Ocean Bill of Lading and Airway Bill

Bill of Lading
Jibi44/Wikimedia Commons/CC-BY-SA-3.0

Depending on how fast you want to get cargo to your customer and how much he or she is willing to spend, you might ship by ocean or air. Accordingly, there are two types of bills of lading, the ocean bill of lading and the airway bill.

An ocean bill of lading serves both as a receipt for the cargo and as a contract for transportation between you (the exporter) and the carrier. It also symbolizes ownership; accordingly, if in negotiable form, it can be bought, sold or traded while the goods are in transit.

When you use air freight, an airway bill is issued in lieu of a bill of lading. It serves as a through bill of lading which covers domestic and international flights moving cargo to a specific destination. Your air transportation carrier will advise you of the house airway bill number and the master airway bill number assigned to your shipment. You must be sure to communicate these to your customer along with other transportation details.

Airway bills serve functions similar to those of ocean bills of lading, but they are only issued in non-negotiable form. It means that you and your bank have less protection because you lose the title to the goods once shipment commences. Be sure to check with your logistics expert if you are shipping hazardous goods. Special forms are required.

We will be covering ocean bills of lading in detail because ocean freight is the most economical -- and therefore the most frequently used -- method of export shipment. You must prepare and submit a Shipper's Letter of Instructions form to your freight forwarder so that they can issue an accurate bill of lading. This form indicates if the transaction is being made against a letter of credit, whether insurance is required and where to send documents, etc. Once you've finalized terms of payment with your customer, you will be able to furnish these facts to your freight forwarder. Most bills of lading are issued with three originals and several copies.

There are numerous different types of ocean bill of lading, but you will find that the following are the most commonly used:

  • A "straight" (non-negotiable) bill of lading provides for delivery to the person whose name appears on it. It must be marked "non-negotiable." Only the person named can claim the goods upon arrival. This type of bill is usually used for goods shipped on an open-account payment basis when the exporter is not concerned about the importer receiving the goods without payment.
  • A "shipper's order" (negotiable) bill of lading is used when you want to impose conditions on delivery of the goods, such as acceptance of a draft. This type of bill of lading works well when payment has been secured by a letter of credit because you can make sure that the terms of the L/C are met before the goods are released.
  • A "clean bill of lading" is issued when the shipment is received in good order. If there is any damage or a shortage of product is found, a clean bill of lading will not be issued.
  • An "on-board bill of lading" is issued when the cargo has been placed aboard the named vessel. It is signed and certified by the master of the vessel. For a letter of credit transaction, this bill of lading is required for you (the exporter) to get paid.

Most of my client's customers ask for a "shipper's order" bill of lading, which authorizes their bank to take the title of the goods should they default on payment. The bank does not release the title of the goods to the buyer until payment is received. The bank will also not release these funds to you, the exporter, until all conditions of the sale have been fulfilled at your end!