Unit 3

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UNIT 3 Carriage Documentation

Unit 3 Carriage Documentation

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Objectives After reading this unit you will be able to understand: O

The importance of transport documents and their crucial role in smooth movement of the goods across borders.

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Complex web of procedures and documents involved in transportation of the goods especially by the sea route.

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International legal framework of the rules and regulations which controls and monitor the movement of the goods by various modes of transportation.

All the documents that serve the purpose of evidencing shipment of goods, such as the bill of lading (in case of marine transport), combined transport document (in case of multimodal transport), consignment note or way bill (for rail, road, air transport), and cargo receipt (in postal or courier delivery) are collectively known as carriage documents. Apart from the function of evidencing the shipment of the goods, some of these documents also serve other purposes. For example Bill of Lading serves several purposes apart from the above function: 1.

Serve as a proof of delivery of the goods on board the ship;

2.

Serve as an evidence of the contract of carriage; and

3.

A means of transferring title of the goods in transit to another party.

4.

Also identifies contracting parties and defines terms and conditions of agreement.

The counterpart of Bill of lading in the air carriage is called the Airway Bill (AWB). AWB differs from the Bill of Lading in some ways as explained later in this chapter. Various

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carriage documents used in international transactions are described below:

Marine (or Ocean) Bill of Lading (B/L)

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A contract to carry goods by sea is called the “contract of affreightment” and the charges paid for the carriage of the goods is called “freight”. A contract of affreightment can be of the two forms, namely

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1.

A charter party, where an entire ship, or a major part of the ship is employed at the disposal of merchant (known as a charterer); or

2.

A bill of lading where the goods are to be carried in a general ship which carries goods of a number of shippers. The person consigning the goods is known as a shipper.

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In both these contracts, the ship owner (the carrier) undertakes to carry the goods of a consignor (i.e., the charterer or the shipper) safely and securely to the contracted destination. Bill of lading is a unique and an important document (perhaps the most important document in ocean transport) issued by the shipping company to the shipper against the delivery of the cargo for the sea carriage to the port of destination. Due to its multi functional nature, B/L has got a unique importance in shipping and is also known as the ‘document of title’. It means that the legitimate holder of this document is entitled to claim the ownership of the goods as covered in the original full set of B/L. Therefore, it would be impossible for the importer to obtain the possession of the cargo unless they surrender a signed original full set of bill of lading to the shipping company at the port of destination. Bills of lading, whether inland or ocean, can be issued in either non-negotiable (straight) form or in negotiable form. If the bill of lading is specified as being non-negotiable, the carrier must deliver it only to the person named in the B/L as “consignee”, thus the bill of lading acts both as a receipt of goods and also as an agreement to transport these goods to a

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specific destination, to be delivered to the consignee, in return for payment of the carriage charges, if not already paid. If the bill of lading is specifically endorsed as being negotiable, ownership to the goods and the right to re-route the shipment are with the person who has ownership of the bill of lading. Such bills of lading are issued to shipper’s order, rather than to a specific, named consignee. Where collection and payment is through banking channels, such as under a letter of credit or documentary collection, negotiable bills of lading is must. The exporter must “endorse” the “clean” (signifying that the goods have been boarded on the ship in good order and condition) bill of lading and deliver it to the bank in order to receive payment based on and in consonance with the documentary credit opened by the buyer. A document of title means that a lawful holder of a bill of lading has the right to claim the goods from the carrier at the port of destination. Besides, an endorsed bill of lading is a ‘negotiable’ document, in which case, ownership of the goods specified in it can be transferred from one party to another one. The negotiability is made in the bill of lading by endorsing ‘to order’ at the specified place on the bill of lading. Therefore an exporter should insist upon ‘to order’ bill of lading from the shipping company against delivery of the goods on board the ship. In this case, mentioned cargo would be released on presentation of an original of ‘to order’ bill of lading. Whereas the “consignee named” bill of lading is non-negotiable. Therefore, the “consignee named” Bill of Lading should be accepted by an exporter only in case he/ she is confident of receiving timely payment at a later stage. This can be done in the case of either advance payment or an irrevocable letter of credit. An exporter should also insist on a clean Bill of Lading since a “claused” (unclean) B/L is normally not acceptable to the buyer unless it agrees for it specifically in the documentary credit. There can be several types of B/L. These have been described below. 1.

