The Full Guide to Bills of Lading: Types and Workflows

The Full Guide to Bills of Lading: Types and Workflows

2021-06-06T10:57:23+00:0013 Apr, 2021|Technology|

Why Digitize Trade Documents?

The international trade industry relies on deeply traditional workflows that have not changed significantly for hundreds of years. Written receipts for goods delivered go back at least as far as Roman times, and Bills of Lading haven’t changed too much since then.

The world, on the other hand, has changed significantly. For one thing, countries have established legal standards for trade bills in general and Bills of Lading specifically. But even after many changes, the process of transmitting paper Bills of Lading has stayed the same: the document is transferred physically, from hand to hand, until it reaches its destination—the buyer—and is then surrendered back to the carrier. 

What is a Bill of Lading?

To keep it short and simple, a Bill of Lading is a document issued by a carrier to a shipper (or their agent) that acknowledges the receipt of cargo for shipment. A Bill of Lading ensures the rights and liabilities of every party (carrier, shipper, and consignee) in the process of delivering the goods to their destination.

In other words, a Bill of Lading is:

  1. A document of title (a written instrument that enables the transfer of ownership over goods) that lists the goods being transferred. 
  2. A receipt that a carrier gives a shipper in return for onboarding goods.
  3. Evidence for the contract that defines the terms and conditions by which the goods will be transported.

Bills of Lading (BLs) are legally binding documents between shippers and carriers. They are official documents that are legally required to be issued and are admissible in a court of law.

A Bill of Lading gives its lawful holder the legal title to the goods that it lists, and it describes in detail the type, quantity and destination of the goods being carried. Cargo shipped via any form of seaway transportation must be accompanied by a Bill of Lading, together with complementary documentation, and the BL must include the signature chain of every title holder the shipment passes through on the way to the ultimate title holder (the buyer).

The graphic below illustrates a typical supply chain that a BL might pass through. Here the BL is being transferred from carrier to shipper, to the shipper’s bank, the consignee’s bank, and finally to the consignee. At each stage, transferring the ownership of the BL may require adding a new signature.

 

Obstacle: Paper Has Become a Barrier

The trade industry relies on workflows that haven’t changed in years. The use of paper documents is changing, but only in baby steps. Bills of Lading are still being transmitted by couriers from hand to hand, and this process is pricey, slow, and exposed to risk, forgery, and document loss

 

 

Partial Solutions: Sea Waybills and Telex Releases

Over the years, companies have tried to find different shortcuts to mitigate the complexity of working with Bills of Lading. For example, companies started using Sea Waybills and Telex Releases that require shorter processes. 

Sea Waybills are non-negotiable Bills of Lading that under some jurisdictions are not considered documents of title and therefore are sent via email. (Non-negotiable means that the buyer of the goods can’t transfer rights over the bill to anyone else.)

The shipper requests a named consignee to be listed on the document and from that moment, the Sea Waybill can only be canceled and replaced by the shipper if the goods have not yet been claimed by the consignee. 

With Sea Waybills, goods are delivered and can be released by the document consignee quickly and easily without presenting the Sea Waybill in its original paper form.  

Speed is the main advantage of Sea Waybills, which is why today they are generally issued through email. But emailed documents are not legally considered unique, and as a result email cannot be used to legally transfer possession of the Sea Waybill. In other words, the shipper cannot, via email, control possession of the Sea Waybill, and therefore of the cargo. Because of the limitations of email as a communications method, there is no requirement for the consignee named on the Sea Waybill to actually present it to the carrier in order to release the cargo. This poses a significant risk to the shipper, because it means that the consignee can collect the cargo before paying the shipper for the goods.

WAVE BL’s platform, which unlike email does enable the legal transfer of unique documents, is a new solution that makes it possible to preserve the speed and convenience of Sea Waybills while enabling shippers to control the timing of possession transfer to the consignee. 

 

 

Telex Releases are electronic internal messages from a carrier’s representative at the port of origin to its representative at the port of destination. They contain instructions to release cargo to a buyer. 

