Bill of lading

Bill of lading definition

The bill of lading is a legally enforceable document summarizing the terms and conditions for a specific shipment. It is an agreement between the shipping customer, or a third party, and the carrier.

A bill of lading (BoL) is a legal document that describes what’s being shipped between a shipper and a logistics company, how much of it there is and where it’s going. It also proves you own or control the goods described.

The BoL, which needs to be signed by both parties, travels with the cargo.

Depending on the type of BoL, it may be consigned to the receiver of the merchandise or a third party, such as a freight forwarder, international carrier, or both.

A BoL is necessary to process and invoice a shipment properly.

Is a bill of lading legally binding?

The BoL is evidence of a contract between the shipper and the carrier and therefore legally binding.

“A bill of lading is a document of title in the maritime sector,” says Jean-François Laurin, a BDC Advisor in International Logistics and Compliance. “When a carrier signs the bill of lading, the carrier becomes the owner of the merchandise. They will then transfer ownership to the consignee. That's why it's a very important document.”

Is the bill of lading the same as an invoice?

It’s not uncommon for a BoL to be referred to as a freight bill or invoice, says Laurin. “When a person uses the term ‘freight bill,’ they might not be actually talking about a freight bill. The difference between a freight bill and a bill of lading is like night and day.”

A freight bill is simply an invoice, he says, while the major difference between the freight bill and the bill of lading is the legality.

Should the shipment lead to a legal dispute or an insurance claim due to damages or loss, the BoL acts as a proof of contract, receipt of goods, and title.

Also, the BoL does not list any shipping costs, as you’d find in a freight bill.

But the BoL is similar to the freight bill in one way: both identify the cargo, complete with dimensions, quantities and weight.

Bill of lading vs. freight bill

  Bill of lading Freight bill
Description of goods Identifies goods, quantities, cubic volume and weight of goods shipped. Also identifies goods, quantities, cubic volume and weight of goods shipped.
Carrier costs Not listed. Details all the charges and services to the carrier for separate and consolidated costs of shipments.

Provides essential information on terms and modes of payment.

Legal status Acts as a legal document conferring title to the goods described. It also provides proof of shipment, terms agreed upon and the conditions for the transportation of the goods. Has no legal status.

Why do you need a bill of lading?

Without the BoL’s legally enforceable agreement, your carrier could deliver the goods to anyone they see fit.

Who receives the bill of lading?

Different parties may receive the BoL.

Issued by the carrier (the ship owner/operator, a freight forwarder or a shipping intermediary), the BoL confirms that the cargo is received on board in the same condition as the shipper sends it. Typically, the BoL is provided to:

  • the shipper or exporter
  • a broker, freight forwarder, or the party managing customs
  • the buyer or consignee

What are the three main functions of a bill of lading?

A BoL functions as the following:

  1. Proof of contract—The BoL is the physical evidence that you have a contract to move goods with a logistics company. It outlines the obligations of the contract.

    The BoL obliges the carrier to deliver the cargo only to the entity listed as consignee, or their authorized representative.

  2. Proof of receipt—The BoL is signed by the carrier once your goods have been transferred to them. That signature confirms that the goods described were transferred in good condition.

    Should there be damage to the goods in transit, your signed BoL provides proof of what was actually shipped.

  3. Proof of title—The BoL is a document of title that’s been endorsed by authorized signatures and shows, along its route, what entity owns the cargo.

Bill of lading example

How many bill of lading types are there in shipping?

Bills of lading come in many forms.

“The bill of lading used for sea freight,” says Laurin, “doesn’t have the same obligations and conditions as the bill of lading used in air freight or trucking. To avoid misunderstandings, it’s important that you recognize which one you have in hand.”

Different factors contribute to defining the appropriate BoL for your situation, such as:

  • the purpose of the BoL
  • the buyer-seller relationship
  • protections afforded the buyer
  • the method of transmission

Two major categories of bills of lading

In overseas shipping, a BoL can be divided into two major categories: negotiable and non-negotiable.

Negotiable—With a negotiable BoL, the contract is transferable to a third party, such as a logistics company. In such an arrangement, the title of the goods is transferred from a consignor, or shipper, to a consignee. At the point of transfer, the consignee takes on financial responsibility for the goods and ownership.

The negotiable BoL travels with the goods to ensure the validity of the contract. Once the goods arrive in port, the receiver must present a signed original BoL to get the cargo released.

