Why Surrender a Bill of Lading? A Bill of Lading performs as a document of title. Generally, this means that whoever possesses the Bill of lading has ownership claims to the goods. Because it is very easy to forge a company’s identity, shipping lines hold the responsibility much like a clearinghouse. Shipping lines ensure that the cargo is released to the consignee at the explicit instruction of the Exporter. This is why Bill of Lading has to be surrendered.
Peeling away the question of why the industry practice to surrender a Bill of Lading, there are some complexities that we like to address. There are also scenarios where shipping lines or logistics service providers do not accept the bill of lading surrender.
In this article, we will explain why surrendering a bill of lading is an important practice, and also some examples where logistics service providers do not accept a surrendered bill of lading.
Document of Title
To explain this peculiar practice in logistics in a more detailed way, we need to understand the key characteristics of a Bill of Lading: –
- Document of Title
- Contract of Carriage
- Receipt of Goods Transported
The term “document of title” is unique to the logistics industry. Apart from bills of lading, other supply chain documents such as warehouse receipts, or a dock warrant serve as a document of title too.
The general idea is since the logistics service provider issues the Bill of Lading in copies to the exporter, it is the responsibility of the exporter to pass the document to the right buyer as proof of identity, and as the rightful recipient of the cargo transported.
Logistics service providers, particularly shipping liners do not have the means to correctly identify every importer.
Imagine, a modern VLCC is capable of carrying up to 640,000 TEUs (20’ equivalent containers). Potentially, that means that there are 640,000 different intended importers that shipping liners have to identify and transfer the cargo’s ownership to.
Understandably, we cannot just ship the cargo and hope that the cargo reaches its intended consignee. There has to be a system in place for that.
This is the main reason why shipping liners mandates that importer has to surrender a bill of lading first.
No document; No cargo.
This system has served the industry well. However, there are still cases where shipping liners have mistakenly released the cargo when the Bill of Lading is surrendered. We will explain further as to why that happens.
Other reasons why we surrender a Bill of Lading
International trading is the act of exchanging goods in return for monetary gain. But what happens if, during the exchange of goods, someone else is having temporary ownership of your goods?
A Bill of Lading serves the purpose not only to transport cargoes from point A to point B, it also serves as a means to transfer ownership of goods.
In other words, the shipping carriers acts as a custodian owner of the cargo.
The exporter is given by the shipping carrier a means to hold the surrender of goods in exchange for money that the exporter is owed.
A bill of lading, technically, has to be surrendered by both the exporter and importer. An Original Bill of Lading surrender can be arranged to facilitate that. (We will explain further in ways to surrender a bill of lading)
Once the exporter has received its due, they can surrender the bill of lading to the shipping liner, effectively instructing the shipping liner to release the cargo to the importer or its service provider representatives.
Ways to Surrender a Bill of Lading
Bill of Lading can get confusing, as there are so many forms of Bill of Lading.
But really the easier way to understand why there are so many forms of bill of lading is by understanding how the Bill of Lading is surrendered.
Fundamentally, there are 3 ways of surrendering a bill of lading.
1. Surrendering with a physical copy of the Bill of Lading
When an ownership transfer of goods requires a physical copy of the Bill of Lading, it means that the shipment requires an Original Bill of Lading arrangement.
To put simply, all the original copy of the bill of lading has to be surrendered to the shipping liner. Any duplication copy presented such as a photostat copy is not acceptable.
Bill of Ladings are issued more than 1 original copy (typically 3), the exporter will then courier the original copy to the importer.
The exporter will hold 1 or 2 copy and the importer will hold another copy of the original bill of lading.
Once any outstanding dues are paid, the exporter surrenders the bill of lading. The importer then exchanges the bill of lading with a delivery order.
2. Surrendering without a physical copy of the Bill of Lading
While we say that we can surrender a bill of lading without a physical copy, we actually meant that the shipping liner does not require an original bill of lading to release the cargo.
Though technically a physical copy is not necessary, the shipping liner can accept a photostat copy of the Bill of lading.
This type of surrender bill of lading is called a Seaway Bill.
When a seaway bill is arranged, it can only mean that there is a high degree of trust between the buyer and the seller.
3. Telex Release Original Bill of Lading
Telex Release Bill of Lading is somewhere in between a seaway bill and an original copy bill of lading.
One of the biggest downsides of arranging an original bill of lading surrender is that the original copy bill of lading may take a while to courier to the importer. Particularly when short sea shipping is arranged, the vessel may arrive sooner than the document.
The consequence of that is that the importer will incur unnecessary storage, and demurrage charges because the container remains at the vessel operator’s custody over the given free time.
Moreover, an original copy bill of lading couriered is susceptible to lose and damages. That is another headache that is difficult to address. We have explained such a scenario in this article “What happens when Original Bill of Lading is lost”.
Telex release bill of lading essentially alleviates those problems of surrendering an original bill of lading. The exporter typically endorses the original Bill of lading and surrenders it to the shipping line.
The shipping agent at Port of Loading will provide instruction to the shipping agent at the Port of Discharge that the Bill of Lading is endorsed. Therefore, the importer does not need an original copy Bill of Lading to exchange for the cargo.
In most shipment arrangement, most surrender bill of lading is arranged as Telex Release Bill of Lading.
We can summarize the reason why we surrender a bill of lading: –
- To determine that the cargo is released to the intended importer
- To hold document as lien for payment due
- To facilitate a transfer of ownership done by a third party (logistics service provider)