Telex Release is a practice used to bypass the need of physically transferring a Bill of Lading to the hands of the buyer. Once a BL is issued by the carrier to a shipper, in some trade flows, the shipper does not send the BL to the consignee, and instead waits for the consignee to perform the payment. Following payment, the shipper surrenders the Bill of Lading to the carrier at the port of origin, with a request to the carrier to send a Telex Release to its representatives at the port of destination with an instruction to release the cargo to the consignee. Telex Releases are fast but, unlike Bills of Lading, do not offer an option for negotiability. They are also very costly to the seller.

Using emailed Sea Waybills and Telex Releases, which in practice both serve as shortcuts, adds speed at the cost of the legal certainty and negotiability that Bills of Lading offer. However, as we’ve seen above, paper BLs carry risks of their own, like delays, loss, forgery, and more. Electronic Bills of Lading combine the speed and certainty of Sea Waybills and Telex Releases with the benefits of paper BLs: control over document possession, negotiability, and low costs. Today, digital technologies like WAVE BL are accessible and affordable. There is no need to settle for partial solutions anymore. 

 

A Complete Solution: Digitization with Electronic Bills of Lading

Digitization is the perfect answer to the complexities and costs of using paper Bills of Lading.  It solves critical problems like loss, delays, and fraud, and eliminates the need to rely on risky and expensive substitutes and shortcuts. The digitization process replaces paper Bills of Lading with electronic BLs (eBLs) that are transmitted quickly and securely via an electronic network. Today, there are many solutions on the market, both centralized and decentralized. Choosing the best solution means exploring and understanding the differences between them to evaluate the best fit for your needs.

 

 

Types of Bills of Lading

Bills of Lading are the single most important document used when shipping goods. To trade with the fewest risks and highest effectiveness, you need to understand the different types of Bills of Lading that are commonly used today. WAVE BL offers a platform that supports every type of eBL and all trade-related documents.

The different types of BL have to do with different aspects of the cargo transportation process: whether the goods are shipped by sea or inland; who is the party responsible for the goods and their condition; what the level of trust involved is; etc. Many of the types described below can be combined. For example, an Ocean Bill of Lading can also be a Master or a House Bill of Lading depending on who issues it, and it can be a Claused or Clean Bill of Lading depending on the condition of the cargo.

Before jumping into the types of Bills of Lading, it’s important to understand a few key terms. 

Title: The right to ownership of the delivered goods. If you have the title to a BL, you are the party to whom the goods must be delivered (the consignee). A Document of Title is a document that specifies the ownership of the goods.

A Negotiable Document of Title is a signed document promising a fixed amount of money or value to a specified party or to its bearer. Negotiable documents can be further endorsed by the specified party, meaning that they can effectively be used as funds, cash or collateral.

A Non-Negotiable Document of Title can only be used by its named parties and cannot be further endorsed to a new party.

Possession: Possession refers to the person who holds a unique document and therefore controls it.

Original Document: A document that was created directly and personally by a particular entity. When talking about Bills of Lading, the meaning is a BL issued by a carrier, freight forwarder or NVOCC.

We also need to talk about trust. Trade is all about trust. The level of trust between the trading parties determines what type of Bill of Lading is chosen (as well as what other financial tools will be involved).

If the trust level is high, a low-safety and easy-to-use workflow will be chosen. If the trust level is low, a more complex workflow will be chosen in order to protect each of the trading parties. 

Now we can move forward to various types of Bills of Lading.

 

Ocean Bills of Lading

An Ocean Bill of Lading is any type of BL that applies to the transportation of goods overseas across international waters. Like any BL, it specifies the nature of the shipment including what and how much is being transported and where the goods will be shipped to and from.

Master Bills of Lading (MBLs) vs. House Bills of Lading (HBLs

A Master Bill of Lading is issued by carriers.

A House Bill of Lading is issued by freight forwarders or NVOCCs (Non-Vessel Operating Common Carriers).

