An Airway Bill
A rail Consignment Note
A Road Consignment Note
A Combined Transport Bill of Lading
The Marine Bill of Lading and Other Transport Documents
The distinction between marine bills of ladding and the other transport documents is sometimes important as we shall now see. The marine bill of ladding is the traditional document used for shipment by sea. A marine B/L must indicate that the goods have been loaded on board a named vessel, a stamp on the face of the B/L confirms this:
The marine bill of lading is special: if the parties so wish, it can be made a negotiable document (in other words, it can be sold or bought). Why would anyone buy a bill of lading? Simply because the person who holds a bill of lading owns (or has title to) the goods described. This is an important aspect of commodity trading: a cargo – for example, the cargo of an oil tanker loaded in the Gulf – may be sold several times during its voyage. If such a sale is foreseen, the parties make the bill of lading negotiable; if, however, the consignee (i.e., in most cases the buyer) intends to receive the goods personally, there is no reason for a negotiable bill of lading.
In practice, how do you make a bill of lading negotiable? And how can you tell if a bill is negotiable or not? The answer lies in the first few lines of document. First an example of a negotiable bill of lading (Typing the word “Order” or “blank” in the Consignee box makes the bill of lading negotiable. Incidentally, the use of the word “Order” means that the shipper must endorse the bill (sign it on the back). But when you write the name of a person or an organization in the Consignee box, the bill is not negotiable. )
Then the first few lines of a non-negotiable bill:
The difference lies simply in the use of the word "Order" in the Consignee box. Typing the word "Order" makes the bill of lading negotiable. Incidentally, the use of the word "Order" means that the shipper must endorse the bill (sign it on the back).
Clean Shipping document.
Export goods are examined frequently on their journey from buyer to seller. There is often a pre-shipment inspections; customs officers examine the goods at every border. A carrier, of course, examines not the goods themselves, but their packaging and general appearance. If anything is wrong, the carrier notes the deficiency on the face of the bill of lading or other shipping document. The carrier might note, for example
Packaging soiled by contents
Packaging broken/ holed / torn/ damaged
Goods damaged/ scratched
Goods chafed/ torn/ deformed
Packaging badly dented
Packaging damaged – contents exposed
What effect does such a note have? In 1989 the International Chamber of Commerce issued a pamphlet entitled Clean Transport Documents (Publication No. 473). This pamphlet distinguishes between cleun documents and claused (or unclean) documents. The remarks in a claused document make it unacceptable to a bank; a letter of credit will not be paid against a claused shipping document.
Sec Chapter 3, Sections 1 and 2 for detailed information on inspection
Not all notes, however, are considered to be "clauses." For example:
Second-hand/reconditioned packaging materials used Packaging repaired/mended/resewn/coopered Unprotected Unboxed
Such remarks are not enough make the bill of lading "unclean." To avoid disputes, the two sides to the contract often agree that the letter of credit will specify "clauses" that, in their particular line of business, would be unacceptable. For example, in shipping iron products, the parties might agree that no rust at all is allowed; thus the clause "Some rust spots" would result in an unclean transport document.
One situation that sometimes arises is dangerous for the exporter. The carrier is taking over goods at the exporter's factory. The carrier examines the packaging critically and decides to write the clause "Insufficient packaging." An argument breaks out. To resolve the argument, the exporter offers the carrier an "indemnity"—a sum of money (or a promise of such a sum) to cover any losses the carrier might incur if the buyer complains about the condition of the goods when they arrive. This is very close to a bribe. Clean Transport Documents comments:
Courts in several countries have ruled that the carrier who accepts such an indemnity...is an accomplice in deceit or fraud on the buyer and the indemnity itself is illegal and void (p. 7).
The payment of an "indemnity" could result in prosecution for fraud.
Study the Bill of Lading below and then answer the questions below.
1. If a letter of credit required a "Marine Bill of Lading," would this document be acceptable?
□ YES □ NO
2. If YES, how do you know? .................................................................
It is stamped with a “shipped on board” stamp, and a vessel is named.
3. A marine bill of lading is sometimes negotiable. If this is a marine bill of lading, is it negotiable? '
□ YES □ NO □ IT IS NOT A MARINE BILL OF LADING
4. If YES or NO, how do you know? .........................................................
The consignee box in a negotiable B/L is made out “To Order”.
What You Should Know
1. The contract should specify the type of packaging and the shipping marks agreed by the parties.
2. On delivery, the exporter receives from the carrier the most importan all the shipping documents, the bill of lading (or consignment note).
