A bill of lading (also referred to as a B/L or BoL) is a legal document that details goods being transported from a shipper or seller to the recipient via freight carrier. The B/L will include various information including the type of goods included in the shipment, the number of shipping units, the destination address for the transaction, and the carrier name. This document should always be included in a transaction involving shipped products because it acts as a transport document.
The B/L should be frequently signed at various points throughout the delivery process. First, it will be signed by the seller, or the people who is shipping the goods. It will also be signed by a representative of the shipping company. Then, when the package is delivered, the B/L will be signed by the recipient.
This important document protects the seller, the shipper, and the recipient. It helps ensure that all the products are successfully delivered. If there is a problem, the B/L can help you figure out where the problem occurred. In fact, if a claim is filed for compensation related to the goods, a B/L must be provided.
The document may be negotiable or non-negotiable. When a B/L is negotiable, it is often used for credit transactions; it could be used as a letter of credit. It can be bought, sold, or traded. It can even be used as collateral on which to borrow money.
A bill of lading (BOL) is used during the shipment of freight. It acts both as a contract between the business or individual shipping the goods and the contracted freight carrier. It’s an important document not just as a contract. It’s also important because it gives the freight carrier and subsequent delivery company information to verify they have the full shipment as well as where it came from and where it is going.
A bill of lading is most commonly used for the following purposes:
The first being to prove that there is a contract between the business or individual shipping the goods and the freight carrier who agrees to transport the shipment to a specific location where it may then be picked up by a delivery company.
The second common use for a bill of lading is to act as proof of receipt between the freight carrier and the business or individual shipping the goods. The goods are inspected and their condition is noted as to whether it matches the condition listed by the shipper. Then, the document is signed. Both the shipper and the freight carrier keep a copy of the signed BOL.
The third common use of a BOL is to document ownership of the goods. It has the name of the business or individual who is to ultimately receive the shipment. Thus, the BOL can be used to prove legal ownership of the goods.
The fourth most common way a BOL is used is to act as proof of delivery. Throughout the period of time that the goods make their way to the receiver, the BOL is signed. These signatures notate proof of when and where the shipment was moved all the way through the final delivery process.
The main sections of a bill of lading include:
Contact information of the parties. The full name and address of the business or individual shipping the goods and the receiver (often referred to as the consignee) for the goods. When possible telephone numbers should also be included.
A purchase order number or other reference number for the shipment. The receiver and the shipper may need this information for tracking or confirmation purposes. This number is often generated by the shipper.
The date of pickup. The pickup date helps the shipper and the receiver maintain their internal records related to the shipment.
Description of the goods. The description should include, but is not limited to, the number of shipping units for each type of item shipped, the description of each item, the weight of each item, and other identifying information. It should also list the condition of the items shipped.
The type of packaging used. General packaging types include crates, pallets, drums, or cartons.
NMFC freight class description. The NMFC freight class description must also be included.
Instructions for the freight carrier. If there are special instructions about how to handle the freight, it should be listed in this section. Special delivery instructions may also be included.
DOT hazardous material designation. If the shipment contains any type of hazardous material, it must clearly be listed. There are special requirements that must be followed for the shipping of anything considered hazardous.
UPS, one of the world’s most trusted freight carriers, has an excellent bill of lading form available as a PDF.
A bill of lading documents a purchase of merchandise. The parties are primarily the seller and a buyer. It may document the items shipped (including the quantity), the condition of the items, the item number, list the freight forwarder, mention special rules for handling the goods, and is signed by those who handle the items while they’re being shipped.
A charterparty is a document that outlines the relationship between a shipowner and the charterer. So, it is the agreement between the seller and the shipowner who will transport the goods. The owner of the boat may or may not act as an agent on behalf of the seller. It usually lists the freight charges.
When it comes to shipping and trade, a B/L is one of three official documents used to guarantee proper accounting of shipments. A template helps ensure that people or businesses receive the merchandise they pay for. It also ensures that the seller receives proper payment for their goods. The template provides clarification and accountability for both parties, particularly in international trade.
