Bills of Lading: An Intro to the Most Complex Document in International Trade
When importing goods from overseas, the bill of lading (B/L for short) is by far the single most important document. Unfortunately, it's also the one that causes the most confusion and, in turn, costly delays, fines and fees.
The need for timely, complete, and accurate B/Ls is one of the main reasons importers hire professional third parties (e.g. customs brokers and freight forwarders) to manage importation and customs clearance processes.
Even if you do contract professionals to manage your import documentation, it’s still important that you understand the essentials of B/Ls. So we prepared the following guide to get you up to speed quickly.
What is a Bill of Lading, Anyway?
Here’s how B/Ls work, in a nutshell. Not that there are plenty of exceptions, but let's begin with the basics.
A bill of lading serves as a receipt and proof of ownership for the various parties that come into possession of goods as they move from the seller to the buyer. (Note that in the US, the goods must pass through customs before the purchaser can establish ownership).
Typically, a B/L includes the following:
Company details for of the carrier, the shipper and importer and/or their agents (for example, a customs broker who can shepherd goods through customs on their behalf)
The port where the goods were loaded
Transportation mode (i.e. road, rail, sea, etc.). Note that goods that arrive by air use a document called an air waybill rather than a B/L.
The INCO terms of the shipment - Read more about INCO terms here.
Accurate and complete description of all types of goods being imported, including their weight, dimensions, classification, etc. (e.g. you can’t just write ‘auto parts’ and leave it at that).
The notify party, i.e. the name, address, and contact information of the person or company who should be notified prior to or upon the arrival of the cargo at its destination port.
And here is the essential lifecycle of a B/L.
1. Issuance. First, the B/L is created by the carrier (the company that does the actual shipping, whether by land, sea or air) when they receive the goods from the shipper or their agent. The B/L confirms that the carrier has received the goods and that they are ready for shipment. The carrier then hands the B/L over to the shipper/exporter or their agent (i.e. a freight forwarder), known as the “consignor” in B/L speak.
The carrier issues three original paper copies of the B/L. Managing the original paper version is critical, especially early in their relationship with the importer. Later, when the two parties have built up trust, the original bill of lading (OBL) is not as vital, since the hand-off from the carrier to the importer or their agent can be handled electronically.
2. Transfer to purchaser. Meanwhile, the shipper confirms that they have received payment, or some other guarantee, from the importer. If the transaction involves an original paper document, the shipper then sends that original copy of the B/L to the importer or their agent (the "consignee" in B/L-speak). The importer or an agent with a power attorney (e.g. freight forward or customs broker) then endorses the OBL. Alternately, the supplier/exporter can approve the release of goods electronically, as noted above.
3. Final receipt of goods. When the goods reach their destination, the importer or their agent presents the original Bill of Lading to the carrier, at which point they can take possession of the goods. For the importer or their agent, the original B/L functions similarly to the receipt you get when buying something at the store, serving as proof of payment and ownership. And if the shipper does not receive payment, they can hold the original B/L until they get their moeny.
A Master Bill of Lading vs. House Bill of Lading
Here's the rub. Most of the time, international shipping does not only simply involve the three parties above (shipper, carrier, and importer). More often, there is a fourth party, called a non-vessel-operating common carrier (NVOCC).
NVOCCs are charged with handling the goods as they move: 1) between the shipper and the carrier; and 2) between the carrier and the importer. Their responsibilities typically include booking space on the carrier, booking and managing transport of goods as they physically move from the shipper's facility to the carrier at port of origin, and receiving them from the carrier at the port of destination and transporting them to the importer's facility.
NVOCC Issue House Bills of Lading
When NVOCCs are involved, it is generally their job to issue the B/L, which in this case is called a House Bill of Lading. It is issued to the shipper to acknowledge the NVOCC has received their goods and is taking responsibility to ship them to the purchaser.
Carriers Issue Master Bills of Lading
When the NVOCC hands over goods to the carrier, the carrier issues a new B/L to the NVOCC. However, NVOCCs typically book passage of different cargo from multiple clients on the same ship. So instead of issuing multiple B/Ls for each of the NVOCC's individual shipment, the carrier usually issues a single B/L that consolidates all the cargo from all the NVOCC's clients. This version of a B/L is known as the Master Bill of Lading.
Note that the Master Bill of Lading is, for obvious reasons, also known as the Ocean B/L or Carrier B/L.
Still have questions about bills of lading? Don’t hesitate to contact us.