On board or shipped bill of lading: It certifies that the goods have been placed “on board” the carrier. In a FOB and C - terms an “on board” bill of lading is required.

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Clean bill of lading: Clean B/L does not contain any adverse remarks on the quality or condition of the cargo received. In fact, all importers must insist upon a clean bill of lading.

3.

Dirty (claused) bill of lading: In case a shipping company puts remarks on the B/L about the bad condition of cargo or its poor /damaged packaging, it becomes dirty or claused bill of lading. Generally, this kind of bill of lading is not acceptable by most importers unless explicitly stated in the contract of sale.

4.

Received for shipment bill of lading: It indicates that goods have been received by the shipping company, but shipment is still pending. In this case, cargo is under the custody of the carrier lying at his warehouse. In case of shipment on FAS (free alongside ship) terms, a “received for shipment” bill of lading is required.

5.

Through bill of lading: This is issued when cargo is to be moved from one carrier to another in between. It is a form of combined transport document where the first carrier acts as the main carrier and is responsible for the total duration of the voyage and is liable in the event of any loss or damage to the cargo at any point of the carriage.

6.

Trans-shipment bill of lading: It is issued when transshipment of cargo during the voyage, is needed. Since the first carrier issuing the bill of lading acts as an agent for the subsequent stages of the voyage, the first carrier cannot be held liable for any loss or damage in the subsequent stages of transport by the holder of transshipment bill of lading. Importer generally prefers a through bill of lading to avoid complication of responsibility of the subsequent losses. But exporter should insist that trans-shipment bill of lading should not be prohibited at the time of finalizing the export contracts, as it may become necessary to transship in unavoidable circumstances.

7.

Stale bill of lading: It is a bill of lading that is presented well after the vessel has not only sailed but

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also the goods have already arrived at the port of destination. It may lead to delay in customs clearance of goods at the importer’s end, payment of demurrages, and the risk of loss or damage to the cargo at the port of destination especially in the case of perishable cargo. However, the issuing bank may issue the importer a prior ‘shipping guarantee’ for delivery of goods and a bond, for getting the goods cleared through customs in the absence of the bill of lading. However, an importer needs to surrender the properly endorsed bill of lading upon its receipt. 8.

Short forms bill of lading: It has got all the features of a bill of lading except that it does not contain all the preconditions given in the contract of affreightment. Banks do accept short forms bill of lading, unless specifically prohibited in the contract of sale or the documentary credit.

9.

House or freight forwarders’ bill of lading: It is issued by the freight forwarder, consolidator, or nonvessel carrier (NVC), under the Carriage of Goods by Sea Act, 1971, it is a non-negotiable document. It is not subject to the Hague Rules relating to the bill of lading where the non-negotiable documents provide evidence that they relate to the contracts of carriage of goods by sea. Therefore it is not a normal B/L document which serves several functions.

10. Charter party bill of lading: It is issued by the carrier in case of charter ship. The charter party bill of lading is normally not accepted for documentary credit negotiation unless specifically allowed in it. 11. Bearer bill of lading: The bill stipulates that delivery should be made to whosoever holds the bill of lading. This type of bill of lading may be created explicitly or it can be an “order bill” that fails to specify the consignee whether in its original form or through an endorsement in blank portion of the B/L. One can negotiate a bearer bill by physical delivery.

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Freight Paid vs Freight to Pay The bill of lading may be endorsed ‘freight paid’ or ‘freight to pay.’ If the freight is pre-paid by the exporter, the bill of lading is marked as ‘freight paid’, while in case the freight has not been paid, ‘freight to pay’ or ‘freight collect’ is marked on the bill of lading for later collection of the same from the consignee at the port of destination. A bill of lading is issued by the shipping company in exchange for mate’s receipt. Mate’s receipt is issued by the master of the vessel who decides the condition of the cargo received on board and put his remarks, if any, on the mate’s receipt. This MR is then given to the shipper through port authorities. Therefore, the shipping company ensures that all the clauses appearing on the mate’s receipt are reproduced on the bill of lading prior to issuing it to the shipper.

