Ocean Bill of Lading: Everything You Need to Know

The Ocean Bill of Lading is both a very important business document and a very important legal document in sea transportation. It is the most characteristic transport documents in the international maritime transportation. In international trade, the bill of lading also plays the role of trade documents, is a kind of securities. This article will explore the definition, function, content, and importance of ocean bills of lading and some FAQs in global trade.

What is an ocean bill of lading?

An ocean bill of lading is a document issued by the shipowner or its representative /agent to the shipper after the goods are loaded on the ship. It records in detail the information of the shipper (cargo owner) and the carrier (shipowner or its agent), the name of the goods, mark/container number, quantity, weight, volume, port of loading, port of discharge, vessel name/voyage, terms of transportation and other information, which is an indispensable legal document in international trade. It not only represents that the carrier has received the goods and promised to transport the goods to the designated destination in accordance with the terms of the bill of lading, but also proves that the holder of the bill of lading has the right to pick up the goods at the destination port. Therefore, the bill of lading is not only a receipt for the goods, but also a proof of contract of carriage and evidence of property rights.

Contents of ocean bill of lading

You can find in the below picture. The contents of B/L are rich and might be varied based on issuers, but it must include the following essential information:

1. The shipper and Consignee: Should provide clear details including their party name, address, telephone, and email if possible.
2. Vessel name/voyage number: Show the vessel name transporting the shipment and its voyage number.
3. Port of loading & port of unloading: Fill in the departure port and destination port.
4. Description of Goods: Product name, specifications, packaging and its quantity. In principle, the description of the goods on the B/L should be consistent with other documents, such as the invoice.
5. Gross weight and volume: It shows the total gross weight and total volume of the cargo.
6. Freight Payment: there are two options to choose from: prepaid or collected.
7. Place and date of issuance: The place is generally at the departure port shipment, and the date must comply with the terms of the documentary credit.

The function of ocean bill of lading

• 1. Cargo Receipt: The B/L indicates that the cargo has been loaded on board the ship as per the shipper's request. It functions as the carriers's proof of receipt of the cargo.
• 2. Contract of carriage: The B/L sets out the rights and obligations of both parties.
• 3. Document of Title: A bill of lading is a document that proves the ownership of the goods and can be sold, mortgaged, or used as a document under a letter of credit.
• 4. The basis for a claim: The B/L is the most important file for the shipper to claim against the carrier if the shipment are lost or damaged.
• 5. Settlement tools: In the L/C process, a B/L is one of the essential documents for bank settlement.

Types of ocean bills of lading

1. Divided according to how the consignee field is filled in on B/L

1. Straight B/L One is a straight bill of lading（Straight B/L）, which indicates that the goods are directly destined for a specific consignee and not for any other party. It is usually used for open account or cash advance transactions. When the goods reach destination, its consignee must present the carrier with the signed B/L to collect the shipment at port. Such type of bill of lading sacrifices the convenience of transferring and circulating goods, but it also helps mitigate the risks that may arise during the transfer process. As a result, it is less commonly used in international trade.

2. Order B/L The second one is the Order bill of lading（Order B/L）, which has the consignee column filled in as "Order of..." or "To order". It can be transferred by the shipper or its representative by endorsing on the back of the B/L. The approved B/L is sent to the bank in the consignee's country and held by the bank until the buyer completes all transaction processes. Once the consignee obtains the endorsed original B/L and other necessary documents, he can transfer the rights of the B/L. Order B/L is a kind of negotiable bill of lading, so it is widely used in international maritime transportation business.

3. Bearer B/L，or Open B/L，or Blank B/L The kind of bill of lading does not indicate any consignee in the consignee column but indicates “Bearer” or just leaves it blank without any party. Bearer B/L （Open B/L or Blank B/L）does not need any endorsement to be transferred or withdraw of goods, which is extremely simple. The carrier delivers the goods to the holder of the bill of lading--who holds the bill of lading, who can pick up the goods. Therefore, the risk of this type of bill of lading being lost or stolen is very high. If it falls into the hands of a third party acting in bad faith, it can easily lead to disputes. So, this type is rarely used internationally.