When shipping or receiving goods, it is critical that a B/L be part of the process. In fact, free forms are available online to make the process easier. A template has three major roles. First, it acts as proof that the shipping line promised to carry the goods. Second, it acts as a “receipt” – proof that the merchandise listed was received and is in good order. Third, it is proof of ownership of the goods, an original bill.
There are two different types of templates. The first is known as a straight bill of lading. It is used when payment was made before the freight ships. The second type, an order bill of lading, is used when payment will be made after shipment. Essentially, it withholds transferring legal ownership of the freight until payment is made.
Adjustments can be made to explain different things on a B/L. For instance, it might be noted “received for shipment." This would indicate that merchandise was received, but may not yet be in transit. A “shipped on board” note indicates that the merchandise was physically loaded and is in transit. Merchandise that is transported by sea often requires a “port to port” notation on the B/L. This limits the carrier’s responsibility for the merchandise to only that time that it is physically on the vessel. Thus, origin and ultimate delivery should not be mentioned.
An adjustment to the bill of lading can also indicate the condition of the merchandise at the time of receipt. A “clean” B/L lets people know that the merchandise was in good condition when it was received. A “foul” B/L means that some or all of the merchandise was damaged upon receipt. This type of B/L may also be called a “claused” B/L. These types of notations can be highly important to both parties later on.
A bill of lading is a legal document/contract between the shipper and carrier; it details the type, quantity, value, origin, and destination of goods being transported, as wells as the terms of their transportation, including the particular vehicle the goods are to be transported on, how the goods must be handled, and how freight shipment charges will be paid. The bill of lading must accompany the shipped goods and be signed by a representative of the shipper.
The bill of lading serves as a receipt of shipment for the owner of the goods when the goods are delivered, as well as the carrier's document of title for the purposes of transportation. A telex release is often used as an electronic communication from the carrier (at the port of origin) to their associate at the port of destination confirming that they have received the original (non-negotiable - see below) bill of lading from the seller, allowing the goods to be released to the buyer without the original bill of lading.
Bills of lading generally fall under two categories:
Negotiable document: The carrier is free to transfer merchandise or cargo to other carriers or responsible parties for delivery.
Non-negotiable document: The transfer is only authorized to a specific party, such as the customer or business that ordered the merchandise.
There are several types of bills of lading that can be included in either of the above categories, each with unique terms and conditions; the kind of goods and industry preferences determines which category.
Some common types of bills of lading:
House bill of lading
Master bill of lading
Clean bill of lading ("On-Board bill of lading")
Claused bill of lading ("Dirty bill of lading"/"Foul bill of lading")
Order bill of lading
Ocean bill of lading
Inland bill of lading
Through bill of lading
A house bill of lading is created by an Ocean Transport Intermediary (OTI), such as a freight forwarder or non-vessel operating company (NVOCC); it is issued to the supplier when the cargo has been received. A house bill of lading is the formal recognition of the receipt of the shipped goods.
A house bill of lading requires the following:
The buyer should be the actual receiver of the goods.
The shipper should be the exporter of the goods.
The notify (the name and address of the party who should be notified of the arrival of the goods) can be either the importer or any other party referenced in the bill of lading.
A master bill of lading is issued by the carrier (ship owner/operator); it is the contract of carriage between the carrier and the shipper. The cargo shipper will only receive a master bill of lading if they are working directly with a mainline carrier or a freight forwarder.
A clean bill of lading, also referred to as an "on-board bill of lading," states there is full compliance with/no discrepancies between the description filed by the shipper and the actual goods shipped. A clean bill of lading verifies that the goods have been properly loaded onboard the carrier's ship in accordance with the contract and there was no damage to or loss of goods during shipment. The clean bill of lading is issued by the product carrier after a thorough inspection of all packages for any damage, missing quantities, or deviations in quality. A clean bill of lading is a type of ocean bill of lading (see below).
An ocean bill of lading, a contract for shipment between a shipper, carrier, and a receiver, is required for the transportation of goods over international waters. It is a legally binding document between the shipper and the carrier that includes the specifics of what and how much is being shipped, the value of the goods being shipped, the packing used during transport, and the shipping destination. An ocean bill of lading is the carrier's receipt to the shipper and an invoice.
