Bills of Lading 101

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MICHAEL BAEKBOEL: Have you ever checked your coat at a restaurant or a club? Typically when you check your coat the attendant provides you with a ticket stub for you to present as proof to claim your belongings. In the world of shipping, the bill of lading serves a similar purpose to those coat check tickets. A bill of lading, often referred to as the BoL, is a legal document that serves three main purposes, a standardized contract between the shipper and the carrier, cargo receipt, and a title document.

So let's go into further detail on each of these.

First, the bill of lading is a standardized contract of carriage with terms and conditions that outlines the liabilities, responsibilities of the carrier, as well as the shipper's right and obligations. Second, it is also a receipt. So when the shipper hands the cargo to the carrier, and cargo has loaded on both the vessel and the Bill of lading is signed and handed back to the shipper as a receipt and confirmation of loading. Thank you very much, we have your cargo, here's your receipt.

And finally, like the coat check, a bill of lading serves as a title to the goods. The holder of the original bill of lading can lay claim to the goods. Keep in mind, there are different types of bill of ladings, like the negotiable to order bill of lading where the initial shipper can endorse the bill of lading or to somebody else, or a seaway bill.

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NARRATOR: The modern-day bill of lading dates back to the 11th century when trading between the major powerhouses in the Mediterranean really took off. It became necessary once traders no longer traveled with their wares to market but hand it off to the first carriers, ship owners offering their ships to transport the goods on behalf of the traders. Here we have an old bill of lading dating back to 1765.

We've circled a few key data points necessary to facilitate successful delivery of the cargo.

The boxes show where the ship is, where it is going, what are we shipping. In this case, we have a couple of barrels of coffee and some barrels of ham. And the captain has signed at the bottom of the bill of lading, received on April 17, 1765.

And that's literally the day the cargo was walked onto the ship.

Relatively soon after, parish kings started to require that cargo was registered in the ship's manifest or book. This book entry morphed into a receipt provided to the shipper that we now call the bill of lading.

While the practice of merchants coming together to agree upon the rules of trade spanned all the way back to medieval times, key international conventions in modern day have shaped the rules and procedures that all parties must follow today when shipping goods by sea. We are still ruled by these old treaties that haven't necessarily caught up with modern times. However, these historical enactments do ensure that we have a uniform language and framework within which to operate and resolve disputes when they arise, as they often do between sellers and buyers of goods.

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MICHAEL BAEKBOEL: Let's check out a current sample of a bill of lading.

You will notice that we circled the same data points on our sample from 1765.

Basically, nothing much has changed in over 300 years, which is simply because we need to know very practically, what we're dealing with when we are moving physical matter around the world. In these very practical yet simple ways, we are able to identify who are the parties to the contract.

In this case, the carrier's Flexport and the shipper in this case is a fictional company.

What are we shipping?

What is the commodity? How much of it is there? How much does it weigh so we can calculate freight rates?

How are the cartons marked or labeled so that we can identify the boxes when we go to the warehouse to select which boxes to put in what container to go on which ship, and of, course for various authorities customs and other agencies that want to inspect the goods prior to export or before it is imported? Where is the shipment going? The bill of lading notes the shipments journey from origin all the way to the destination, along with information on the consignee to whom the goods will be released upon presentation of the original bill of lading or coat check as in our metaphor.

And lastly, of course, the date when the shipment was loaded on board. So as you can see shipping has not fundamentally changed. The information needed hundreds of years ago is still needed today.

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INSTRUCTOR: Since the holder of the original bill of lading holds title to the goods, the bill of lading is typically generated as per instructions by the shipper, who is typically also the seller of the goods. The original bill of lading is typically handed back to the shipper as receipt and transportation contract to move the cargo.

Upon receipt of the bill of lading, the shipper, who's typically the seller, can then prove to the buyer, who often is also the consignee, that the goods are en route, which in many cases is when the buyer wires funds for the goods to the seller. Upon receipt of payment from the buyer, the seller then forwards the original bill of lading to the buyer, who must present it to the carrier destination to get their goods, much like if you hand your coat ticket to your partner to pick up your coat from the coat check before you leave the club.

The key takeaway from this section is basically this--

no ticket, no coat, or no original bill of lading, no cargo.

A little tip here--

shippers should never send all three original bill of ladings in the same FedEx or UPS envelope because if the bill of lading is lost, regardless of who loses it, then the cargo owner is looking to raise a bank guarantee with associated costs, delays, and headaches. So treat the original bill of lading as you would treat the title to your car. It is not easily replaced without a lot of headache and expense.

When disputes arise between seller and buyer and cargo is en route, the offended party often want to pull in the carrier to either release or hold the cargo. However, the carrier will only respond to presentation of the bill of lading, even if the buyer supposedly have already paid for the goods but seller is refusing to surrender the original bill of lading to the buyer. The carrier simply isn't in a position to divine who is in the right, as they are not party to the agreement between the parties. So the carrier will always refer buyer and seller to seek legal counsel, and if necessary, resolve their disputes in court.