3. Each mode of transport has a characteristic shipping document: the marine bill of lading, the air waybill, the rail consignment note, and tl road consignment note are the most common. Combined transport (container transport) uses a combined transport bill of lading.
4. Under certain circumstances, a marine bill of lading can be made intc negotiable document.
5. The marine bill of lading, to be acceptable as a shipping document under a letter of credit, must bear the notation that the goods have been shipped on board a named vessel.
6. Payment under a letter of credit depends largely on the correctness i the shipping documents.
7. Payment under a letter of credit may be delayed if the letter of credit repeats exactly the contractual packaging requirements but the exporter has failed to meet them.
8. The carrier will note any defects in the packaging, weight or general appearance of the goods on accepting them from the exporter. (The carrier does not inspect the goods themselves, only the packaging.) be acceptable under a letter of credit, all shipping documents must b "clean," i.e., free of notes about defects.
5. RISK, TITLE AND INSURANCE
Risks to one’s property must be insured, but insurance of exported goods is a difficult field for the layman. The exporter must be able to decide what kind of policy or insurance cover is necessary, and what risks must be covered.
Most exporters prefer an open cover arrangement, with the goods valued and insured from point-to-point. The exporter should consult a broker to ensure that all expected risks are covered.
We have already said that risks usually pass on delivery. Two risks are involved in the sale of goods: the risks of goods injuring a third party and the – more significant – risk of loss or damage. These risks are normally covered by insurance.
Transfer of Title
Ownership (title) is a complicated problem. National laws do not agree on a point when ownership of goods passes from exporter to buyer. The range is wide: from signature of contract to final payment. The matter is, however, disposive Many exporters like to keep legal ownership of goods until full payment is made, seeing ownership as security for payment. Many "hire purchase" agreements work like that: the buyer pays in installments, but owns the goods only when the last installment is paid. In international trade, however, ownership is of doubtful value. If Aziz sends shampoo to Elsperanza and the invoice is not paid, ownership is of little practical value: she is unlikely to recover the goods since they must pass through two sets of customs on their trip home: if she sells the goods in Esperanza, she will get little for them. In any case, her costs will probably exceed the money she recovers. Accordingly, since ownership is of little practical value, many contracts specify that:
Insurance: Who Should Insure?
Marine insurance is first found in Italy in the 1300's. Originally, it covered only transport in ships (still called adventures by insurers). Today, however, most marine insurance policies include the Transit Clause which covers the goods from the exporter's warehouse to the buyer's warehouse -often with a long stretch overland at each end of the journey. Since merchandise is at risk at all times during its journey, it is advisable to insure the goods at every stage. Two players are involved here: exporter and buyer. Which is responsible for arranging insurance cover?
In deciding who should insure, there are two schools of thought. The first sees the point of delivery as decisive; up to delivery the exporter insures: after delivery the beyer does. The second approach lies behind C Term (CIF, CIP): the buyer often has problem insuring for goods that may not yet exist and that, in many cases, are located in a distant country. It is often easier for the exporter to arrange insurance: first, many exporters have a standing arrangement with an insurance company; secondly, they can readily declare to an insurer the necessary details of their products.
The choices are clear—it is up to the two sides to reach agreement on the terms that best meets their needs. One important note, however:
The buyer should note that under the CIF term the seller is only required to obtain insurance on minimum coverage.26
"Minimum coverage" is the so-called Cargo Clause C discussed below. Cargo Clause C is designed for insuring bulk cargo—not machinery, textiles, paper or other high risk cargoes. A buyer who wants more than minimum coverage must negotiate this with the exporter.
Normally insurance cover under CIF (and CIP) contracts is for the value of the goods plus 10% (the extra 10% allows for the expected profit of the buyer); cover is generally in the currency of the contract.
26 Incoterms 1990, p.50.
In a CIF (or CIP) contract, the goods are delivered to the buyer at the port (or place) of shipment. On delivery, the goods enter the buyer's area of risk. The insurance cover held by the exporter runs to the port or place of arrival. This is a problem: how does an insurance policy held by the exporter help the buyer if the goods are damaged or lost during shipment? The answer is assignment. By endorsing the certificate of insurance, the exporter can assign (transfer) the full rights to the buyer. If necessary, this can be done even after goods are lost.27
Policy, Certificate, or Letter of Insurance?
