Letter of Credit Forum

Hello Sammy

(I cannot post a reply to your post "ORIGINAL BL" [dated 3rd March] for some technical reason...)

A thousand years ago, the details of cargo loaded on a vessel was recorded in a ‘book of lading’ which travelled with the ship, but within a couple of hundred years the record became a stand-alone document (originally a page torn from the book) that could be traded independent of the cargo and travel independent of the vessel: the “bill of lading”.

Remember that it was difficult in those times to get the document from the port of loading “A” to the port of discharge “B” so more than one attempt would need to be made. Therefore, these early documents were issued in ‘sets’ of two or more identical copies (“…all of the same tenor and date…”) to allow for the loss or delay in the movement of the document, made probable by the conditions of the time.

The movement of the documents by various routes was often simultaneous – so perhaps one identical would travel from A to B by one route, another identical document would go from A to B by a different route, while one would travel with the goods on the vessel in “the captain’s bag”.

It was always understood that only one of these identical documents could ever be the ultimate original; the one exchanged for the goods. Yet when they were issued, as they were all identical they all had the potential to be this original.
So in a basic seafreight transaction in the very early days of trade you could have (let’s say) three identical documents, any one of which may be used as the original in exchange for the goods. The moment one of the set was used in exchange for the goods, all parties accepted that any remaining or surviving identical documents would lose the potential to be the original (“one of which being accomplished, the others to stand void.”).

Of course at that moment, when the remaining identical documents lose this potential, there would be no outward sign to show that they had changed – they would remain physically identical to the true original but they no longer would have the potential to be surrendered in exchange for the goods (because the goods would have already been released against the first document surrendered).

As I say, traditionally merchants needed multiple identical documents to make sure one got to the destination port, but bear in mind that trade in those days was not happing remotely from the goods or the port. At the destination port, standing within sight of the arrived vessel (or one in the offing), if not standing within sight of the actual discharged cargo, these documents were being traded by the seller or the seller’s agent directly with a buyer or the buyer’s agent. Even if all of the documents made it through to the destination port, buying and selling the same cargo using two identical documents in a ‘scam’ was improbable.

It was only as commerce developed, when documents started to be traded by bankers or merchants in places away from the port, away from the cargo and sometimes in remote cities, only then did the risk of having multiple identical documents become a problem. But we are creatures of habit and we did not change the system to suit this profound change in how we conducted our commerce.
From this point onwards when remote parties traded using these identical documents they needed to secure all of them, otherwise there was a risk that the goods may have already been released and the documents they held rendered useless, the potential for the ones they held to be the original having passed.
Any bank or merchant buying (say) only two of the three identical documents would have no way of knowing if the two they held still had this potential – had the third already been used? The worth or value of the documents could only be guaranteed if the holder knew exactly how many of these identical documents had been issued and if they then held all of them. From this point onwards, it became crucial that the bill of lading always detailed the exact number of originals issued as part of the carrier’s declaration: it may be one, it may be one hundred. Whatever it was, (“...In witness whereof, I the undersigned have today issued the stated number of originals…”) the holder must hold all of them.

Most of the problems we experience today when using bills of lading arise because we have changed how we use them, but we have not changed how we issue them. Times change, but people do not.

The need for multiple identical documents has now passed. But as creatures of habit we still call for multiple identical documents in a ‘set’ and consequently the perceived historical advantage of trading with multiple identical documents has turned into a modern disadvantage. These days you will always need to call for all of the ‘originals’ in the set in order to secure your rights and, for example, to lose one of a set can create a major complication.

Some progress has been made, albeit slowly. If you work with Liner Waybills, for example, there is only ever one original issued. But this is the exception.
Consider the airway bill. This was developed during the last century and the design was based on the bill of lading which by then trade had used almost exclusively for 800-years.  If you place a bill of lading and an air waybill side by side you may note that some of the early similarities remain – look at the positioning on the document where you find the shipper’s details, where you find the consignee details, the carrier’s logo, the document number; note the area where the cargo is described, the routing and where the document is signed, etc. In this process of replication, the idea of a ‘set of originals’ – which by then sea traders had already standardised in practice to commonly being a set of three – was automatically built in to the air document’s design. Little thought was given to ‘why’ this was necessary to issue the air waybill in a set of three originals considering that right from its inception the waybill was not intended to be treated like a bill of lading: no ‘original’ was required to secure release. But, as I say, we are creatures of habit.

Within all of this the insurance industry came about and historically also utilised ‘original’ documents when processing claims, again going back to a time before mass communication when the verification of someone’s rights was not so easily determined and duplicate claims were always possible. The risk then becomes that if you only have one original and then lose that one original you potentially lose rights that you genuinely hold but cannot prove. This was a challenge that was thought to be best addressed by retaining the idea of multiple identical documents. So the merits of an imperfect system were reinforced.

It is a pity that we know every intimate detail about some of the most insignificant people who have walked among us, (life is a series of walk-on parts dominated by the least significant), but we know very little of the people who in generations past shaped the way we trade today. Who conceived of the idea of the bill of lading, of multiple originals, of using it as a title document? Whoever these pioneers were they remain hugely influential figures in contemporary business. They are Giants, immersed in Time, who would never know the magnitude of their influence on the world. They were inventive, creative and dynamic – but they were not necessarily bright.

We still carry the burden of their imperfect system, one developed a thousand years ago to solve the challenges of a world that no longer exists. This imperfection remains like a flawed and cumbersome limb which evolution has yet to remove. We drag it about with us, like guilt.

Bills of lading are issued in sets of identical documents, only one of which may ever be the original. In this context, this is what ‘original’ means: one. More specifically, the one exchanged for release of the underlying goods. 

I hope this helps.

Thanks for asking – and I wish you well.

Cheers

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