2. Classified by Carrier's Responsibility

There are actually two types of B/L: One is the Master Bill of Lading (MBL) and the other is House Bill of Lading (HBL). In general, if the cargo owner books space directly with the shipping company, only the MBL (Master Bill of Lading) will be issued, which is what we commonly refer to as the B/L. Suppose the cargo owner books space through a freight forwarder, both the MBL and the HBL will be issued.

Next, we will focus on the second scenario, where both the MBL and HBL are issued.

• Shipowners are companies that own and operate ocean-going vessels, and usually these companies have a strong industry reputation because they own higher-value vessels and conduct long-term business operations. Their operations are usually more formal and reliable.
• Whereas freight forwarders (also known as freight agents) do not own ships, they act as intermediaries between shipowners and cargo owners. After acquiring the cargo, the freight forwarder arranges space on the vessel with the shipowner.

The shipowner can be compared to a wholesaler and the forwarder to a retailer. The shipowner provides space on the ship to the forwarder, who resells it to the exporter or importer.

The freight forwarder books vessel space with the shipowner, and after the ship is on board:

1. The shipowner issues the MBL (Master Bill of Lading) to the freight forwarder. The SHIPPER on the MBL is the forwarder at the port of departure, and the CNEE is typically the freight forwarder's branch or agent at the destination port.
2. The freight forwarder then issues the HBL (House Bill of Lading) to the cargo owner. The SHIPPER on the HBL is the actual cargo owner, and the CNEE is generally the actual consignee; if it's a letter of credit transaction, the CNEE may be listed as "TO ORDER."

Shipowners provide more stability, while freight forwarders are more flexible in service and communication, and have easier access to exporters and importers. As a result, most importers and exporters will choose to deal with a freight forwarder.

Although the legal effect of the two types of bills of lading is similar (they are both contracts of carriage), the main difference lies in the fact that the MBL is a direct contract between the owner of the goods and the shipowner, whereas the HBL is not. Freight forwarder is the “cargo owner” in the eyes of the shipowner, and the shipowner is only responsible for the freight forwarder, rather than directly responsible for the actual cargo owner.

In terms of cargo pickup, when using a MBL, the cargo can be picked up directly at the port of destination; when using a HBL, the consignee needs to convert the HBL into a bill of lading at the port agent's office first, and then pick up the cargo afterwards. Although this may seem like an extra step, it does not pose a significant risk, as it helps the cargo owner to better control the transfer of ownership.

To summarize, freight forwarders are important partners for importers and exporters because they offer more flexibility in terms of bill of lading processing, fraud prevention and price competition, and are often able to offer discounts for ocean freight rate.

The application of ocean bill of lading in international trade

The use of ocean bills of lading in international trade is diverse. It is proof of the transport contract and a certificate of ownership of the goods. It plays a vital role in many aspects of international trade:

1. Ensure transaction security: As a certificate of property rights, the ocean bill of lading ensures the safe flow of goods during transportation. The bill of lading holder has the right to collect the goods with this document, thus protecting buyers' and sellers' rights and interests.
2. Customs declaration: The cargo information on the bill of lading is the basis for the customs declaration and tax levy on the cargo.
3. Facilitating trade: The circulation of ocean bills of lading facilitates international trade. By transferring bills of lading, goods can be transferred between different buyers without actual delivery, thus improving transaction efficiency.
4. Resolving trade disputes: In international trade, ocean bills of lading, as legal documents, provide an essential basis for resolving trade disputes. When a dispute arises between a buyer and a seller, arbitration or litigation can be conducted based on the terms on the bill of lading.

Precautions for using ocean bills of lading and risk prevention

There are many things to note when using ocean bills of lading and corresponding risk prevention measures. Only by ensuring the accuracy and legality of the bill of lading can the rights and interests of all parties be effectively protected and the smooth progress of international trade promoted.

