Letters of Credit and Transport Documents

It’s a good idea, when receiving the Documentary Credit, to check that the transport document required under the Credit conditions can actually be supplied, bearing in mind the form of transport to be used and any transhipment requirements.  It’s also a good idea, if there are any doubts whatsoever about what the Credit is asking for, to check with the advising/confirming/negotiating bank that their understanding of what is required matches your understanding and the shipping company concerned.

Hence, if the shipping document required is an Airway bill, then this is what needs to be supplied.  If the shipping document is a courier airway bill, then ensure whether what is required is an airway bill, or a courier receipt and if there is a problem, please get the Documentary Credit either clarified or amended.

There is also a difference between an Ocean Bill of Lading and a Sea Waybill.  For some reason it’s sometimes believed that these are interchangeable, because they both refer to shipping goods by sea. Actually, these are two very different types of documents which is why under UCP 600, Bills of Lading are referred to under Article 20 and Non-negotiable Sea Waybills under Article 21.

Halsbury’s Laws defines a Bill of Lading as follows:-

“A bill of lading is a receipt for goods delivered to and received by a ship, signed by the person who contracts to carry them, or his agent, and evidencing the terms of the contract of carriage under which the goods have been so delivered and received.  During the period of transit and voyage, the bill of lading is recognised by the law merchant as the symbol of the goods described in it and the endorsement and delivery of the bill of lading operates as a symbolic delivery of the goods.”

Charles Williams (of Thomas Cooper & Stibbard) noted in his booklet “Bills of Lading in Trade Finance” that as a receipt for goods, the Bill of Lading records the nature and condition of the goods loaded and will indicate (amongst other things) the name of the vessel, the loading and discharge ports, and the shipper and consignee.  If the bill is to be negotiated, it will not identify a consignee, but instead will contain the phrase “To Order” or a variation of these words.  The Bill of Lading will also describe the cargo regarding its nature and quantity.  When the goods are shipped in apparent good order then the Master or carrier will not clause the Bill of Lading by adding remarks identifying the defects.  This is known as a “Clean Bill of Lading” because there are no written remarks stating that the goods were accepted with any damages or other problems.

The Bill of Lading is also evidence of the contract of carriage and will often include either expressly on its face or by incorporation in the terms on the back, such matters such as responsibility for loading and discharge, identify of the carrier, jurisdiction and the scope of the contract of carriage.  Please note that a Bill of Lading will almost invariably incorporate either by operation of law or by contract, the Hague Rules, the Hague-Visby Rules or the Hamburg Rules.  The clause incorporating these rules is often referred to as the Clause Paramount and could, in some cases, override any other conditions agreed.

The Bill of Lading is also a document of title.  The holder or named consignee endorsing the reverse side of the bill in favour of another party can negotiated a Bill of Lading made out “to order” and this is recognised by mercantile law.  The Bill of Lading is a transferable document (providing it is still negotiable) which means that property or security interests in the goods, which it represents, can be transferred (whether by way of sale or pledge) by a simple endorsement rather than by a formal assignment.  The endorser must be the holder of a Bill of Lading made out to order or the consignee or his subsequent endorsee.  This is why a Bill of Lading is described as a negotiable document.   The cargo can be delivered to the nominated consignee only after the Bill of Lading is presented to the discharge port agents.

One important point is that only the Original Bill of Lading (and Original Bills of Lading are usually issued in sets of three) is negotiable.  A copy Bill of Lading is precisely that.  It is a copy of an original and is neither negotiable nor non-negotiable.  It is just a copy.  So when a Documentary Credit asks for a non-negotiable copy Bill of Lading, this phrase is actually meaningless.

In some circumstances an exporter may wish to ship goods without the consignee needing to show evidence of title to the goods.  In these circumstances the transport document that can be used is a non-negotiable Sea Waybill.  This document facilitates a constructive delivery by transfer of control instead of via paper or document of title.  A Seaway Bill of Lading is not a negotiable document, it cannot be endorsed and it is not a document of title.  It is a transport document covering port-to-port shipments only and the shipment can only be consigned to a direct customer and only delivered to the consignee on the document or their authorised representatives.  However, unlike a Ocean Bill of Lading, the original Bill of Lading does not need to be presented to the Carrier in order for the goods to be obtained.

Because they are not title documents, Sea Waybills eliminate many of the inconveniences and rigid security of a Bill of Lading.  However, they are not appropriate for all types of shipment.  They are most widely used for shipments between associate companies, for shipments to an agent on open account basis and for shipments between companies that have established mutual trust.  Therefore, their inclusion in a Documentary Credit can be quite unusual.  But if this is the type of transport document agreed between the different parties involved in the contract, then this is what needs to be supplied in the documentary presentation.

 

Maria Narancic from Point to Point Export Services is an independent international trade adviser who assists organisations world wide with their international trade projects, documentation, Documentary Credits and import/export training.  She is based in the United Kingdom.  If you require any further assistance with the matters mentioned above, please do contact us by e-mail on info@point-point.com or check out other articles on International Trade on the Point to Point Export Services website at www.point-point.com
 

 

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