Bills of Lading and LOIs Common Issues and Best Practices

By
Mfame Editor
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11

  • Functions of a Bill of Lading (B/L): Serves as a document of title, a receipt for goods, and evidence of the carriage contract.
  • Clean B/L Challenges: Masters should sign B/Ls accurately describing the cargo; reliance on Letters of Indemnity (LOIs) carries risks, including P&I cover prejudice.
  • Quantity Discrepancies: Ship’s figures should be prioritized over shippers’ figures in the B/L to avoid disputes and claims.
  • Risk of LOIs: LOIs do not eliminate liability and may be unenforceable in some jurisdictions.
  • Checklist for Handling B/Ls: Follow detailed verification steps to ensure compliance and reduce liability.

Detailed Discussion

The Bill of Lading (B/L) is a vital document in sea cargo shipping, functioning as:

  1. Document of Title: Evidence of ownership of goods described in the B/L.
  2. Receipt for Goods: Proof that the carrier has received the goods.
  3. Evidence of Contract: Confirmation of the contract of carriage between shipper and carrier.

Proper completion and handling of the B/L are essential to minimize carrier liability for cargo-related claims.

Clean Bills of Lading

Masters may face requests to sign “clean” B/Ls even when the cargo condition does not match the description. Banks often require clean B/Ls for credit issuance, but misrepresenting the cargo’s condition may lead to claims, fraud allegations, and P&I cover prejudice. Reliance on an LOI in such cases offers limited protection and does not eliminate exposure to liability.

Even charterparty clauses requiring clean B/Ls cannot override risks, and all cargo condition discrepancies must be documented in the B/L.

Quantity Discrepancies

When cargo quantity declared by the shipper differs from the carrier’s figures, the ship’s measurements should take precedence in the B/L. Shippers may pressure masters to use their figures, sometimes backed by an LOI, but this approach may jeopardize P&I cover. Including both figures in the B/L can offer partial protection, though this is not always acceptable to shippers.

Accurate measurement may be difficult in challenging sea conditions. In such cases, carriers should consult their P&I Club for advice.

Checklist for Bills of Lading

  • Ensure the B/L incorporates the Hague or Hague-Visby Rules.
  • Do not sign incomplete or blank B/Ls.
  • Confirm loading port and date are accurate.
  • Verify carriage instructions against other documents like mate’s receipts and voyage instructions.
  • Use the charterparty-specified B/L form and incorporate its terms with clear language.
  • Retain a stamped “non-negotiable copy” of the signed B/L.
  • For deck cargo, clearly mark “CARRIED ON DECK AT SHIPPERS’ RISK.”
  • Avoid cargo discharge without the original B/L unless an LOI is provided, with caution regarding P&I cover risks.

Risks of Accepting LOIs

Carriers are advised to avoid relying on LOIs in exchange for issuing clean B/Ls or other requests that deviate from standard procedures due to:

  • Fraud risks and unenforceable LOIs in some jurisdictions.
  • Prejudiced P&I cover in case of claims.
  • Financial insecurity of LOI issuers, making recovery challenging.

 

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Source: Britannia P & I club