House Bills of Lading are used when the shipping process involves freight forwarders or NVOCCs. In this process, a freight forwarder or NVOCC buys cargo space from a carrier, divides that space, and resells it to individual shippers. The carrier who sold the cargo space to the freight forwarder or NVOCC issues them a Master Bill of Lading, which summarizes the shipment contract between them. Then the freight forwarder or NVOCC issues House Bills of Lading to each of its customers. These HBLs include the details of the specific agreement by which the goods will be transported. When the shipment arrives at the port of destination, each consignee (buyer) surrenders its HBL to the freight forwarder or NVOCC, which in turn surrenders its MBL to the carrier.

The following two categories are not separate types of BL, but rather describe in what circumstances the BL is issued by the carrier to the shipper. In other words, Bearer BLs, Order BLs and Straight BLs can all be either Shipped BLs or Received for Shipment BLs.

Straight Bills of Lading

The Straight Bill of Lading is similar to a Sea Waybill (see above) because it is not negotiable, but it is only issued as an original document. To collect cargo, the buyer (consignee) presents the Straight BL to the carrier.

Straight Bills of Lading are used:

  • When a company sends cargo to a subsidiary or affiliated company. In this case the consignee’s name may be identical to the shipper’s name.
  • When the buyer has already paid for the cargo in advance.
  • When the shipper knows with certainty to whom the cargo is designated.

 

Order Bills of Lading

There are two types of Order BL:

1. Unknown Consignee

(Order of Shipper): In this type, the consignee field does not list the name of a particular consignee, but instead lists “To order” or the name(s) of the shipper itself. This way the shipper can preserve title over the Order BL until shipment is complete, avoiding the risk of handing over the BL before receiving payment. Alternatively, this type of BL can be used when the shipper does not know at the outset who the ultimate buyer will be. When the shipper is ready to transfer ownership of the cargo to the buyer, the shipper endorses BL to the buyer, who, as the new endorsee, can then surrender it in return for the goods.

Order Bill of Lading to the Order of the Shipper: (A) The shipper, who is the named consignee in this case, performs an endorsement (the addition of a new endorsee) by adding a signature and stamp on the back of the Bill of Lading and sends the original BL (by courier) to the new named endorsee (the buyer). The result is a transfer of title (B) The endorsee is now in possession of the original Bill of Lading. (C) The endorsee can either further endorse the bill or alternately surrender it to the carrier.

2. Known Consignee

An Order Bill of Lading is made out to the “order or assigns” of a named consignee.  This Bill of Lading is negotiable, which means it allows the named consignee to order the goods to be delivered to somebody else (i.e. to sell the cargo to a new owner). To do so, the consignee must endorse the BL to an endorsee, by stamping and signing on the back of the bill and transferring it to the endorsee. The endorsee is then able to further endorse the bill to a new party or collect the goods by presenting the endorsed original Order BL to the carrier.

Order Bill of Lading with named consignee: (A) The shipper transfers possession of the original BL (by courier) to the consignee. (B) The consignee performs an endorsement by adding a signature and stamp on the back of the Bill of Lading and sending it (by courier) to the named endorsee, resulting in a transfer of title. (C) The endorsee now possesses the original Bill of Lading. (D) The endorsee can either further endorse the bill or alternatively surrender it to the carrier.   

Bearer Bills of Lading

A Bearer Bill of Lading is used when the parties do not want to expose the identity of the cargo buyer.  This kind of bill does not specify a named title holder. It states that delivery will be made to whomever presents the bill. A bearer bill is fully negotiable by transferring the Bill of Lading to a new possessor, who will then become the new owner of the cargo without the need for adding any endorsement signatures. Bearer bills are not common because of the obvious risk that anyone in physical possession of the bills can collect the cargo even if it is not intended for them. 

 

Bearer Bill of Lading: (A) The shipper transfers possession of the original Bill of Lading (by courier) to the buyer, who is not named as a consignee. (B) The new possessor, or bearer, can further transfer the BL to a new bearer by sending it (by courier) to that new bearer, resulting in a transfer of possession.  Alternatively, a bearer can surrender the BL to the carrier. The bill surrendered to the carrier will not have any reference to the parties who possessed it along the way.

