What is a Bill of Lading, and How is it Used in Freight Shipping?

What is a Bill of Lading?

The definition of a bill of lading is a document that is signed by the shipowner or a representative to prove that the vessel or the carrier received the goods. It serves as a contract of carriage, which outlines the shipping details. Lastly, The cargo can be claimed in exchange for the bill of lading as it is considered the title of the goods. 

The bill of lading was commonly used as early as the sixteen hundreds by the Spaniards to describe their cargo and the number of bags received by the carrier. By the eighteenth century, merchants had established a refined way of the bill of lading. The bill’s legal ramification has continued in the nineteenth century and has given birth to the modern Bill of Lading that we use today.

The word bill is the statement of charges for either products or services that were rendered by the supplier or service provider to the buyer. Lading means the act of loading cargo into a vessel. Therefore, combined, the Bill of Lading outlines the agreement between the shipper and the shipping line (or carrier). It includes all of the information regarding the goods that are going into the vessel. These details include the classification of the goods, number of cartons, total volume, weight, the ports of loading and destination, the carrier’s name, and the voyage number. The term Bill of Lading is usually abbreviated with either B/L or BOL.

The functions of a Bill of Lading are as follows:

1. Receipt – It acts as a document of the receipt of the goods by the issuing body.
2. Contract – It outlines the shipping method that will be used for the cargo and acts as evidence of the contract of carriage with the carrier. 
3. Title of goods – For a named consignee to take the delivery of the goods on the discharge port or on the final destination (depending on what has agreed on), they must surrender the original copy of a B/L. 

Why Would I Use a Bill of Lading?

The Bill of Lading serves as the document of title of goods. Therefore, for the named consignee to take the delivery of products from the shipping line (or carrier), at least one original copy must be presented. The original copy is used to avoid theft, which could lead to international trade litigation.

The use of the Bill of Lading is not limited to knowing the details of the shipment; it serves as a legal document that can be used for claims if anything undesirable happened during the logistics process. 

If the buyer decides to take over the arrangement for the transportation of their goods, instead of using a shipping agent or a freight forwarder to handle both ends, having the original Bill of Lading is necessary. The process will involve the buyer forwarding the copy of the Bill of Lading to the destination port’s selected shipping agent. The shipping agent will then issue a Delivery Order to the port for the release of the goods. 

It is still best for the buyer to have a copy of the Bill of Lading for shipments arranged by a freight forwarder on both the origin and destination. Having this will give the buyer the option to cross-reference the shipment information and to confirm if they are correct. In addition, the buyer will also have the ability to trace the vessel’s location using the vessel’s information on the document. 

Who Issues a Bill of Lading?

The Bill of Lading document is issued by the carrier or their authorized agent, such as Non-Vessel-Operating Common Carrier (NVOCC), to the shipper to acknowledge that they have received the goods.

There are two kinds of Bill of Lading: The HBL, which is also known as the House Bill and the MBL, which stands for Master Bill of Lading. An NVOCC can only issue an HBL; on the other hand, the MBL is issued by the shipping line upon the receipt of the goods from the freight forwarder. Although NVOCC does not own any vessels, it is considered an actual cargo carrier, as they are regulated both by local and international laws. The original copies of either HBL and MBL are considered legal documents. A freight forwarding company is not always an NVOCC and vice versa. However, there are freight forwarders that are also NVOCC licensed. 

The buyer usually gets a copy of the HBL if using a freight forwarding company. The buyer would need the original copy of either the HBL or MBL from the shipper if shipping on certain Incoterms such as CFR (Cost and Freight) or CIF (Cost, Insurance, & Freight). The original copy is necessary because the buyer needs to take over the shipment’s responsibility from the shipper at a certain point. The original copy of the Bill of lading can be presented to the carrier from the port or destination on the contract to get the cargo released. Presenting of the original copy can be skipped if the shipper has organized a Telex Release. 

For shipments with the HBL, the shipper can file a telex release application to the NVOCC or freight forwarder to request the release of the cargo to the consignee without needing the original Bill of Lading. The consignee can then arrange the Delivery Order after the release of the goods.

The term Telex Release is being used by the industry wherein the carrier is giving the green light to the destination port to release the cargo without the presence of the original Bill of Lading. The original Bill of Lading needs to be surrendered by the shipper at the origin port, upon the request for a Telex Release.

What Types of Bill of Lading Are There?

Based on history, the Bill of Lading was initially used for sea shipments as it is the common mode of transport during the pre-modern times. However, the Bill of Lading is now being used by other methods of shipments such as rail and inland freight. There are several types of Bill of Ladings, and their individual use depends on whether it is negotiable or non-negotiable or based on the carrier’s responsibility. 