An insurance policy is a familiar document to most people: fire insurance, vehicle insurance, life insurance—most of us have such policies. For international trade, however, the full policy presents certain problems:
The preparation of a policy of insurance lakes some little (= considerable, Ed.) time, particularly if there arc a number of underwriters or several insurance companies, and when documents require to be tendered with promptness on the arrival of a steamer in order thai expense may not be incurred through delay in unloading..., it is not always practicable to obtain actual policies of insurance. In order to facilitate business in circumstances such as these, buyers arc accordingly in ihe habit of accepting brokers' cover notes and certificates of in insurance instead of insisting on policies.28
What is a "certificate of insurance"? Many exporters have an agreement with an insurance company covering all their shipments over a period of time. Hach individual shipment is covered by a certificate of insurance, not by a full policy. (A full policy can normally be issued for an individual consignment if the buyer wants this.) A certificate of insurance:
♦ States in outline the cover offered;
♦ Gives the details of the individual shipment.
Under English law at least, the effect of a certificate of insurance is virtually identical with that of a full policy. In addition to the certificate of insurance, there is also the so-called letter of insurance. This is simply a letter from the exporter to the buyer stating that the goods are insured. It has no legal force except as evidence in a law suit against the exporter.
Types of Insurance policy: Floating Policy and Open Cover.
Sometimes an exporter deal is unique – special equipment is built and shipped in an unusual way to an unfamiliar destination. In such a situation, the exporter (usually with the help of a broker) negotiates a special insurance policy. Normally, however, an exporter with many similar contracts finds it time-consuming and expensive to arrange a new insurance policy for each consignment. One answer to this problem is the floating policy, another is the open cover.
Let’s look first at what the floating policy and open cover have in common. Both offer the exporter insurance cover on all shipments over a period of time. In both cases a ceiling is set on the overall figure – for example $1 million. As each individual shipment is made, the exporter declares the value of the shipment, and the ceiling is automatically reduced by that amount. Thus 10 shipments worth $100,000 each would reduce a $1 million cover to zero.
As each shipment is made, it is covered by a Certificate of Insurance. Often the exporter has a pad of these certificates and simply fills out a new one for each shipment.
27 In some countries, the policy bought by the exporter names the buyer as the insured party.
28 Judgment in Wilton, Holqaie & Co. v. Belgian Grain and Produce Co (1920) 2 KB l.8
Insurers have various ways of limiting claims under such cumulative agreements. Generally claims are kept down by:
A limit per bottom ( A “bottom” is a ship);
Limit per locality. (the expoter’s warehouse is a “locality”. A warehouse may contain several consignments awaiting shipment. If they are all destroyed, the locality limit will probably bite).
Insurance companies also generally add the Institute Maintenance of Class Clauses: this requires that all ships used by the exporter are in a certain class in the shipping register.
In terms of the insurance cover offered, the floating policy and the open cover are, in effect, identical. The logistical differences between the two kinds of cover, however, have led the business community today to prefer the open cover. The first advantage of the floating policy is that it is set up for a particular time and automatically expires unless renewed; the open cover is open-ended: it does not expire, although there are provisions for cancellation on due notice. Thus the open cover is marginally more convenient. The second difference is more fundamental: an open cover is not an insurance policy at all – it is an agreement by an insurance company to issue an insurance policy if the insured asks for one. Normally the insured does not ask for a full policy; he simply creates a Certificate of Insurance with the knowledge that if he wants a policy he can get one at any time – including, and this is very important, after a loss. This arrangement is less formal and less time-consuming but extremely reliable: that is its attraction for the exporter.
Types of Insurance Policy: Valued and Unvalued
When the exporter insures goods, does he declare their value to the insurer or not? In practice, he may or he may not: both alternatives are possible. If the value is not stated (the unvalued policy), then the value can be established after a loss; naturally, the exporter must prove his figures precisely. As long as the figure does not exceed the total cover under the policy, the insurer will pay. The alternative is the valued policy: the exporter states the value of the goods on the insurance document. This has a decisive advantage: the pre-stated figure can include not only the cost of the goods but also the profit the exporter hoped to make on them. For this reason, valued policies are most in favor today.
There is a problem here though: what happens if the exporter seriously overvalues the goods-—must the insurance company pay the declared value? The answer is "No." The exporter must behave with the utmost good faith or the policy is void. A classic case from 1874: an English company sent goods to Russia and valued them at three times their cost, knowing that the goods would sell at a huge profit in Russia. The company said nothing to the insurer about the wide margin between cost and stated value. The goods were lost at sea. Was the insurance company obliged to pay? The court ruled that the exporter should have disclosed the wide margin to the insurer—the exporter had not acted with the utmost good faith and did not recover under the policy.29 The lesson for the exporter is clear: the insurer must be told everything of special significance about each shipment. The penalty for not disclosing important information is no coverage at all.