Shipping Permit Before shipment, it is normal for the shipper to apply to the physical distribution department of the carrier, for a shipping permit. That permit will be issued when proof is submitted that arrangements for ocean space for transportation have been made. Shipments for ocean export may also move on domestic bills of lading if the shipper wishes to make arrangements for ocean transportation.

Airway Bill (AWB) The counter part of B/L in the air shipment is Airway Bill, which is also known as the air consignment note or airway bill of lading. The airway bill is a receipt of goods and an evidence of the contract of carriage, but unlike the ocean bill of lading, it is not a document of title and, therefore, it is non-negotiable. The goods are consigned directly to the ‘named consignee’ and are delivered to the consignee (i.e., the importer) without any further formalities, after the goods are customs cleared. However, therefore, it does not have the payment protection as in the case of a negotiable document like B/L. Hence, it is risky to consign the goods directly to the importer. One of the solutions to this problem is, the exporter may insist upon a provision in the letter of

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credit to consign the goods to a third party, like the issuing bank, or arrange for receiving the payment on cash on documents basis. The International Air Transport Association (IATA) airway bill is issued in a set of a dozen copies, three of which are originals. All of these three originals have the same validity and commercial significance as given below. 1.

First Original (Green): It is for the issuing carrier, which is to be signed by the consignor or his agent.

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2.

Second Original (Pink): It is for the consignee. It is accompanied with the goods through the destination. It is signed by the carrier or his agent.

3.

Third Original (Blue): It is for the shipper, is signed by the carrier and is handed over to the consignor or his agent after acceptance of the goods by the carrier. For payments, the bank requirement is satisfied by presenting the Third Original, i.e., the shipper’s copy.

In case a transshipment clause is indicated in the AWB, the trans-shipment may take place even if it is not allowed under the letter of credit. If a split shipment is mentioned in an airway bill, it means that a part of shipment would enter the destination country at different times. AWB no. is the most important information on the AWB. It is normally impossible to trace the consignment and get it cleared through customs without an airway bill or its reference number. An airway bill covers both domestic and international flights transporting goods to a specified destination. It specifies the terms between a shipper and an air carrier for the transport of goods. Included in the document are the conditions, description of commodity, liability limitations, shipping instructions, and applicable transportation charges. In addition, the air waybill indicates that the carrier has accepted the goods described in it and obligates it to carry the consignment to the destination airport according to specified conditions. Now a day, air carriers normally use the uniform air way bill as prescribed by the official Air Freight Tariff. The ‘tariff’

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stipulates that the shipper must present and prepare a nonnegotiable air way bill with each shipment. No air way bill or other air shipping document is negotiable, regardless of what wordings are used herein. Goods valuation also must be indicated on the air bill for tariff calculation purposes only. A universal air bill of lading has been adapted by most international air carriers.

Arrival Notices Traditionally, an “arrival notice” is sent to the “consignee” after the shipment arrives at the destination port. The notice contains the same information as given in the air waybill. In addition, the location of the goods and the time when goods may be picked up is also given. While the telephone is often used for this purpose, an arrival notice is still sent to verify notification and as a confirmation of notifying the consignee.

Freight Bills The freight bill is very similar to the bill of lading. In addition to what is indicated in a B/L, it includes the total freight charges to be collected from the consignee or the consignor as the case may be. The freight bill is prepared by the agent at destination when charges are to be collected from the consignee. It is prepared by the originating carrier agent when charges are prepaid by the consignor. If the freight charges are prepaid, the freight bill is given to the consignor. On the other hand, the original freight bill is raised to the consignee for payment on a C.O.D. (collect on delivery) shipment.

Various Carriage Slips of Paper The shipment of cargo is still basically driven by several slips of paper. Auditors, accountants and even frequent shipper who are frequently involved with carriers should have a good understanding of what those slips of paper mean and the obligations and liability they may create. However many of such information is taken care by the C&F agents.