Non-negotiable BoL—Only one specific consignee, buyer or entity can receive the goods with a non-negotiable BoL, meaning it’s non-transferable. That’s the key difference with the negotiable BoL. The commonly used straight BoL is an example of a non-negotiable BoL.

What is a master bill of lading (MBL)?

The master bill of lading is issued by the carrier, either a ship owner or operator, to freight forwarders or non-vessel operating common carriers. (NVOCCs sell cargo space on shipping lines to those with whom they have volume freight agreements.)

Either the freight forwarder or the NVOCC is listed as the shipper, consignee and notify party on the MBL. (Notify party refers to any party that should be informed when the shipment reaches its destination.)

If you’re exporting or importing cargo that fills less than one container, you’ll probably never see an MBL. It’s intermediaries, like an NVOCC or freight forwarder, that work with companies shipping this size of cargo.

What is a house bill of lading (HBL)?

The house bill of lading is issued by a shipping intermediary to the actual exporter once the cargo is safely on board. Thus, the HBL acts as a formal receipt of the goods. The HBL is identical in detail to the MBL, except for the entities listed under shipper, consignee and notify party.

Who is the shipper in the bill of lading?

The shipper is the exporter.

Who is the consignee in the bill of lading?

The consignee is the receiver of the cargo.

Who is the “notify party” in the bill of lading?

“Notify party” is any party requesting to be informed of the shipment.

What is an original bill of lading?

The original bill of lading is usually issued in sets of three. In order to release cargo, one of the original bills of lading needs to be presented to the carrier at the destination.

What is a telex release?

This digital copy of the BoL can be presented to the carrier to release the merchandise. It requires the shipper to be paid beforehand. When a shipper requests a telex release they do not have to send the original bills of lading to the buyer or consignee. The telex release speeds up customs clearance and saves the shipper the cost of sending a courier with the original bills of lading.

What is an express bill of lading or sea waybill?

An express bill of lading is also known as the express release or the sea waybill. Like the telex release, its advantage is its speed. It differs, though, in it having no hard copies.

Not surprisingly, the express release assumes a high degree of trust between the two trading partners and is often employed when a shipper and consignee work for the same company.

What is a switch bill of lading?

A switch bill of lading is issued by the carrier (or its intermediary) to replace the originals made when the goods have left the port of origin. In switch bills of lading, the format of the documents, the cargo and its value remain the same but some of the original information is edited by the carrier.

There are various reasons to edit a BoL:

  • the cargo was resold en route, with the port of destination needing to be revised
  • the buyer prefers to consolidate the goods under one BoL
  • the intermediary doesn’t want the buyer to know the name of the supplier

To request a switch BoL, the party must possess the three originals.

If you’re shipping overseas and the goods are stuck in the terminal because your bill of lading doesn’t provide the correct information, the vessel owner can keep the goods forever.

What happens if the bill of lading is missing information?

Exporters don’t always give enough importance to what’s written on the BoL, observes Laurin.

“They treat it as an everyday kind of document, like a freight bill. But it’s critical that the bill of lading have the proper information because it transfers title. If you’re shipping overseas and the goods are stuck in the terminal because your bill of lading doesn’t provide the correct information, the vessel owner can keep the goods forever.”

Because the BoL is a contract, any inaccuracies in the description of the cargo become part of the contract. Let’s say you’re exporting 10,000 widgets and your clerk accidentally lists 1,000 widgets on the BoL. If your shipment is damaged, lost or disputed, that incorrect BoL becomes the primary document supporting your insurance claim.

Quality assurance for your bills of lading

To set up a quality assurance procedure and reduce your risk of costly errors on bills of lading, consider including the following actions:

  • Confirm that the product/commodity codes are correct
  • Verify the quantity of goods (e.g., boxes, pallets, bags)
  • Review the BoL for all required information
  • Ensure the carrier’s signature

This quality assurance procedure should be coupled with an auditing process by your accounting team. Once you receive the freight bill for a shipment, match it with the appropriate BoL to ensure you’re paying only for what you shipped or received.

Keep your bills of lading and related paperwork to your imports and exports for five years, in case of an audit by the Canada Border Services Agency.

Next step

Discover what it takes to succeed in international markets. Learn how to create a market entry plan, identify new customers, and assess risks, costs and logistics for your global expansion with our free guide Growing International Markets.