Who is a ‘shipper’ on a bill of lading?

In the modern day supply chain, identifying the shippers may be confusing as multiple suppliers and service providers are involved in receiving and  transporting of cargo across international borders. In the past, it was clearer to identify the shipper and the consignee as shipments were handled directly between the buyer and seller using a facility such as a port terminal and the carrier. Under such conditions the risk of a bill of lading going to the wrong hands or not receiving payment was less prevalent.

Today trade is much more complicated, in most cases identifying the actual manufacturer, the shipper and the final consignee could be very complicated. The modes of transport and payment methods too have further complicated the risk and liability factors as multimodal transportation and other logistics services are required to manage the supply chain. In such a scenario it is important that personnel involved in global sourcing and global distributing know the conditions and the ownership of cargo in terms of a bill of lading and risks related to BL.

Is a forwarder’s cargo receipt a negotiable document?

Many international buyers nominate various logistics companies and forwarders to pick up cargo from multiple sourcing destinations. In most cases it is common that the bill of lading is not issued to the party supplying the goods but only a forwarder’s cargo receipt(FCR) is issued to the seller. This document is not a negotiable document nor does it give ownership or the title of goods to the receiving party. The risk of not receiving payment could be high if a FCR is presented under open account. Such a document only could be used as a private understanding “only on trust” between the parties involved in the sale and receiving of goods.

Who is a shipper in a bill of lading?

To contest the ownership of cargo when in dispute, it is important to understand who the shipper is in relation to the bill of lading. According to internationally accepted practice there are two types of shippers

The ‘contractual shipper’, being the person on whose behalf the carrier’s bill of lading is issued or the party making the booking with the carrier

The ‘actual shipper’ who delivers the goods to the carrier (whether line or Non Vessel Operating Carrier).

‘Contractual shipper’

The ‘contractual shipper’ can be an intermediate merchant, trading house, consolidator or a logistics company who buys or receives the goods from a factory or a seller and then arranges a booking with the carrier. Therefore carrier will usually issue the bill of lading to the party making the booking and considers that party as the shipper.

‘Actual shipper’

The seller who arranges customs clearance and delivers the goods to the carrier at a named place becomes by definition the ‘actual shipper’. Then the question is who should receive the bill of lading from the carrier?

Confusion and risk

There is a big danger, if this position (BL to be issued) is not covered in the sales contract.

As in most cases it does not specify to which party the carrier shall issue if both types of shippers demand the bill of lading.

*Disputes usually arise when the seller (actual shipper) fails to get payment for the goods after they are delivered to the carrier. When this happens, the seller typically will apply to the carrier to prevent the bill of lading being issued to the contractual shipper. The contractual shipper is likely to insist that the carrier is obliged to issue the bill of lading to them alone, arguing that it is they who are the party arranging the booking with the carrier and making the freight payment, and as a consequence there is a contractual obligation.

In such circumstances, carrier may consider the following steps:

Do not issue any bill of lading, and ask the contractual shipper and actual shipper to resolve the issue. If an agreement is reached, the carrier can safely issue the bill of lading to the party entitled to receive it.

If no agreement is forthcoming or apparent, the carrier should ask the contractual shipper to provide evidence that they have settled the payment to the actual shipper already, such as a receipt or bank transaction. It is still prudent for the carrier to check with the actual shipper, owner of the shipment, or the bank, prior to issuing the bill of lading to the contractual shipper. Further, the carrier should retain any evidence of the trade payment on which they may need to rely.

The interpretation of ownership may differ from one jurisdiction to another. For example it may be necessary to apply to a court for determination of ownership – a process sometimes known as inter-pleading, this option bottom line is should be the last if an agreement cannot be reached through arbitration. However the bottom line is that the carrier needs to take care to ensure that the documents do not violate the ownership of goods and sellers and buyers need to understand the documentary risk and cover such risks with clarity in the legally binding sales contract with the inclusion of clauses to manage risks and liability. * References: TT club