Letter of Credit Forum

Airwaybill is always Non-negotiable, because Original Airwaybill -  is always sent together with the Shipment. Therefore only the "Copy for the Consignor/Shipper " is normally required to be presented for negotiation or payment.

Airwaybill is not a document of title because goods shipped  under AWB can be released thru Identification of the Consignee (presentation of ID) and not by presentation of Original AWB. However, in sea shipment, presentation of Original Bill of lading is required before the applicant may release the goods (Except for Shipping Guarantee of course)  Furthermore, AWB should not be consigned to order, or to order of any party, It must be Straight Consigned to the "issuing bank" or the Applicant. In case the AWB is directly consigned to the issuing bank, a Delivery Order issued by the isuing bank is enough in order for the applicant to release the goods.

BL will be considered as Negotiable if it is consigned to : To order of shipper, To order or to order of .... In case a BL is Straight Consigned or Directly consigned to any Party it is deemed to be Non Negotiable Seawaybill.  Although it is not negotiable it is still considered as document of Title as presentation of original BL is required to release the shipment.

Hello

How are you?

For here and now, these are my broad strokes. There is so much more to this, and I cannot possibly know everything…but;

1.  A document of title will derive its authority from Law. As we have no global law to regulate trade, we can be fairly sure that the Marine Bill of Lading is NOT a document of title in a legal sense and that it is only used as such through customary practice – and accordingly it will always be unstable if ever subject to, or exposed to, a local alternative, legislated variation. So, we are going to ‘assume’ that the bill of lading is a document of title for this question alone.

2.  A bill of lading is also NOT a negotiable document. It is one – again, through customary practice alone – which may function as a transferable document if correctly worded. The difference at law between a negotiable instrument and a transferable one is important, but again, for here and this question we will allow the bill to be ‘negotiable’, (things are what they are because of what they ‘do’, not because of what we call them.)

Now, are you sitting comfortably? Good, then I’ll begin;

All transport documents embody two features – all of them, air waybills, liner waybill, rail notes, whatever – these two features are;

i.     They function as evidence of the contract between the shipper and the carrier and will often summarize the limitations of the terms of the contract. The actual contract itself has been formed through a prior specific event or action, the document is ‘evidence’ that this event/action took place. Importantly then – although not part of your question – a transport document is never ‘the contract of carriage’ which is a commonly misused expression.

ii.   All transport documents function as receipts for packages – not necessarily the contents of those packages.

For historic reasons – which I will not bore you with here (and I assure you I could) – merchant’s manipulated the use of the bill of lading to provide it with a third characteristic – which as I mentioned is not supported by law, or at least not by a single law, but rather by common use: and that is the concept of the bill as a document of title.

Think of a dry-cleaning slip.

I take my jacket into a dry cleaner and he gives me a ‘slip’. This slip is evidence of the contract between us and further it is a receipt for the ‘package’ i.e. my jacket.

If I gave you this slip, you could collect my jacket from the dry cleaner next week. The dry-cleaner would not ask if you ‘owned’ the jacket – you simply having the slip (being the ‘holder’ of the slip) is proof enough that whoever is the actual owner (that is the original party (me) who contracted with the cleaner), well they are allowing you possession of the thing the slip represents, i.e. my jacket, and that’s why they gave the slip to you.

You may have become the owner in the process, but the cleaner is only interested in your entitlement to possess the jacket. (So note that when we look at passing a bill of lading between parties, this is NOT signaling the passage of 'ownership' between them - ownership is an action of law and not an action of contract - passing the bill (passing the dry cleaning slip) it is only passing entitlement to possess or dispose).

Now, imagine further that I actually have sold the jacket to you. I could do this simply by selling you the dry cleaner’s slip. You give me money, and in exchange I give you the piece of paper which entitles the holder (you) to possess the thing the paper embodies – the jacket. Then, you could collect the jacket or you could on-sell the jacket to someone else by repeating the process of handing over the slip in exchange for money…and so on.

The slip becomes the thing it represents, so buying and selling the slip is equal to (and easier than) buying and selling the thing. Parties who buy the slip may not want the jacket; they may want temporary possession as security against another debt (not necessarily related to the jacket).

For example, you could lend me money and hold the slip against me paying you back – taking the slip as a pledge almost. Alternatively, a holder of the slip may only want to control who ultimately gets the jacket – and that’s roughly where we stand with the ‘negotiable’ bill, banks (as a good example) and the consigning of the document ‘to order’.

By consigning the bill ‘to order’, the owner of the goods described on the bill – who the carrier assumes is the shipper – is instructing the carrier to allow possession of the cargo at the destination place, to fall to an as-yet-unnamed party whose identity will be proven by this party’s possession of the bill, which document will further detail the shipper’s ‘order’ to allow them entitlement to possess the goods. Additionally, this ‘order’ will be stated on the document (on the document back by endorsement) and so if ‘shipper’ wants party “X” to have possession of the goods (let us imagine when they have sold the goods on to party “X”) they need simply only stamp and sign the back of the bill, endorsing it over to party “X” (this is referred to as being endorsed in full). Party “X” now has all of the rights of the shipper, which means they could then repeat this process and on-sell the goods to party “Y” and so on. If the shipper simply stamped and signed the reverse of the bill (termed “endorsed in blank”) then any ‘holder’ of the document has the rights to possess the cargo.