Types of Insurance Policy: Time and Voyage
Goods can be insured between two dates time policy) or between two places (a voyage policy). Most exporters prefer the voyage approach. Insurers, however, dislike insuring goods for an unlimited time period: a shipment intended to start in January and finish in February might drag on until December. For this reason, most policies are "mixed"—the goods are insured between two places but only within a given time frame. The time frame can usually be extended, but only against a higher premium.
29 Ionides v. Pender (1874) LR 9QB 531
A Marine Insurance Policy: What Does It Cover?
Most modern insurance policies are based on the Lloyd's Marine Policy. This document is simply a schedule that lists: the policy number; the names of the assured (insured) and the ship; the voyage and/or period of insurance; the goods insured (and possibly their value); the sum insured; the premium; special conditions and warranties; and a list of clauses to be attached. It is this attached list of clauses that specifies the cover provided. Of greatest importance among the "clauses attached" is the Cargo Clause. It has three versions: A, B, and C.
Cargo Clause A works reductively. It starts with a 100% cover—"all risks"—but steadily reduces this cover by means of various exclusions. Cargo Clauses B and C, on the other hand, work cumulatively. They start with little or no cover and specifically add risks that are covered.
Whichever version is chosen, the so-called General Exclusion Clause excludes a number of risks, in particular:
Willful misconduct of the assured. The results of any wrong act deliberately carried out by the assured are not covered.
Ordinary leakage, loss of weight or normal wear and tear. If a volatile oil normally loses 10% of its volume in a month, this loss—and any similar, normally anticipated loss—is not covered.
Improper packaging. Damage resulting from improper packing or preparation is not covered. To discover what is improper, the courts usually refer to what is customary in a particular trade.
Inherent vice in the goods. Some goods are inherently dangerous. A cargo of hay, for example, may catch fire because of spontaneous combustion. That is an "inherent vice" and the loss of the hay is not covered.
Delay. In general, losses caused by delay are not covered.
Insolvency of the owners (etc.) of the vessel. If a journey ends prematurely because the shipping line goes bankrupt, extra costs (further shipment for example) are not covered.
Use of Nuclear Weapons. If cargo is damaged through the use of nuclear weapons, the insured will probably be worrying about more than his cargo. Even so, this risk to the goods is not covered.
In addition, all three Cargo Clauses contain the Unseaworthiness and Unfitness Exclusion Clause. This clause says that goods shipped in an unseaworthy vessel are not insured. Since few laymen can know if a ship is seaworthy or not, the clause is softened: cover is withdrawn only if the insured knew about the unseaworthiness.
Losses resulting from war, from strikes or from terrorism are also excluded, but here the difference between a reductive and a cumulative approach is important. If the War Exclusion Clause (or the Strike Exclusion) clause is deleted from Cargo Clause A, then these risks are covered. For Cargo Clauses B or C it is necessary to add the so-called Institute War Clauses or Institute Strikes Clauses to the policy if these risks are to be covered. We should now look at Cargo Clauses B and C to see what exactly they cover:
Cargo Clause B covers:
1.1 Loss of or damage to the subject-matter insured attributable to:
1.1.1 fire or explosion,
1.1.2 vessel or craft being stranded, ground, sunk or capsized,
1.1.3 overturning or derailment of land conveyance,
1.1.4 collision or contact of vessel craft or conveyance with any external object other than water,
1.1.5 discharge of cargo at a port of distress,
1.1.6 earthquake, volcanic eruption or lightning.
1.2 Loss of or damage to the subject-matter insured caused by:
1.2.1 general average sacrifice,30
1.2.2 jettison or washing overboard.
30 General average sacrifice refers to a situation in which a ship must make a "sacrifice" (e.g., throwing part of the cargo in the sea) in order to preserve the ship and the rest of the cargo. The cost of such a sacrifice is shared by all the parties involved. (See Schmillhoff, p. 520+.)
1.2.3 entry of sea-, lake-, or river-water into vessel, craft, hold, conveyance, container, liftvan or place of storage.
1.3 Total loss of any package lost overboard or dropped whilst loading on to, or unloading from, a vessel or craft.