As we know, a Bill of Lading (B/L) is one of the most commonly used commercial documents in the history of global trade and shipping.. This document is issued in one form or the other for all shipments whether it is container, bulk, break bulk, RoRo or others..
A Bill of Lading has 3 basic functions or roles as below (in no particular order)..
1) Evidence of Contract of Carriage
The B/L is the EVIDENCE of the contract of carriage entered into between the “Carrier” and the “Customer” in order to carry out the transportation of the cargo (not to be confused with the sales contract between the buyer and the seller)..
2) Receipt of Goods
A B/L is issued by the carrier or their agent to the customer as proof of RECEIPT of the cargo..
The issuance of the B/L is proof that the carrier has received the goods from the customer in apparent good order and condition, as handed over by the customer..
3) Document of Title to the goods
This role of the bill of lading decides who is the owner of the TITLE TO THE GOODS based on which cargo is released..
While bills of ladings are issued by Carriers who enter into a contract of carriage with customers to move goods from A to B, there is confusion in many quarters about who is a Carrier.. The term Carrier has various interpretations even by the various International Carrier Regimes..
A Contract of Carriage may be defined as an agreement that is concluded between a carrier and a customer for the carriage of goods from Point A to Point B by the carrier against payment of freight by the customer..
I say customer and not shipper as mentioned above because in a lot of cases and especially in container trades, the entity that enters into a contract of carriage with the carrier is not necessarily the “shipper” shown in the bill of lading..
These conventions are archaic and refer to the days when the entity negotiating the carriage would be the actual shipper or owner of the goods.. Differences between shippers and exporters came up much later but the conventions have not changed..
Today a customer to a carrier could be an actual exporter, trader who may or may not own the goods yet, freight forwarder, exporter’s agent, clearing agent, freight broker or just about anyone who wants to get into the business of exporting, importing or trading..
On the same token, a carrier to the customer could be an actual shipowner, ship operator, charterer, NVOCC, shipping line or any other party holding out to be the carrier and the carrier may not even be the physical carrier..
So into this already confusing mix, in the case of container shipments, we can also throw in another confusion which is the “name” of the bill of lading..
Master Bill of Lading or House Bill of Lading
In his latest article, Jagannath, argues against an article that concludes that bills of lading issued by NVOCCs “an anathema and have caused severe commercial problems and should be statutorily controlled.”.
Bills of lading issued by NVOCCs are termed House Bill of Lading and a House Bill of Lading is recognised all over the world including by Customs authorities as performing the role(s) of a Bill of Lading (although there are exceptions depending on the type of bill of lading issued which I won’t go into detail here)..
In a previous article, I answered the question “Can anyone issue a House Bill of Lading“.. House Bills of Lading are issued by the issuing entities as “Carriers” and as long as the conditions of the contract of carriage are suitable and acceptable to all, there seems to be no restriction for anyone or any group/network to create and issue their own house bill of lading..
The terms of the contract of carriage in these house bills of lading may be similar or different to that of Master Bills of Lading, but one can only assume that those who issue their own house bills of lading take all necessary precautions, suitable insurance, fraud, and risk covers before doing this..
One can also only assume that the customers who use house bills of lading understand the requirements and take the necessary precautions to safeguard themselves suitably..
Another question commonly asked was how to identify whether the bill of lading issued is a House Bill of Lading or Master Bill of Lading as these “names” do not appear on the actual physical bill of lading..
Improperly issued Bills of Lading
The International Chamber of Commerce’s (ICC) International Maritime Bureau (IMB) estimates from its work in verifying Bills of Lading that over 95% of all improperly issued Bills of Lading are issued by – yeah you guessed it – Non-Vessel Operating Common Carriers (NVOCCs)..
The IMB identified that there is a prevalence of issuance of incorrect NVOCC bills of lading by the NVOCC which are then presented to banks and other stakeholders in the trading and finance chain, with the aim of defrauding the trade finance system, possibly for the purposes of multiple financing, money laundering, etc..
In order to mitigate the effects of this problem, the IMB has established a register for Non-Vessel Operating Common Carriers (the Register) who agree to abide by the IMB Code of Conduct for the proper issuance of NVOCC Bills of Lading..
The purpose of the Register is to improve anti-fraud standards and provide a mechanism to recognise participating NVOCCs who adhere to a minimum standard of anti-fraud measures in their operations..
Banks who are members of the IMB can now check whether the NVOCC named on the bill of lading presented to them has signed up to the IMB Code of Conduct..
This provides some sort of assurance to the banks and customers that the NVOCC bills of lading issued by these NVOCCs meet acceptable standards.. There are of course consequences for NVOCCs who fail to comply..
Functional aspects of Master and House Bill of Lading
Although it is a House BL, by virtue of it being declared, signed, and issued as a Bill of Lading by a carrier, the HBL performs all 3 of the above roles of a Bill of Lading albeit to different people/entities..
For example, below is a matrix of the functionality of a bill of lading when issued by a carrier..
When an HBL & MBL are involved in the transaction, the matrix changes slightly as below..
As you can see from the above, unless disallowed by a Letter of Credit, the HBL is also used/treated as a normal Bill of Lading.. When a House Bill of Lading is involved, the Master Bill of Lading takes a back seat as far as the “trade” is concerned and does not play any main role in the documentation between the buyer and seller..
However, there is one very important area where the master bill of lading has an advantage over the house bill of lading and that is at the time of the release of cargo..
For example, even if the customer has paid the NVOCC/Forwarder, surrendered the HBL (where applicable), and has done all the documentation relating to the HBL, unless the NVOCC/Forwarder has paid the ocean carrier, surrendered the MBL (where applicable – as shown above) and has done all documentation relating to the MBL, the consignee on the HBL CANNOT secure release of the cargo as the cargo is still under the custody of the ocean carrier..
So in conclusion, a bill of lading by any other name is still a bill of lading – subject to of course the type of bill of lading used, and how it is issued because “…..for a cargo interest, there is no difference as the document issued as a B/L issued by a VOCC or a NVOCC would fulfill all of their requirements.“