Commerce department international trade

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:

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

Contents leaking

Packaging soiled by contents

Packaging broken/ holed / torn/ damaged

Packaging contaminated

Goods damaged/ scratched

Goods chafed/ torn/ deformed

Packaging badly dented

Packaging damaged – contents exposed

Insufficient packaging

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:

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.
CASE STUDY

Barnacle Bill

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?

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.

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.

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:

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.

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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:

♦ Gives the details of the individual shipment.

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.

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.

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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);
  
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  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.

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.