Fill out the bill of lading correctly

As an exporter, your bill of lading must be filled out correctly if you want to get paid on time. Why? Because it determines the shipment date and payment dates are often tied to the shipment date. Financing is also often tied to the shipment date, as banks usually refer to pre- or post-shipment financing. Additionally, over 10,000 containers are lost every year. Without a correctly filled-out bill of lading, this can mean a massive headache when trying to get compensation for your losses.

Strengthen credit review

In international trade, choosing trading partners with good credit is very important. Trading partners' credit should be reviewed through official and private channels to ensure smooth business operations.

Pay attention to the risks in the bill of lading circulation process

The bill of lading is a certificate of title to the goods. After the goods arrive at the destination port, the carrier must hand them over to the original bill of lading holder. Therefore, special attention should be paid to prevent risks such as loss, theft, or forgery while circulating bills of lading.

As the core certificate of maritime cargo transportation, the ocean bill of lading plays a vital role in international trade. It is a receipt for goods a certificate of property rights and an essential basis for resolving trade disputes. Therefore, in global trade, all parties should fully understand and correctly use the ocean bill of lading to ensure the smooth progress of transactions. At the same time, with the continuous development of international trade, the ocean bill of lading system also needs to be continuously improved to adapt to new trade needs.

FAQ in B/L

1. What is the difference between Consignee and Notify Party in B/L?

Consignee refers to the actual receiver of the goods, usually the customer at the port of destination, i.e. the actual buyer. If the payment is made by letter of credit (L/C), the consignee is usually the bank.

The notifying party is the party that needs to be notified when the goods arrive. It is usually the contact person of the customer at the port of destination. If the notifying party is the same as the consignee, it can be written as “Same as consignee”. Otherwise, it is usually the agent or trading partner of the customer at the port of destination.

2. Why is it necessary to have a notifying party?

When cargo arrives at the port of destination, the shipping company notifies the notifying party as soon as possible so that the consignee can be notified to pick up the cargo or take other necessary measures. This helps to prevent delays and avoid port storage or demurrage charges and thus potentially large penalties. In some cases, especially in letter of credit transactions, the consignee on the bill of lading is usually the issuing bank rather than the actual consignee. The bank will notify the actual consignee for payment or other formalities.

3. If the consignee on the bill of lading is not the same as the notifying party, who usually receives the notice of arrival?

Usually the notice of arrival is sent to the consignee. Most bills of lading use the notifying party's information as the primary contact for the consignee with the agent at the port of destination, as many bills of lading list the consignee as “To order” without specifying an individual's name. If the notifying party cannot be contacted, the consignee, or in some cases the consignor, may be contacted.

4. When an electronic bill of lading is released, who is the cargo released to?

The goods are released to the consignee. The basic purpose of both the original bill of lading and the Telex Release bill of lading is to transfer ownership of the goods to the rightful owner, which in this case is the consignee.

5. Is it possible to list both the consignee and the notifying party on the bill of lading as “To Order”?

Although this may seem convenient, shipping companies usually do not allow this. They usually require that only one party be listed as “To Order” to avoid transportation risk.

6. Is it possible if the customer requests that two companies be listed in the advising party field on the bill of lading?

Some shipping companies provide fields for “primary notifying party” and “secondary notifying party”. If such fields are not available, it is possible to list both companies in the same advising party field.

7. If the consignee has marked the bill of lading as “To Order”, can the notifying party pick up the goods?

No. When the consignee marks the bill of lading “To Order”, the notifying party cannot take delivery unless the consignee endorses the bill of lading to the notifying party. If the consignee does not endorse the bill of lading, the notifying party cannot pick up the shipment.

8. Can I use “To Order” for the Notify Party field?

No, it is not recommended. The primary purpose of the notifying party is to ensure that the consignee is notified of the arrival of the shipment. If the notifying party is the same as the consignee, it can be written as “same as consignee”. Generally, it is not recommended to use “pickup on order” in the notifying party field.

9. What if the name of the notifying party on the bill of lading is incomplete and affects customs clearance?

Minor errors in the name of the notifying party do not usually affect the customs clearance process, as long as the name of the consignee is correct. The key is that the notifying party's information should not prevent verification of the authenticity of the bill of lading. Such an error should not prevent customs clearance or pickup of the goods.

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