Bill of lading

A bill of lading is a document issued by a carrier to acknowledge receipt of cargo for shipment. Although the term is historically related only to carriage by sea, a bill of lading may today be used for any type of carriage of goods.
Bills of lading are one of three crucial documents used in international trade to ensure that exporters receive payment and importers receive the merchandise. The other two documents are a policy of insurance and an invoice. Whereas a bill of lading is negotiable, both a policy and an invoice are assignable.
In international trade outside the United States, bills of lading are distinct from waybills in that the latter are not transferable and do not confer title. Nevertheless, the UK Carriage of Goods by Sea Act 1992 grants "all rights of suit under the contract of carriage" to the lawful holder of a bill of lading, or to the consignee under a sea waybill or a ship's delivery order.
A bill of lading must be transferable, and serves three main functions:

it is a conclusive receipt, i.e. an acknowledgement that the goods have been loaded; and
it contains, or evidences, the terms of the contract of carriage; and
it serves as a document of title to the goods, subject to the nemo dat rule.

Typical export transactions use Incoterms terms such as CIF, FOB or FAS, requiring the exporter/shipper to deliver the goods to the ship, whether onboard or alongside. Nevertheless, the loading itself will usually be done by the carrier or by a third party stevedore.

Description

A bill of lading is a standard-form document which is transferable by endorsement. Most shipments by sea are covered by the Hague Rules, the Hague-Visby Rules or the Hamburg Rules, which require the carrier to issue the shipper a bill of lading identifying the nature, quantity, quality and leading marks of the goods.
In the United Kingdom, in the case of Coventry v Gladstone, Lord Justice Blackburn defined a bill of lading as "A writing signed on behalf of the owner of ship in which goods are embarked, acknowledging the receipt of the Goods, and undertaking to deliver them at the end of the voyage, subject to such conditions as may be mentioned in the bill of lading." Therefore, it can be stated that the bill of lading was introduced to provide a receipt to the shipper in the absence of the owners.
In Glyn Mills & Co. v. East and West India Dock Co, which concerned the presentation of a series of bills of lading, the decision also encompassed any document which "by mercantile law and usage... is a symbol of the right of property in the goods".
Although the term "bill of lading" is well known and well understood, the proposed Rotterdam Rules use the term "transport documents", of which bills of lading and seaway bills are examples.

History

While there is evidence of the existence of receipts for goods loaded aboard merchant vessels stretching back as far as Roman times, the practice of recording cargo aboard ship in the ship's log is almost as long-lived as shipping itself. The modern bill of lading only came into use with the growth of international trade in the medieval world.
The growth of mercantilism produced a requirement for a title document that could be traded in much the same way as the goods themselves. It was this new avenue of trade that produced the bill of lading in much the same format as currently used.

Etymology

The word "lading" means "loading", both words being derived from the Old English word hladan. "Lading" specifically refers to the loading of cargo aboard a ship. The Dutch word "lading" has exactly the same meaning as it has in the English "bill of lading", but is not restricted to shipping. Under English law, the Carriage of Goods by Sea Act 1992 provides that the term "bill of lading" includes a "received-for-shipment" bill of lading issued by, say, a freight forwarder or a storage depot/warehouse. A "combined bill of lading" may be issued by a carrier who, say, collects goods from a factory for subsequent delivery to a ship via multi-modal transport.

Roles and purposes of bill of lading

As cargo receipt

The principal use of the bill of lading is as a receipt issued by the carrier once the goods have been loaded onto the vessel. This receipt can be used as proof of shipment for customs and insurance purposes, and also as commercial proof of completing a contractual obligation, especially under INCOTERMS such as CFR and FOB.
Although the Hague-Visby Rules provide that a bill of lading is only prima facie evidence of receipt, the Carriage of Goods by Sea Act 1992 s.4 declares a BoL "conclusive evidence of receipt".