Shipped Bills of Lading

These are also known as On-Board Bills, especially in the US. Shipped Bills of Lading are issued by the carrier at the time the goods are loaded on the carrying vessel, and record both the receipt of the goods from the carrier to the shipper, and the time of loading. A Shipped BL must be signed by the shipowner or by another authorized agent on the shipowner’s behalf. 99% of Bills of Lading are Shipped BLs.

Received for Shipment/Carriage Bills of Lading

Received for Shipment BLs are issued by the carrier to the shipper at the time the goods are received by the carrier, but before they are loaded on the vessel. At this point, the cargo is still waiting in a warehouse to be loaded on the ship. A Received for Shipment Bill will be converted into a Shipped Bill once the goods are loaded, by adding a dated amendment on the face of the Bill. 

Received for Shipment Bills of Lading are used when a consignee wants to consolidate a large amount of cargo from a few separate shippers into a single shipment. Because individual cargo might be received by the carrier some time before the consolidated shipment is sent out, it makes sense to issue a BL at the time of receipt rather than at the time of shipment.

Charter Party Bills of Lading

At times, a vessel can be hired by a third party, which is called a charterer. In this case there are again two types of BLs that can be issued: Master and House Charter Bills of Lading.

Master Charter Bills of Lading

This BL is issued between the owner and charterer of the vessel, and promises to transport the listed cargo between the specified ports within a specified period. This BL is issued and held by the charterer.

House Charter Bills of Lading

This type of Bill of Lading is also issued by the charterer rather than the vessel’s owner. As in the case of regular Master and House Bills of Lading (link), the Master Charter BL is held by the charterer, who then issues House Charter BLs to each of the shippers whose cargo it will transport.

Liner Bills

A liner Bill of Lading that is issued by a particular shipping line that offers scheduled service between two specific ports. It is also often used in place of a Charter Party Bill of Lading.

Owner’s Bills of Lading

An Owner’s Bill of Lading is issued by the owner of a vessel even though the vessel might be chartered. In other words, it is similar to a Charter Bill of Lading except that it is issued by the vessel’s owner rather than by the charterer.

Switch Bills of Lading

The Switch Bill of Lading is issued as a replacement for the original BL by the carrier in exchange for the original at the titleholder’s request. This Bill of Lading is usually used when the consignee or endorsee wishes to sell the goods without revealing the identity of the original shipper or subsequent titleholders.

 

Claused Bills of Lading

A Claused Bill of Lading is issued when the cargo being loaded is flawed in some way, e.g. in terms of condition, quantity or weight. The carrier issues a Bill of Lading with an additional clause stating that the flaw originated with the shipper and not the carrier. This Bill of Lading is also known as a Dirty Bill of Lading or a Foul Bill of Lading.

Clean Bills of Lading 

A Clean Bill of Lading is issued when the goods loaded are in apparent good order and condition, at least with respect to their outer packaging ⁠(the cargo is not opened for inspection).

Combined Transport Bills of Lading 

A Combined Transport Bill of Lading covers the transport of goods by more than one mode of transport, e.g. by road or by rail. This is often the case when the goods originate at a point far from a sea port, or are transported to such a point; while the main part of the transport will be overseas, another part will be inland. Here the issuer accepts primary responsibility as a carrier for every stage or form of transportation involved. This Bill of Lading is also known as a Multimodal Bill of Lading.

Through Bills of Lading 

A Through Bill of Lading is similar to a Combined BL, except that the inland carrier acts as the principal for the inland stages of transportation, and the sea carrier acts only as an agent in arranging for the inland stages.

Conclusions

International trade is complex and requires a high level of understanding of trade-related documents and regulations. At WAVE BL we understand the complexities and have developed a universal digital document courier solution which supports every type of Bill of Lading, as well as all other trade-related documents. With WAVE BL, every party along the supply chain can manage their documents on a single system that eliminates risks, maximizes convenience, and saves time and money.

Noga Balaban

Noga Balaban

Marketing Director
This page lists and explains the different types of Bills of Lading that the trade industry uses today. It also explains why Bills of Lading are so important, and how digital Bills of Lading are bringing the industry into the future.

Subscribe for updates



Go to Top