The shipper receives the document when the goods are picked up by the carrier; the contract must be signed by both parties (the shipper and the carrier). The document is given to the receiver when the shipment is complete, at which time the receiver must also sign the contract.
A claused bill of lading,"also referred to as a "dirty bill of lading" or "foul bill of lading," is issued when there is a shortfall in or damage to the delivered goods: the goods to be shipped are not the same in quality or quantity as described in the contract. An importer may refuse a shipment of goods if there is no accompanying clean bill of lading, or if a claused bill of lading arrives with the shipment.
An order bill of lading is employed when goods are being shipped in advance of payment; the carrier is required to deliver the cargo to the importer, and, if endorsed by the exporter, the carrier may transfer title to the importer. Order bills of lading that have been endorsed by the exporter may be traded as a security or function as collateral against debt obligations.
An inland bill of lading is a document that represents a contract between a shipper and a transportation company for the domestic conveyance of goods over land via rail, road, or inland waterway; it provides information about the goods, including a description, their value, their origin, the destination, and the terms of their transportation. An inland bill of lading is required if the goods are to be transported over land prior to overseas shipping. An inland bill of lading allows the goods to be delivered at the shore; an ocean bill allows the goods to be transported over international waters. An inland bill of lading is also required if the goods will be transported in the country of destination after delivery at the dock.
If the goods will be transported by air instead of over land, an air waybill will be issued; an air waybill is employed for domestic and international air transport. An air waybill (AWB) is a document that accompanies goods shipped by an international air courier; it includes details about the shipment in question.
A through bill of lading is a legal document that allows for the domestic and international shipment of goods. A through bill of lading is often needed for an exporter to ship goods; it serves as a receipt for the goods, a contract of carriage, and sometimes the title for the goods.
A through bill of lading provides legal authorization for a party to possess and transport certain goods, allowing the carrier to move the goods within a country and export them via several different modes of transportation and distribution hubs. The through bill must contain an inland bill of lading (see above) for domestic transport; an ocean bill of lading (see above) is required for the transportation of goods across international waters.
Intermodal freight consists of materials and products transported by container via a variety of vehicles. The International Organization for Standardization (ISO) sets out the standards required for the containers used in intermodal freight.
Intermodal freight differs from multimodal transportation. Intermodal freight is conducted according to multiple contracts with different carriers; multimodal transportation is conducted under one contract. Multimodal transport employs different kinds of transportation, but functions under one bill of lading; the same carrier moves the goods in all of the modes.
Export transactions generally use Incoterms, three-letter trade terms (e.g., CIF, FOB, FAS) that require the exporter/shipper to deliver the goods to the ship, alongside or onboard. Incoterms (International Commercial Terms) are defined commercial terms published by the International Chamber of Commerce (ICC) relating to international commercial law; they are commonly used in international commercial transactions. Incoterms rules delineate the tasks, costs, and risks involved in the international transportation of goods.
There are two primary documents used in the domestic and international transport of goods by sea: sea waybills and original bills of lading. A sea waybill is a contract of carriage; it serves as a contract between the shipper and the carrier. A sea waybill also constitutes a receipt of the goods shipped; it identifies the goods, pieces, and weight. A bill of lading likewise serves as a contract of carriage and the receipt of the goods being transported, but it is also a document of title that bestows ownership.
No original bills of lading are issued when a sea waybill is used; the carrier is responsible for delivering the goods to the named receiver. A sea waybill can only be issued with the shipper’s written consent. A sea waybill does not give title to the goods being transported (non-negotiable - see above). After a sea waybill is issued, it may not be altered.
Also known as a “straight bill of lading,” a sea waybill is employed when the shipper intends to release ownership of the cargo immediately. Upon receipt of the goods, the person identified in the document needs only to verify their identity, rather than present a document to claim the freight.
When the goods are loaded, the shipper receives a sea waybill only as a reference; neither the shipper nor the importer is required to submit any additional documents to the carrier. As a sea waybill does not confer title to the cargo, it can be automatically released as soon as it is available at the port.
It is preferable to use a sea waybill in the following situations:
There is substantial trust between the shipper and the buyer/receiver.
