Letter of Credit Forum

Hello Starone

It all revolves around the idea that the bill of lading may function as a document of title, whereas an airwaybill may not (which is why the word ‘waybill’ appears in its name).

The bill of lading does not always have this function of title – and it only acts in the manner of a transferable title document when it is consigned in a specifically worded way.

A document of title, when correctly worded, allows for the transfer of rights (of ‘title’) from one holder to another holder by the endorsement of the document and the subsequent physical transfer of the document from one party to another. The wording which triggers this is ‘to order’ in the consignee section of the documents (or any variation – “to order of [a named party]” etc. ‘to order’ on its own is ‘to order of the shipper’ by default.)

For example, if the issuing bank were financing the credit, they may want the bill consigned to their order. This allows them to hold the bills as security over the cargo and to endorse and pass title to a new holder only when they are paid for the credit. Alternatively, the applicant may intend to on-sell the goods and they require the bills consigned to their order so that they can exercise the same type of hold over the cargo until they are paid by the end-user or second buyer.

On the other hand, if the applicant was financing the credit and had no desire to sell the goods on, the bill (if a bill of lading is still used) will most likely be consigned directly to the applicant: there is no need to pass title onwards to another holder.
The reverse problem arises with the airwaybill. As it is not considered to be transferable, it may only ever be consigned directly to a named party (the consignee).

Where you see a variation it will be when the airwaybill is consigned to the issuing bank, this normally signals that the credit involves drafts which need to be signed by the applicant. As the waybill is not a title document, the applicant (as importer/consignee) need not produce the document to obtain release (from the airline). But, if the airline’s records show that the airway bill is consigned to the bank, the applicant could not get release anyway: waybill goods may only be handed over to the named consignee. So, the applicant goes to the bank and asks for a release letter – releasing the goods to the applicant’s control as a substitute consignee. Of course the bank only issues the letter if the drafts are signed. If there are no drafts, the airway bill is simply straight consigned to the applicant as consignee.

There is much more to the subject than this, and the above is a rough guide but I hope it helps.

Cheers

phill

“...in the kingdom of the blind; what you see is what you get...”