Think now of the bank who may finance an inbound credit; by having bills of lading endorsed to their order – or holding a bill blank endorsed by the shipper – then, if the applicant cannot settle payment of the credit, the bank could a) take procession of the goods (not a good option for the bank) or b) find another buyer and on-sell possession to them – just by endorsement of the document or, if it is endorsed in blank already, then just by passing the document to the ‘new’ buyer, presumably in exchange for payment.

Great stuff so far…BUT;

What about airfreight? What if the bank wants to perform a similar ‘holding’ exercise over airfreight cargo?

Well, like any transport document, the airwaybill is evidence of the contract between the shipper and the carrier, and it is a receipt for packages, but it has no ‘dry-cleaning-slip’ magic property – we know this because it is called a ‘waybill’, the word ‘waybill’ is telling us about the first two properties only (i.e. that it is intended to be evidence of the contract and to function as a receipt, only).

Accordingly, the airwaybill need not be produced by the consignee to obtain release or possession of the underlying goods; once consigned to party “X”, only party “X” can claim possession. By using a ‘waybill’ of any description, the shipper is signaling to the carrier to release to the named consignee on proof they are the named consignee i.e. they do not need proof of entitlement to possess, just proof of who they are.

But, what if we actually need to somehow place the bank in between party “X” and the goods, perhaps until party “X” has paid for the credit?  Well, that is when we consign the airwaybill directly to the bank and not to party “X” and the bank thereafter releases possession to party “X” through the release letter – another corruption of the system, but one that works. It does not make the waybill negotiable, but it simply places the bank in-between the ‘buyer’ and the goods.

Bear in mind that all of this is happening between the carrier, the shipper, ‘holders’ of documents and the consignee – none of whom are party to the credit (between the issuing bank and the beneficiary). So, in a credit – which is the sale of documents – the nature of the document is not fixed e.g. if the applicant is putting the bank in funds to open the credit, the bank would have no need to intervene and take possession of the cargo as security for the debt. Thus, in such a case, the documents sold would not need the ‘magic’ property of allowing a holder by endorsement to influence the possession of the cargo and you would now handle airwaybills consigned to party “X” and seafreight transport documents (“however named’) similarly consigned.

Remember; the bill of lading (if we allow that it is ever a document of title) is only ever a document of title if consigned ‘to order’. A bill therefore consigned directly to party “X” is something else, most likely not a bill of lading at all – and in some jurisdictions (the US being a prime example) a marine bill of ladling consigned directly to party “X” is actually a waybill at law and no different than an airwaybill consigned to party “X”. It has no magic properties at all…things are what they are because of what they ‘do’, not because of what they are called.

To work with bills of lading requires an understanding of the many, many variables out there in the unlegislated world.

Ok, Ok, I’ll stop now…but please appreciate that this is truly broad-stroke advice, and the devil is in the detail most of which detail has not been considered here.

But this may all at least give you a sense of direction or help you sleep if you have a nagging toothache or something of the sort.

For my own part, a bill of ladling is an 11th century European device empowered by merchants with special properties to get them out of sticky situations when they were ducking and diving to make a buck in a lawless post-Roman world. It lacks a single law; it lacks certainty and is an open and obvious target for fraud. It has little to no place in the 21st century.

It was never meant as a device to trigger payment in the way we use it today and the bizarre idea of multiple ‘originals’ alone (I mean, come on – what is an original? How can you have multiples of an ‘original’ Think – why does the dry-cleaner only give you ONE slip?)…well, it all requires truly mind-numbing feats of self-deception involving temporarily suspending one’s intellect and forgetting everything your mum told you before you left home…but there it stands, bigger than it ever was, defended by all and sundry…daily confounding its detractors and still occasionally wreaking havoc in the marketplace.

…and thus; such is my say.…but, like you, I am always happy to learn more…

cheers

phill doran

"...in armour bright, the merchant men..." 

The B/l can
negotiable because of the nature of the transaction and the
capability of ocean carriers. Let's talk about the carriers first.
For Ocean shipments, the carriers historically have a holding section by
which
they hold the goods for pickup by the consignee. This allows the
capability of
allowing almost anyone to pick up the container. Contrast this with say a
truck
line. When the contract is set up, the truck line will deliver it
directly to
the consignee.

Given the capability of the ocean carrier to hold the goods, there is
the
ability for the ownership of the goods to change hands several times. By
having
a negotiable B/L, the
ownership of the goods can change several times and the
final owner can pick up the goods.

You may aske about air shipments. Airlines have resisted the
negotiability
for 2 reasons. 1. The delivery of the goods is relatively quicker than
the
possible delivery of a negotiable document. 2. Airlines do not have the
large
holding facilities. Given these two issues, a negotiable AWB would not
make
sense.

I hope this helps you out.

Regards!!!!

Mujeeb :-)