Bill of Lading

The bill of lading is one of the oldest and most important documents in international trade, and it is unusual in performing three distinct functions in a single instrument. First, it is a receipt: when the carrier takes the cargo on board it acknowledges the quantity and apparent condition of the goods, so a 'clean' bill states that the goods were received in apparent good order. Second, it is evidence of the contract of carriage between the shipper and the carrier, setting out the terms on which the goods are carried. Third, and most powerfully, it is a document of title — whoever lawfully holds the original bill has the right to claim the goods at the destination.

Because it is a document of title, the bill of lading allows goods to be bought, sold and financed while they are still at sea. A negotiable bill made out 'to order' can be transferred by endorsement, so the ownership of a cargo can change hands several times during a voyage simply by passing the endorsed bill. This is what makes documentary credits work: a bank will release payment against presentation of a compliant set of shipping documents, of which the bill of lading is the key, giving the seller security of payment and the buyer security of title.

There are several types. A straight bill names a single consignee and is not negotiable; an order bill is negotiable; and a bearer bill passes by delivery. In modern practice the sea waybill and, increasingly, electronic bills of lading are used where negotiability is not needed, speeding up release of the cargo. The carrier will only deliver the goods against surrender of an original bill, which is why the loss or delay of bills causes serious practical problems and why letters of indemnity are sometimes used to obtain delivery when originals are not yet available.