Letter of Credit Forum

Hello Bhanu Prakash

That’s a VERY BIG question and I assure you that this is the most condensed I can make my answer.
Perhaps some other posters may have more elegant and efficient replies for you

Possession of a transport document like a bill of lading does not grant the holder ‘ownership’, but rather it grants them ‘entitlement’ to possess or dispose of the cargo described on the bill of lading. One of the features of the right to ‘disposal’ in this respect is the opportunity to ‘transfer’ these rights to another holder in due course.

These features are loosely referred to as the bill of lading being “a document of title”, which it isn’t really but it is certainly what trade assumes it to be and accordingly it is generally how trade treats the bill of lading. So holding the bill of lading isn’t ownership, but it grants the holder ‘rights’.

We must be careful when making reference to liner waybills as not all laws make a distinction between the bill of lading and the waybill. But assuming they do, then;

The general idea is that the waybill will not act in the manner of a bill of lading. It cannot be transferred and the ‘holder’, even if they are the named consignee, is not necessarily granted any special rights over the cargo. In the normal course of dealings, however, cargo will be released to the named consignee – regardless of them having hold of the ‘original’ waybill or not. Note here too that when we talk of say three ‘original’ bills of lading or three original waybills, what we actually mean is three ‘identical’ documents: they cannot all be originals, only one can be an original.

With the bill of lading, for example, the one handed in in exchange for the cargo – that one is the original: at that moment all of the other identical documents in the ‘set’ become copies, regardless of how they are endorsed or named.

Because access to the cargo, under the bill of lading, requires the consignee to possess and surrender the bill to possess the cargo, some sellers use the bill of lading as security for payment: they hold on to the bill until they are paid. But, given that the documentary credit in itself is a conditional guarantee of payment not all beneficiaries will see the need to work with the credit AND the bill of lading, particularly if the applicant has no need to transfer possession to a third holder (so once they have possession of the compliant documents they have no need to transfer possession on to another buyer). This is of course assuming that the issuing bank has no interest in the cargo – if the issuing bank are financing the credit, then they will want the bill of lading as security.

But, if the bank has no interest, the applicant wants to act as the sole consignee and the seller as beneficiary believes the credit will succeed (because they are sure of a compliant presentation or because they have a waiver in place), then the parties may opt for a waybill.

But there’s the rub.

It is a feature of waybill that the ‘shipper’ may change the consignee details on request.

So if I consign a waybill to you, there is nothing to stop me changing the name of the consignee to another party at any point during the journey and without your knowledge or consent. To overcome this challenge, the carrier will endorse the waybill with a “NoDisp” (No Disposal) clause, which is a specific endorsement whereby the shipper surrenders this right to alter the consignee detail once the original waybill has been issued. In such a model, now if I consign the waybill to you, you are assured that no other consignee may obtain release before you. But, as the waybill may also be issued in ‘sets’ of identical copies called ‘originals’, it is no use you having one waybill with this clause on it, if, for example, another two are floating round without the clause, allowing someone to obtain the cargo without your knowledge once more.

So, in the operation of a credit (and in business outside for the credit) if multiple identical waybill documents have been issued, the consignee would be best advised to ensure they have ALL of these, all endorsed with a No Disposal clause, otherwise the ‘shipper’ may re-route the cargo to another party. You must remember too that if you hold (let us say) three original waybills WITHOUT a NoDisp clause on them, the shipper can re-route the cargo anyway.

As I say, this is the most compact I can make it, but it isn’t the whole story and you are advised to speak to any carrier or Freight forwarder for more information.

I wish you well with this.

Cheers

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