A "clean bill of lading" is used when there is full compliance with no discrepancies between the description filed by the shipper and the actual goods shipped. A clean bill of lading indicates that the goods have been properly loaded onboard the carrier's ship in accordance with the contract.
A "dirty bill of lading" will be issued if the goods to be shipped differ in quality or quantity from the contract description. The buyer's bank is entitled to reject a dirty bill of lading, but will often accept it after an agreed reduction in price. For examples, cargo could be leaking, or package could be damaged where the carrier has the right to issue a clause BL.
"STC": if the cargo cannot be effectively examined, such as goods in a sealed container), the carrier will issue a bill of lading describing the goods as "container said to contain" the contracted cargo. The carrier or the agent mentions "STC" in BLs to safeguard themselves from shipper declaring wrong information on BL. Even this term is more favourable to the carrier in FCL shipping and there are instances where the carrier become at least partially liable in LCL shipping even after mentioning "STC" under cargo description. This is due to the carrier or agent do the stuffings of cargo for the shipper's LCL shipment. If the cargo within the container does not comply with the description, the consignee will take action against the seller, and the carrier will not be involved.
As evidence of the contract of carriage

The bill of lading from the carrier to the shipper can be used as evidence of the contract of carriage by the fact that the carrier has received the goods and upon the receipt, the carrier would deliver the goods. In this case, the bill of lading would be used as evidence of contract of carriage. In this case, the bill of lading can be used if the shipper does not properly ship the goods then the shipper cannot receive the bill of lading from the carrier. Eventually, the shipper would have to deliver the bill of lading to the seller. In this case, the bill of lading is used as evidence of contract of carriage between seller and carrier. However, when the bill of lading is negotiated to a bona fide third party then the bill of lading becomes conclusive evidence where no contradictory evidence can be introduced. It is because the third party cannot examine the actual shipment and can only pay attention to the document itself, not survey or examination of the shipment itself. However, the bill of lading will rarely be the contract itself, since the cargo space will have been booked previously, perhaps by telephone, email or letter. The preliminary contract will be acknowledged by both the shipper and carrier to incorporate the carrier's standard terms of business. If the Hague-Visby Rules apply, then all of the Rules will be automatically annexed to the bill of lading, thus forming a statutory contract.
The bill of lading is not a contract of carriage as it is only signed by the carrier. Yet, it acts as evidence of contract due to the activities taken place between the shipper and the consignee.

As title

When the bill of lading is used as a document of title, it is particularly related to the case of the buyer. When the buyer is entitled to receive goods from the carrier, the bill of lading in this case performs as a document of title for the goods.
In simple words, the function of BL as a document of title shows who owns the cargo. Whoever has the duly endorsed BL is the rightful owner of the cargo described in the BL. Carrier becomes responsible before the law if they issue cargo to a party who is not the authorised person to claim the goods under this function. Further, if the BL is a "Seaway BL" document of title function will not be applicable. Simply, the bill of lading confers prima facie title over the goods to the named consignee or lawful holder. Under the "nemo dat quod non habet" rule, a seller cannot pass better title than he himself has; so if the goods are subject to an encumbrance, or even stolen, the bill of lading will not grant full title to the holder.

Types of bills of lading

Bills of lading may take various forms, such as on-board and received-for-shipment.

An on-board bill of lading denotes that merchandise has been physically loaded onto a shipping vessel, such as a freighter or cargo plane.
A received-for-shipment bill of lading denotes that merchandise has been received, but is not guaranteed to have already been loaded onto a shipping vessel.. Such bills can be converted upon being loaded. The received for shipment BLs are used to deliver documents to the consignee faster. Yet these BLs are not accepted if the payment method is LC.
A straight bill of lading is used when payment has been made in advance of shipment and requires a carrier to deliver the merchandise to the appropriate party.
An order bill of lading is used when shipping merchandise prior to payment, requiring a carrier to deliver the merchandise to the importer, and at the endorsement of the exporter the carrier may transfer title to the importer. Endorsed order bills of lading can be traded as a security or serve as collateral against debt obligations.