service providers, this information is important for customs declaration and manifest submission.
2. What are the Types of Bill of Lading
From your perspective, an importer or exporter, does it really matter which type is issued to you?
Now the simple fact is that all types of bill of lading contain the terms of the carriage contract and proves to you that the cargo is soundly received.
However, not all Bill of lading facilitates an ownership transfer. In other words, some BL not perform as a document of title.
The only time where you really need to decide whether the Bill of Lading suits your requirement is when the sales of the goods are not 100% paid upfront or are contingent on other requirements.
We’ve given you this example before above, but it is worth revisiting.
As an example, assume that you are an exporter, and your customers from overseas had only made partial payment for the goods.
Regardless, you had already handed over the cargo to the assigned transporter and in exchange, you received a Bill of Lading.
Recall that we mention that shipping agents or transport service providers act as a custodian of your goods?
The custodian of the goods only “releases” the cargo to the importer or its assigned transporter once you (the exporter) have “surrendered” the Bill of Lading to the transporter.
In this example, you would definitely need a Bill of Lading that serves as a document of title, which is an Original Bill of Lading.
Once the Original Bill of Lading is handed over to the transporter, the bill of lading changes status to become a “surrendered bill of lading”, or “telex released bill of lading”.
It all means the same thing. So don’t get confused that these are separate kinds of Bill of Lading.
There are cases where you don’t need a bill of lading to perform as a document of title. Perhaps your customer has made full payment on the goods sold, or your shipment is exported to a person/entity to trust completely (a subsidiary company).
For this case, you would want the transportation process to be as seamless as possible. By taking away the arduous process of surrendering this document, you can use a Sea Waybill as a Bill of Lading of choice.
3. Should You Care which Bill of Lading is Used?
We are simplifying this for you to understand the concept of what a bill of lading is. So, expect a few curveballs thrown your way once you start exporting.
There is no need for an exporter or importer to know whether the Bill of Lading is a House Bill of Lading or whether the fonts are exactly 10px, Times New Roman.
All you need to do is understand completely the 3 core functions of the bill of lading, and choose one that suits your needs.
There are other resources that we’ve prepared for you. Here are the links below if you need to understand further.
In the meantime, we hope that this guide will stop you from needing to scour the internet or books to read more.