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kattorney, Attorney
Category: Business Law
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Experience:  16 years experience with a concentration in business, corporate and contracts law
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Discuss the functions of the bill of lading in international

Resolved Question:

Discuss the functions of the bill of lading in international trade.
Submitted: 4 years ago.
Category: Business Law
Expert:  kattorney replied 4 years ago.

Kathie Russell :

A bill of lading serves as proof provided by a carrier to a shipper of the receipt and delivery of goods. In many cases, the bill of lading also serves as evidence of a contract between the shipper and the carrier and proof of title or ownership.

A straight bill of lading, also known as a "clean" bill of lading, assigns delivery of goods to a specific individual or entity, also called an consignee. With a straight bill of lading, the carrier is contracted to deliver the relevant goods to a predetermined destination and to release the goods only to the designated consignee. A straight bill of lading is nonnegotiable, that is, it cannot be assigned or traded to a third party before delivery to the designated consignee.

Among the elements included in a bill of lading are the names of the carrier and the consignee, the exact location from which the shipment originated and the final destination. The bill of lading also lists the shipment origination date and the projected date of arrival. The bill of lading also includes an itemized inventory of the number and types of packages included in the shipment and the contents of each package along with the weight of each package, total weight of the shipment and the contracted shipping rate. The bill of lading also frequently lists the rights of the shipper and the liabilities of the carrier for any loss or damage.

Kathie Russell :

The bill of lading takes on an extremely important role in international trade because of its legal aspects. Legally, the bill of lading is three things:

1. A title document conveying ownership. Ocean bills of lading can be issued in negotiable form so that whoever holds the bill of lading has title to the goods. This is an important feature because control of the title cannot pass until the buyer pays for the goods.

2. A receipt from an independent carrier. Buyers find security in having an independent, third party hold the goods before they remit payment.

3. A contract for delivery. The carrier contracts to move the goods from point A to point B as agreed with by the exporter.

I’ve seen one legal definition as, “a document purporting to represent a shipment of goods." I’d say that’s very accurate.

When an ocean carrier issues a bill of lading in negotiable form, it can be bought and sold. This provides an advantage for the buyer who may have pre-sold the goods because he can simply endorse it to the next buyer in line. In fact, it can be bought and sold any number of times. Finally, the last endorser on the document must take possession of the goods when they arrive. While this discussion remains true in theoretical terms, recent concerns about security require documents to specify the ultimate buyer and destination and the feature of negotiability becomes less useful.

These features of a bill of lading are critical when control of the documents is at issue such as in a letter of credit or collection transaction.

Kathie Russell :

And for a little history of the bill of lading... (I did not write this)...

Kathie Russell :

The invention of the printing press contributed to the development of bills of lading as one of the great instruments for financing international trade. Printing allowed bills of lading to be mass-produced in standard form. Both the adaptation of the standard form to an individual shipment, and its later review by an interested party, became a relatively simple activity.

In early mercantile practice possession of a bill of lading was evidence that a party, otherwise unknown to the shipowner, was in fact the consignee, and so entitled to delivery of the goods covered by the document. The practice of treating possession of bills of lading as evidence of the identity of the party entitled to delivery evolved into a legal quality: by custom of merchants, bills of lading came to represent title to the goods, enabling rights in the goods to be transferred as possession of the bill of lading changed from one party to another. The party transferring a bill of lading added its signature to the document, thereby endorsing it as a genuine document, and allowing the transfer of the rights to be verified from the bill of lading itself. The representation of title to the goods and the transfer by endorsement were the key qualities of negotiability of a bill of lading. Neither quality could exist without a physical document.

Merchants bought and sold bills of lading, representing goods, a characteristic that led to bills of lading being referred to as "the key to a floating warehouse". Goods covered by a negotiable bill of lading could be sold many times while being carried to their destination. Carriers knew that regardless of any changes of interest en route, they could deliver the cargo against surrender of a negotiable bill of lading, properly endorsed, and be discharged of further responsibility. There were difficulties with forged bills of lading, but those difficulties were no more troublesome to the system of international finance than forged cheques were to domestic banking.

Negotiability gave banks a document that they could accept as security for payment under a letter of credit. The ease of review allowed bank clerks who knew very little about shipping to examine a bill of lading in standardized form and concentrate on particulars unique to the transport of the goods covered by the document. The negotiable bill of lading became the foundation for letters of credit practice, and the letter of credit/bill of lading tandem developed as the prime means for financing international trade.

This development took centuries, and business practices became well adapted to the convenience of the bill of lading. It was perhaps too optimistic to expect a change to occur in the relatively short time since information technology has produced the tools to replace the paper document.

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