Types of Bill of Ladings based on whether it is negotiable or non-negotiable

The main difference between the negotiable and non-negotiable Bill of Lading is the ability to change the consignee or cargo ownership. A negotiable Bill of Lading notifies the carrier to deliver the goods, depending on the endorsement of the shipper. A non-negotiable B/L defines the specific consignee and is non-transferrable.

Straight Bill of Lading

This is a standard B/L, used if the shipment is going to a customer who has already paid a shipment. The shipment can only be received by the consignee and the bill and cannot be transferred.

Order Bill of Lading

This is the type of shipment that is usually used for consignments. The consignee on the record is considered the owner of the cargo unless the consignee has transferred the title of the cargo ownership to another entity by endorsing the Bill of Lading. 

Charter Party Bill of Lading

This type of Bill of Lading is used when a shipper, or group of shippers, charter or rent a whole vessel to carry the cargo.

Switch Party Bill of Lading

This Bill of Lading is considered a duplicate. The consignee can request the carrier to switch the Bill of Lading when the consignee does not want to divulge the carrier information to the new consignee or buyer. 

Air Waybill

This is a non-negotiable document that is only used for cargo that is transferred via air freight. Unlike an ocean’s Bill of Lading, an Air Waybill does not act as a title of goods.

Types of Bill of Ladings based on the carrier’s responsibility

Ocean Bill of Lading

This type allows the carrier to ship the goods domestically or internationally. The carrier’s responsibility starts from the port of origin and typically ends at the port of discharge, stated in the document. This is also known as a port-to-port Bill of Lading. 

Inland Bill of Lading

This document shows the information of the carrier transporting the cargo domestically either by road or rail.

Direct Bill of Lading

This is used if the carrier will be the same carrier who will handle the shipment to the final destination. The responsibility of the carrier in this case is from the receipt of the goods until it gets delivered to the final destination.

Multimodal or Combined Transport Bill of Lading

This B/L covers at least two modes of transport. An example is a combination of sea, rail, and road. The carrier can subcontract the other mode of shipment to other carriers. 

Through Bill of Lading

This type of bill is very similar to combined transport or multimodal, where there are different legs of shipments. The only difference is that there is no change in the shipping mode (an ocean shipment will remain on the waters) on this Bill of Lading. 

Transshipment Bill of Lading

If a carrier doesn’t have a direct service between two ports, a carrier can transship the cargo to another port at the carrier’s expense.  

The types of Bill of Ladings could be overwhelming; however, as a buyer, looking to ship cargo, it is not necessary to know all of the types of Bill of Ladings. However, it is best for the buyer to know the Bill of Lading that is applicable to their business.  

What’s in a Freight Bill of Lading?

The Bill of Lading contains essential information about the shipment. The buyer is encouraged to know and understand what is on this document. Below are the details that can be found on any Bill of Lading, regardless if it is a  House Bill or a Master Bill. 

• Shipper

• • • Name and address of the party shipping the cargo

• Consignee

• • • Name, address, and contact details of the receiver

• Notifying Party

• • • Name, address, and contact details of the paying party

• Date of Issue

• Bill of Lading Number

• Shipping Information

• • • Port of Loading
    • Port of Discharge
    • Vessel Name and Voyage Number
    • Final Destination

• Cargo Details

• • • Description of the cargo and the packaging used (ex: cartons, pallets, etc.)
    • Gross Weight
    • Total Volume 
    • Total Number of Cartons
    • Container Number and container size

• Special Notes or Instructions

Here’s an example of how an Ocean Bill of Lading on a regular EXW shipment from China to the US.

1. The carrier issues a Bill of Lading in China.
2. The Bill of Lading is sent to the buyer or consignee by the shipper.
3. The buyer or consignee will forward the Bill of Lading to the shipping agent at the destination country (the US, in this example).
4. The shipping agent will issue a Delivery Order to the port for the release of the cargo. 
5. The shipping agent will arrange the delivery of the goods to the buyer or to the final destination. 

The steps above are a simple representation of how the Bill of Lading works and how it is being transferred. Freight forwarders can help buyers to streamline those steps and arrange everything that the buyer needs.

Sample Bill of Ladings: Sea Freight and Air Freight

An original Ocean Bill of Lading is a legal document that represents the title of goods and can be exchanged for the possession of the cargo. Although an original Air Waybill has similar details and is considered as a type of Bill of Lading, it doesn’t act as the title of goods. 

Below is an example of the common Bill of Ladings: Ocean House Bill of Lading, Master Bill of Lading, and Air Waybill.