Study Guide

Commercial Practice in Action

The following example shows how the concepts covered so far come together in day-to-day international trade practice. It traces a typical shipment from the sales contract through to delivery at destination, highlighting where key parties (such as freight forwarders, loading brokers, and carriers) become involved, and where documentation, risk, and control of the goods shift in commercially important ways.

Loading brokers handle logistics from the carrier’s side.  They advertise the dates of sailings, supervise loading, and consult with shipowners’ cargo superintendent with regard to the stowage.  In practice, it is not uncommon for a single forwarding firm to act as both forwarding agent and loading broker, although these tasks are usually handled by separate departments.

The forwarder will reserve space on a particular vessel, and then will appropriately fill in a set of pre-printed bills of lading (a “set” comprises from 2 to 4 identical originals).  Most shipowners or carriers print their own bills of lading and make these freely available.  The forwarder will indicate on the draft bill of lading all necessary information, including the identity of the consignee, a description of the goods which includes shipping marks, and details regarding the payment of freight.

The shipper, with the forwarder’s assistance, will make sure that the goods are either delivered alongside the ship or into the care of a port terminal, storage shed or warehouse.  When the goods are delivered, the shipper will customarily receive a receipt document such as a mate’s receipt, dock receipt, cargo quay receipt or wharfinger’s note. The shipowner will record the details of the goods received, as well as any important defects or damages, on the mate’s receipt.  This is important, because the bill of lading will be based on information from the mate’s receipt.  If the mate’s receipt indicates damaged goods, then the shipowner will not issue a ‘clean’ bill of lading.

The shipowner will compare the details of the goods as loaded (recorded by the shipowner’s clerks) with the draft bills of lading that the forwarder or shipper has provided.  Provided the details match and the goods do not exhibit damage or defects, the shipowner will issue the completed and signed clean bills of lading.  The information from the bills of lading is also recorded on a register carried by the ship itself, called the ship’s manifest.

Once the goods have been loaded, and the shipper has in addition obtained a marine insurance policy (in CIF shipments, with buyer as policyholder) and prepared a bank draft, the shipper is able to assemble a set of shipping documents.  This bundle of documents serves as the hub of many international payment and finance mechanisms.  Control over the goods can be freely transferred by endorsement of the bill of lading.  Endorsement is affected when the party holding the bill of lading and wishing to make the transfer signs the back of the bill of lading.  The signature may also be accompanied by directions to deliver to a specific person.

When the goods arrive at the port of destination, the ship’s master will deliver the goods to the first party who presents an original bill of lading.  Commonly, the importer will present the bill of lading to the ship’s agent, who will then issue a delivery order; the importer then uses the delivery order to obtain release of the goods.

It is not uncommon for the goods to arrive before the bills of lading have been processed through the payment system and received by the importer.  Since a delay in receiving the goods may result in penalties or storage charges, the consignee may ask his bank to issue a letter of indemnity to the shipowner, which will protect the shipowner in the event that he incurs liability for delivery to the wrong person.  The shipowner will then release the goods against the letter of indemnity.  In some sectors, such as the oil trade, this practice is common.

Source:  ICC, Guide to Export-Import Basics 5th^rd Edition, 2018