No matter what the mode of transportation is, the bill of lading (B/L) serves as the basic contract between the shipper and the carrier. There can be one or more bills of lading used for a single ocean shipment. An ocean shipment is often passed from a domestic inland carrier to a steamship company, and then to a foreign inland carrier. Each carrier will require a bill of lading. An NVOCC will issue a combined bill of lading to cover the shipment on all parts of its trip. The combined bill of lading eliminated redundant paper. Even if the shipment is only moving port-to-port a combined bill of lading can be used. A freight forwarder does not issue a combined bill of lading. The customer will receive copies of the inland carrier’s bill of lading and the ocean carrier’s bill of lading.
Bill of lading Type
Inland Bill of Lading,
Straight bill of lading, truck bill of lading
Or domestic bill of lading
Ocean or Steamship bill of lading
Purpose
The movement of the LCL ocean shipment from the
shipper’s door to the consolidation center.
The movement of the shipment by steamship from the origin port to the destination port.
“To Order” (negotiable) Bills of Lading
Ocean bills are usually consigned “to order of the shipper” when letters of credit or sight drafts are used. When a bill of lading is consigned in this way it becomes a negotiable bill of lading. A negotiable bill of lading serves as the actual title to the goods, at least as far as the steamship line is concerned. In other words, whoever holds the original copy of the negotiable bill of lading is the owner of the goods. The bill of lading will often be held temporarily by an agent or bank. The shipper will give up his or her right to the bill of lading only after having been paid.
When an ocean shipment is a direct sale (prepaid or collect), the bill of lading is usually consigned to the consignee. The bill of lading for such shipments is non-negotiable and is often referred to as an express bill of lading.
Bills of lading for Letters of Credit
Letters of credit and sight drafts are used in both international air and ocean shipments. But in ocean shipping, special bills of lading are used for letter of credit and sight draft transactions.
Terms of Sale (Incoterms)
When goods are shipped, the seller and buyer of the goods agree on terms of sale. The terms of sale determine which party will be responsible for the goods at each particular stage of transit. While terms of sale are important for the buyer and the seller, they are also important for the carrier.
The four most common incoterms used in ocean freight:
- EXW – Ex Works
- FOB – Free On Board
- CFR – Cost and Freight (also called C&F)
- CIF – Cost, Insurance and Freight
Ex Works (EXW)
The term Ex Works refers to the days when places of business were known as “works”- the blacksmith’s works, the iron works, the goldsmith’s works. When this term of sale is agreed to, it means that the exporter’s price for the goods includes making the goods available at the named point (the “works”), ready for shipment. The importer is responsible for getting the goods from the exporter’s works to the destination.
Free on Board (FOB)
When FOB is the agreed term of sale, the exporter’s price includes the cost of the merchandise and all shipping costs to the named point, including loading on board the carrier and forwarder’s fees. The importer is responsible for getting the goods from the origin port.
Cost and Freight (CFR)
The exporter’s price includes the cost of the merchandise and all shipping costs to the named point. The exporter is responsible for getting the goods from the exporter’s works to the destination port.
Cost, Insurance and Freight (CIF)
The exporter’s price includes the cost of the merchandise, all shipping costs to the named point and insurance.
Letter of Credit/Sight Drafts
A letter of credit is a credit line opened by a bank and debited when the buyer shows the carrier-endorsed bill of lading to the bank. Letters of credit are sometimes used in international ocean transactions, and help to ensure that both shippers and consignees fulfill their obligations for prompt shipment and payment.
When a letter of credit is used, the banks take the place of the importer and exporter in exchanging shipment documents and money.
The letter of credit process protects both the buyer and the seller. Once a letter of credit is issued, neither party can pull out of the transaction without the other’s agreement. The exporter is confident he will be paid-the money is already set aside before the goods are shipped. The importer is confident that the goods will be shipped, because the exporter cannot get his money until the goods are shipped.
A sight draft is a check issued by the importer’s bank to the exporter. A sight draft is also called “cash against documents.” When a sight draft is used, it is like a letter of credit transaction, but without the letter of credit itself. There is not the level of protection for the exporter that there is with a letter of credit, but there is some. The exporter does not have to give up his goods if he is not paid.
Levels of Service
- Port-to-Port
- Port-to-Door
- Door-to-Port
- Door-to-Door
Included as port-to-port shipments are those shipments that travel from a shipping terminal in one inland city to a shipping terminal in another inland city. A more accurate name for such a service level is point-to-point. These shipments can still travel under an ocean bill of lading.
LCL Freight Flow
- The origin inland phase
- The ocean phase
- The destination phase
Origin Inland Phase
- Trucking to the consolidation warehouse
- Loading the shipment in containers with other LCL shipments
- Moving the LCL container load to the deep water port.
Ocean Phase
- Loading the container on the vessel
- Sailing to the destination port
- Unloading the container from the vessel
Destination Inland Phase
- Moving the shipment to a bonded deconsolidation warehouse
- Deconsolidating containers
- Clearing the shipment through Customs
- Moving the shipment from the warehouse to destination via truck
Documentation Flow
In ocean shipping, documents move separately from the freight itself. The original bill of lading as well as the shipping instructions, commercial invoice, and other required export documents are flown, or sent electronically, to the destination. Getting the documents to the destination will ahead of the freight allows the consignee’s customs broker to begin the process of clearing the freight through Customs.
Customs Clearance
The consignee’s customs broker handles most of the documents related to the international shipment. Before an international shipment can be released and delivered, the customs broker must:
- Prepare the inland transit document which allow freight to be moved from the port before clearing customs
- Contact the inland carrier
- Obtain all customs and freight releases
- Forward original copies of ocean bill of lading and delivery orders to authorize pickup of freight at the port
Deliver freight to consignee