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Combined Transport Document (CTD) The business environment is moving faster than ever before. Increased competition at home and abroad means quality as well as profitability must be preserved with lot of efforts and efficient transportation systems. We live in a constantly evolving world where harmonization is becoming extremely important and the trade desperately requires an efficient and simple door to door transportation and liability system on the part of the seller. This was one of the reasons why ICC and UNCTAD developed the new UNCTAD/ICC Rules for Multimodal Transport Documents (MTD). With multimodal transport by containers becoming popular, combined transport document (CTD) is increasingly being used by the exporters. The combined transport document covers the carriage of cargo from the place of containerization (may be exporter’s premises) to the place of destination using multi-modal transport. While making shipments from inland container depots (ICD), the exporters can stuff the goods in the containers at his own premises and get it examined and sealed by the customs authorities for dispatch to sea ports in sealed containers. In cases where goods are exported from inland container depots and the letter of credit does not require a marine bill of lading, the combined transport document (CTD), to be drawn as per the FEDAI (Foreign Exchange Dealers Association of India) rules, is accepted by the banks. In situations where the letter of credit does not have provision for the acceptance of the combined transport document, the authorized dealers may accept the CTD with undertaking from the combined transport operator (CTO) stating that the CTD would be replaced by the ocean bill of lading soon after the cargo is loaded on board the ship. However, only after the replacement to the ocean bill of lading, the documents are negotiated by the bank. The CTD contains particulars regarding general nature of goods, the name and principal place of business, the name of the consignor, the name of the consignee if specified by the

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consignor, the place and date of taking charge of the goods by the MTO (Multimodal transport operator), the place of delivery of the goods, the date or the period of delivery of the goods at the place of delivery, whether it is negotiable or non-negotiable, the place and date of its issue, etc. In addition, the standard terms and conditions regarding basis of liability of the MTO for loss or damage, delay etc. is incorporated in the document. Relevant particulars contained in the internationally accepted documents recognized by International Chamber of Commerce (ICC) have been taken into consideration while prescribing the document. The MTOs can now issue on a uniform basis Combined Transport Document as a negotiable instrument as per the Multimodal Transportation of Goods Act, 1993 and the banks will have no difficulty in discounting the bills when such a document is presented.

Legal Aspects of Carriage Documents Legally speaking, in most national and international legal systems, a bill of lading is not a document of title, and does no more than identify that a particular individual or an entity has a right to possession at the time when delivery is to be made. However through due endorsement it can be made negotiable as agreed by the seller and the buyer in the contract of sale. Therefore in real terms, a B/L is a quasinegotiable instrument. In this sense it is also a document of title which can be transferred by endorsement and delivery. Problems arise in the case, when goods are found to have been damaged or lost in transit, or delivery is delayed / refused. Because the “consignee” is not a party to the contract of the carriage, the doctrine of privity of contract states that a third party has no right to enforce the agreement. However, whether this is a problem to the consignee depends on the ownership of the goods and the responsibility assigned for the risks associated with the carriage. This will be answered by examining the terms of all the relevant contracts in a particular trade transaction. If the consignor has reserved title until payment is made, the consignor can sue to recover his or her loss. But if ownership and/or the risk of loss have been transferred to the consignee, the right to sue may not

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be clear in contract, although there could be remedies in tort / delict (the issue of risk will have been most carefully considered to decide who should insure the goods during transit). Hence, a number of international Conventions and domestic laws specifically address when a consignee has the right to sue. The legal solution most often adopted is to apply the principle of subrogation, i.e. to give the consignee the same rights of action held by the consignor. This helps most of the more obvious cases of injustice to be avoided. For example US municipal laws address these matters. However, since bills of lading are most frequently used in transborder, overseas or airborne shipping, the laws of whatever other countries are involved in the transaction covered by a particular bill may also be applicable including The Hague Rules, The Hague/Visby Rules and The Hamburg Rules at international level for shipping, The Warsaw Convention for the Unification of Certain Rules for International Carriage by Air 1929 and The Montreal Convention for the Unification of Certain Rules for International Carriage by Air 1999 for air waybills, etc. It is customary for parties to the bill to agree which country’s courts shall have the jurisdiction, and the municipal system of law to be applied in that case. The law selected is termed the proper law in private international law and it gives a form of extraterritorial effect to an otherwise sovereign law, e.g. an Indian consignor contracts with a Greek carrier for delivery to a consignee based in Vancouver: they agree that any dispute will be referred to the courts in Vancouver (since that is the most convenient place) but that the Vancouver courts will apply Greek law to determine the extent of the carrier’s liability. In India, the law relating to carrying of goods is contained in the following enactments: 1.

