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What is a negotiable bill of lading?

A negotiable bill of lading allows the transfer of its contract to a third-party during cargo loading on a ship or vessel. Learn more about its process in this blog.
Negotiable bill of lading
Across global trade, documentation plays a pivotal role, and among the various documents that grease the wheels of commerce, the negotiable bill of lading stands out as a cornerstone. A negotiable bill of lading is a vital, legally binding document that ensures the seamless transition of goods across the vastness of oceans and through the labyrinth of international borders. Its negotiability makes it a powerful tool for financing and claims resolution, reflecting the trust and credibility invested in this piece of paper. Through its lifecycle, it touches the hands of exporters, importers, banks, and carriers, each relying on its accuracy and legal sanctity.

A negotiable bill of lading not only guarantees the safe delivery of goods to their rightful recipient but also facilitates the fluid exchange of ownership essential for the global trading system. In this blog we will understand every necessary detail around the Negotiable Bill of Lading for seamless and hassle-free trade.

What is a negotiable bill of lading?

Negotiable bill of lading is a document of title that plays a critical role in the movement of goods across international trade. It serves several functions:

Evidence of contract of carriage:

It proves that the carrier has agreed to transport the goods to a specified destination.

Receipt of goods:

It acknowledges that the carrier has received the cargo in good condition.

Document of title:

Most importantly, it enables the transfer of goods ownership while in transit through endorsements and delivery.

Who can issue a negotiable bill of lading?

· Ocean carriers:
These are the shipping companies that actually transport the goods. The shipper must be the party that has the legal right to dispose of the goods. The carrier is not allowed to issue a negotiable bill of lading unless the shipper has specifically instructed them to do so.
· NVOCCs (Non-Vessel Operating Common Carriers):
They do not own ships but provide ocean shipping services by leasing space on vessels.

Contents of a negotiable bill of lading

A negotiable bill of lading typically contains the following information2:
1. Shipper and consignee details
2. Vessel and voyage numbers
3. Ports of loading and discharge
4. Description of goods and special instructions
5. Number of original bills issued
6. Date of shipment
7. Freight charges
8. Signature of the carrier

How does a negotiable bill of lading work?

When a shipper issues a negotiable bill of lading, they are essentially transferring ownership of the goods to the consignee. The consignee can then transfer ownership of the goods to a third party by endorsing the back of the bill of lading. The carrier will only deliver the goods to the party who presents the original endorsed bill of lading. Endorsed by the shipper, it can be transferred multiple times before the goods reach their destination. Moreover, banks often require it when providing trade financing, as it assures control over the cargo.

Negotiable vs. non-negotiable bill of lading

The difference between a negotiable bill of lading and a non-negotiable bill of lading lies in transferability:

Negotiable bill of lading:

It can be transferred and typically requires the original document for the release of cargo.

Non-negotiable bill of lading:

Also known as a straight bill, it is consigned directly to the named consignee and cannot be transferred.

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Frequently Asked Questions

How to determine if a bill of lading is negotiable or non-negotiable?
A bill of lading is negotiable if it contains the words "to order of" or "bearer" before the name of the consignee. If the bill of lading does not contain these words, it is non-negotiable.
Which type of bill of lading is negotiable?
The type of bill of lading that is negotiable is commonly known as an "order bill of lading" or sometimes just "to order bill of lading." This type of BoL can be transferred to another party through endorsement and delivery of the document, which is essential for transactions that involve multiple buyers or when the goods are being used as security for financing.
What is the function of a negotiable bill of lading?
The function of a negotiable bill of lading includes:
· Evidence of contract:
It acts as evidence of a contract of carriage between the shipper and the carrier.
· Receipt of goods:
It serves as a receipt issued by the carrier confirming the goods have been loaded on board in apparent good order and condition.
· Security for financing:
It facilitates trade finance as it can be used as collateral for loans or credits. Banks often require a negotiable BoL before advancing funds to the shipper or the buyer.
When is a negotiable bill of lading used?
A negotiable bill of lading is used when:
· Goods are traded several times:
During the transit of goods, especially in commodities trading where the goods might be bought and sold multiple times before reaching their destination.
· Payment security:
When the payment terms require that the control of the goods remains with the seller until payment is made or confirmed, typically in Letter of Credit transactions.
· Financing:
When the shipper or the buyer needs to secure financing. The control of goods represented by the negotiable BoL provides security to banks that finance the trade.
· Flexibility in delivery:
When the final consignee is not known at the time of shipment, or there may be a need to change the consignee during the transit.
Published on December 14, 2023.

Sources:
1. https://unctad.org/system/files/official-document/c4isl6rev1_en.pdf
2. https://www.investopedia.com/terms/n/negotiable-bill-of-lading.asp
3. https://www.greenworldwide.com/faq-what-is-the-difference-between-a-negotiable-bill-of-lading-and-a-nonnegotiable-bill-of-lading/
4. https://www.freightright.com/kb/negotiable-bill-of-lading-nbl

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