Monday, October 29, 2012

Bills of Lading and Letters of Credit

In Linked in, an individual asked the question about who has the right to the bill of lading when an “F” type delivery term is used and the sale is by a letter of credit. As this question raised a couple of good topics I thought I would share my response.

A bill of lading is a document that may include the following type of information:
1. Name of the shipping company
2. Name of the shipper.
3. Name and address of the importer or consignee.
4. Name and address of the party to be notifies on arrival of the shipment.
5. Name of the vessel or carrier.
6. Whether freight is payable and whether it has been paid.
7. Number of originals in the set of the bill of lading documents.
8. Marks and number identifying the goods and a Brief description of the goods (possibly including weights and dimensions), number of packages.
9. Date on which the goods were received for shipment.
10. Signature of forwarder or carrier where they acknowledge receipt of goods.

Any INCOTERM that begins with an “F” such as FOB, FAS, FCA all place the responsibility on the buyer to arrange and pay for transport from the specified “F” point. The buyer does not need to get a copy of the Bill of Lading to arrange to have the forwarder pick up the goods. It is the forwarder that issues the Bill of Lading as proof of receipt of the goods. Multiple original copies of bills of lading may be produced.

Under a letter of credit situation you have four parties involved. The supplier, the supplier’s collecting bank, the issuing bank of the buyer, and the buyer. One of the standard conditions of a letter of credit is that a bill of lading must be provided to document that the goods have in fact been delivered to the buyer’s selected forwarder or carrier.

The flow goes as follows:
1. The supplier notifies the buyer that the goods are ready for pickup at the agreed “F” point.
2. The buyer contacts the carrier or freight forwarder to pick up the goods.
3. The carrier picks up the goods and provides the bill of lading to the supplier.
4. The supplier provides the bill of lading to the collecting bank showing their proof of delivery in accordance with the terms of the letter of credit.
5. The collecting bank provides a copy of the bill of lading to the issuing bank as part of their collection process under the letter of credit.
6. The buyer can get a copy of the bill of lading from the issuing bank for their records or in the event of a problem (such as a discrepancy between what is listed on the bill and what is actually received).

So the answer is if there was only one original bill of lading the Seller has the initial right to the bill of lading it as part of the letter of credit collection process. They do not keep the bill of lading and have to provide it to the bank to collect payment. The buyer will have the final right to it once payment is collected from the issuing bank as proof that both banks met their obligations under the letter of credit. As multiple original bills of lading may be issued, the forwarder could potentially prepare three. Two for the Supplier of which one they would keep and one they need to provide as part of the letter of credit payment process and one for the buyer’s records.

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