In case of carriage of goods by land: (i) The Carriers Act, 1865. (ii) The Railways Act, 1989.

2.

In case of carriage of goods by sea: (i) The (Indian) Bills of Landing Act, 1856. (ii) The Carriage of Goods by Sea Act, 1925. (iii) The Merchant Shipping Act, 1958. (iv) The Marine Insurance Act, 1963.

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In the case of carriage of goods by air: The Carriage by Air Act, 1972.

Wherever there is no specific provision for a particular matter in these statutes, then the Indian Courts resort to English Common Law.

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Definition of a Contract of Carriage: A contract of carriage of goods is a contract of bailment for reward, or location operis faciends. However, the contract of bailment is modified by the different statutes mentioned above in the case of carriage of goods by land, sea or air.

Carriage of Goods by Sea A contract to carry goods by sea is called the “contract of affreightment” and the consideration or charges paid for the carriage is called the “freight”. A contract of affreightment may take either of the two forms, namely 1.

a charter party or

2.

a bill of lading.

In both these contracts, the ship owner (the carrier) undertakes the responsibility of carrying the goods of a consignor (i.e., either the charterer or the shipper) safely and securely to the destination. A contract of affreightment—whether in the form of a charter party or a bill of lading — is governed by the (Indian) Bills of Lading Act, 1856 and the Carriage of Goods by Sea Act, 1925. Conditions Contained in a Contract of Carriage by Sea. The terms included in a contract of carriage by sea are of two kinds. These are: (i) Express terms, and (ii) Implied terms. Express terms are those which the parties have specifically agreed to and embodied in the contract. Implied terms are those which law implies in every contract of carriage by sea unless excluded specifically. There are four implied terms:

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Implied warranty of seaworthiness. The ship owner, when he enters into a charter party for a voyage warrants that the ship is seaworthy. This is an assurance by the ship owner, at the time of entering into the charter party, that (a) the ship is fit to encounter the ordinary perils of navigation during voyage and (b) to carry the specific cargo. This warranty of seaworthiness extends only to (a) seaworthiness at the time of sailing and (b) fitness at the time of loading the cargo. Once the ship has sailed or the goods are on board, this warranty ceases to operate. But in case the voyage is divided into stages, the ship must be seaworthy at the commencement of each voyage.

2.

Non-deviation of voyage. Also there is an implied condition that there shall be no unnecessary deviation. Deviation means the going off from the settled or the usual or customary course of voyage between the two termini.

3.

Implied warranty of commencement of voyage. Another implied warranty is that the ship shall be ready to commence the voyage and shall carry out the same with all reasonable dispatch and diligence.

4.

Shipper not to ship dangerous goods. The shipper (i.e., the consignor of goods in case the charterer undertakes to carry goods of others under bills of lading) shall not ship dangerous goods. If the shipper ships dangerous goods and if on account of it the charterer suffers any damage, he can recover it from the shipper.

It may be noted that a bill of lading may be issued even where the ship is chartered. In such a case “charter party” will be the document evidencing the “contract of affreightment”, while the bill of lading would only operate as a mere acknowledgement of the receipt of the goods.

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Carriage of Goods by Land As mentioned above, the following two statutes govern the carriage of goods by land: (i) The Carriers Act, 1865. (ii) The Railways Act, 1989.

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The Carriers Act, 1865. This Act defines the term “common carrier” and provides for his rights, duties and liabilities. As regards matters not covered by this Act, the rules of English Common Law will apply.

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Rights of a Common Carrier. His rights are:

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(i)

He is entitled to the settled remuneration and in case no remuneration was settled, to a reasonable remuneration.