The goods are not going to be sold during transport.
The goods are paid for via an approved line of credit.
A supply chain is a network maintained by a company and its suppliers to produce and distribute a particular product or service to the final purchaser. A supply chain includes producers, vendors, warehouses, transportation companies, distribution centers, and retailers. The functions in a supply chain include product development, marketing, operations, distribution, finance, and customer service, all the steps required to prepare the product or service for sale to the customer.
Supply chain management involves controlling the flow of goods and services, and supervising the processes that produce a final product. Proper supply chain management lowers costs, speeds up production, boosts profitability, and enhances customer service. Effective supply chain management demands trustworthy suppliers who produce an excellent product and deliver it in a timely manner.
The most common use of a B/L is a cargo receipt. Usually, someone (often a business) is importing items that must be shipped in via ocean. It is often used for customs or insurance during the shipping process. However, it ultimately acts as a contract between the seller and the buyer.
The components of a B/L include:
The full name and address of the seller (often referred to as the shipper or consignor) and the buyer (often referred to as the receiver or the consignee)
A purchase order (PO) number or a special reference number to help identify the shipment
Any special instructions the carrier must abide by
The pickup date
A description of the items (including the type of items, the quantity, the weight, and the material used to create the item)
The type of packing used (such as pallets, crates, cartons, or drums)
NMFC freight class (may also be called an NMFC item number)
Department of Transportation (DOT) hazardous material designation
The B/L will be completed by the seller. They may receive a template from the cargo company they plan to use. Below, you’ll learn how to fill out a B/L, but keep in mind that it may slightly vary depending on the shipper and their template.
Start by adding the date that you’re creating the document.
Enter a bill of lading number.
Apply the appropriate barcode.
Enter any necessary ID number or PRO number provided by the shipper.
Enter your PO or reference number.
Print the full address where the goods are sent from as well as the full address of the receiver. Make sure to include the phone number for both parties.
List any third-party who may be paying for the shipment. This should include their name, address, and phone number.
Add any special notes such as internal account numbers or a secondary PO number provided by the buyer. You will also list any special instructions for delivery.
If applicable, enter a guaranteed delivery date and time.
If the B/L is for cash on delivery (COD), that information should be documented.
Include the amount of the COD that must be collected before releasing the merchandise.
Mention whether the purchaser may pay a COD with a company check.
List how many items are being shipped and whether the shipment is secure.
Describe the type of packaging (such as cartons or pallets).
If you’re shipping individual pieces, list the number that will be shipped.
List how each unit is measured.
Document whether the product is a DOT hazardous material. Hazardous materials must be shipped in a certain way.
Describe the items.
List the NMFC.
Use the correct class specification.
List the proper weight of the products being shipped. The weight of the items should be listed separately.
Document the length, height, and weight of the shipment.
Provide an emergency contact number if you’re shipping hazardous materials.
List the person responsible for shipment charges and if they are prepaid or need to be collected.
List the declared value of the goods for customs.
Sign the B/L in the proper place if the shipper isn’t responsible for collecting shipment charges.
Have the authorized agent sign the B/L.
A B/L is one of several documents managed by a purchasing system. Because a B/L is part of a purchasing system, it’s important that you understand how one works. When a business needs specific items, they know that they must order them. The manager may complete a PO that is reviewed by a manager or supervisor for approval. Once approved, the order is sent to the vendor. The vendor gathers the items to match the quantity listed by the business and prepares them for shipment. A bill of lading is created. The vendor and a representative of the shipping company will review and sign the B/L. If it is accurate, they will send the purchase order and the bill of lading back to the business. The business then issues payment for the items.
Segregation of duties helps prevent theft in the workplace of the items that are ordered and received. The concept helps ensure that one employee doesn’t have too much control within the business. Looking back at the purchase system section, you’ll remember that one person may create the list of items the business needs and another person approves it before the order is placed. That is an example of segregation of duties. Of course, in the concept of buying items for a business, the process continues: the purchase order and the B/L are compared by two different people. When the bill is paid, the accountant who did not purchase or approve the order would reconcile the statement.
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