(ii) He has a right to refuse to carry goods under certain circumstances (as enumerated under the duties of a common carrier). (iii) He has a lien on the goods for his remuneration. He can refuse to deliver them until his charges are paid. (iv) If the consignee refuses to take delivery of the goods, when tendered, the common carrier has a right, to deal with the goods as he thinks reasonable and prudent under the circumstances. (v) He has a right to recover reasonable expenses incurred by him as a result of the consignee’s refusal to take delivery. After giving notice to the consignee, the common carrier may even sell perishable goods. (vi) He can recover damages from the consignor if the goods are dangerous or are loosely packed and the carrier suffers injury there from. (vii) He can limit his liability subject to the provisions of the Carriers Act.

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Duties of a Common Carrier A common carrier’s duties are: 1.

a common carrier is bound to carry goods of all persons who choose to employ him. He can, however, refuse to carry goods under the following circumstances:

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a

If there is no accommodation in the carriage;

b

If the person employing him is not willing to pay reasonable charges for the carriage of goods;

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If the goods are such which he is not accustomed to carry;

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c d

If the goods are to be carried over a route which is not his regular route; if the goods are-dangerous and as such subjecting him to extraordinary risk;

e

If the consignor refuses to disclose the nature of the goods to be carried; and

f

If the goods are not properly packed.

g

If a carrier refuses to carry the goods of a person for any reason other than those mentioned above, he may be held liable for damages.

2.

He must carry the goods over the usual and customary route and take all reasonable precautions for their safe carriage. He must not deviate from the usual route unless rendered necessary by exceptional circumstances.

3.

He must deliver the goods at the agreed time and if no time had been fixed, within a reasonable time.

4.

At Common Law, he is an insurer of the goods in the sense that he warrants to carry the goods safely and securely.

Liabilities of a Common Carrier: The liability of a common carrier of goods is laid down in the Carriers Act, 1865. For this purpose, the Act has classified the goods into two categories: (i)

Scheduled goods and

(ii) non-scheduled goods.

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The scheduled goods are those which are enumerated in a Schedule to the Act. They are valuable articles like gold, silver, precious stones and pearls, bills and hundis, currency and bank notes, glass, china silk, articles of ivory, time pieces, musical and scientific instruments, etc. All other goods are non-scheduled. For scheduled articles exceeding Rs. 100 in value, the carrier is liable for loss and damage only: (i)

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if the value and the description of the goods are disclosed by the consignor to the carrier; or

(ii) if the loss or damage is due to a criminal act of the carrier, his agent or servant. The carrier can charge extra for carrying scheduled articles, but he cannot limit his statutory liability by any special agreement. As regards non-scheduled articles, a common carrier can limit his liability by special agreement with the consignor. But even in this Section case he will be liable under 8 of the Act (explained below). In case of loss or damage, the claimant must notify the carrier within six months of the date of knowledge of the loss or damage.

Carriage of Goods by Rail The carriage of goods by rail is regulated by the Railways Act, 1989. Sections 93 to 112 of the Railways Act, 1989 contain provisions on the responsibilities of the Railway administration as the carrier of the goods. Distinction between a Common Carrier and a Private Carrier. The distinction between the two is as follows: (i)

a common carrier publicly undertake to carry from place to place the goods of any person who chooses to hire him. A private carrier does not carry regularly from place to place but is a casual carrier.

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UNIT 3 Carriage Documentation

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(ii) A common carrier is bound to carry the goods of any person provided certain conditions are satisfied. A private carrier is free to accept or reject the goods for carriage by any mode of transportation.

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(iii) The liabilities of a common carrier are determined by the Common Carriers Act, 1865. A private carrier’s liability is not determined by this law. He is liable as a bailee as given in the Indian Contract Act, 1872.

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Summary

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Sea transportation remains the most common mode of transportation of the goods across the borders, accounting of 99% of the international trade.

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The electronic documentation of the carriage documentation is limited by the inability to find a fool proof electronic alternative to marine bill of lading which is semi negotiable instrument. Shipping guarantee by the reputed banks can go a long way in making the life easy for regular importers across the globe. It can helping in tapping lost opportunity due to delays in the arrival of the goods at the port of destination.

Review Questions 1.

Explain and discuss various carriage documents and their role in the smooth movement of cargo from the warehouse of the exporter to the warehouse of the importer?

2.

Explain in detail the nature and functions of various kinds of Marine Bill of Lading? Discuss how does a Bill of Lading differ from an Air Way Bill?

3.

Discuss various legal aspects of carriage documents.

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