Bill of Lading: Importance Of, Error Consequences, and Effective Solutions
Yesterday we begun our series on freight bill and bill of lading in order to better educate shippers to knowing the difference between the two for effective logistics. Today we will cover the ins and outs of the bill of lading form, covering why it's important (and reiterating what is a bill of lading), as well as the different types and the consequences of not using a bill of lading or incorrectly filling on out. Monday, we will finalize our series by diving deeper into freight bills also known as a freight invoice.
Recap: What is a Bill of Lading Form and Why is it Important?
A bill of lading is one of the most important documents in the shipping industry. The bill of lading is a legally binding document providing the driver and the carrier all the details needed to process the freight shipment and invoice it correctly.
A bill of lading must be completed and provided to the shipper when your freight is to be picked up. The following is the information that must be included in the bill of lading:
- Shipper's and receiver's (a.k.a) consignee’s names and complete addresses.
- PO or special account numbers used between businesses for order tracking.
- Special instructions for the carrier to ensure prompt delivery.
- The date of the shipment.
- The number of shipping units.
- Type of packaging, including cartons, pallets, skids and drums.
- A note if commodity is a Department of Transportation hazardous material. Special rules and requirements apply when you are shipping hazardous materials.
- A description of the items being shipped, include the material of manufacture and common name.
- The NMFC freight classification for the items being shipped.
- The exact weight of the shipment. If multiple commodities are being shipped, then the weight of each commodity is listed separately.
- The declared value of the goods being shipped.
Added Notes for those on the International Side of things with a Bill of Lading
Most of our content focuses on North American understandings of terms and documents related to freight, transportation, and logistics. However, we do have some readers who are shipping modes such as ocean, rail, and air. Thank you to Peter Dawson, a highly respected Supply Chain consultant, we want to also include some other notes as it relates to the bill of lading.
The following acronyms can also include details around the bill of lading:
- OBL: Ocean bill of lading (Type of bills can be cut too)
- AWB: Airway bill of Lading
- ProBill: In use for GTS ( Ground Transport service) mainly for Truck
Generically a BOL is a contact of carriage, but even with various geographic locations, the terms that we use in North America are different to other places. For example, an OBL (to some) is an ocean bill of lading; where as to steam ship lines this is the ORIGINAL BILL OF LADING, wich is needed to be presented for the goods to be moved off the Wharf to the warehouse.
Importance of the Bill of Lading Form
As noted previously, the bill of lading is a legal contract and can be used in litigation. That in of itself then says, and must be understood by those using a bill of lading form in the process of shipping freight, that the bill of lading accuracy and use is one of the most important things you can do to run your logistics department effectively.
A Bill of Lading has 3 basic purposes or roles:
- Evidence of Contract of Carriage
- Receipt of Goods and
- Document of Title
Evidence of Contract of Carriage
Many people think that a bill of lading is a contract between the Seller and the Buyer and many also think that a bill of lading is a contract of carriage between the Carrier and Shipper. However, this is not entirely correct.
The contract between a buyer and seller was already established when the buyer placed the order with the seller and they both discussed and agreed (verbally or in writing) the what, where, when, how and how much of the transaction in detail.
The contract between a shipper and the carrier was already established when the shipper or their third party logistics provider made a booking with the carrier to carry the freight from A to B.
The bill of lading is the EVIDENCE of the contract of carriage entered into between the “Carrier” and the “Shipper or Freight Owner” in order to carry out the transportation of the freight as per the contract between the buyer and the seller.
Receipt of Goods
A bill of lading is issued by the carrier or their third party logistics provider to the shipper or 3PL in exchange for the receipt of the freight. The issuance of the bill of lading is proof that the carrier has received the goods from the shipper or their 3PL in apparent good order and condition, as handed over by the shipper.
Document of Title
Technically it means that whoever is the holder of the bill of lading has the title to the goods (rights to claim the goods). However, this title varies according to the way in which the bill of lading has been consigned, which we will discuss in detail below.
Types of Bills of Lading
There are two basic types of bills of lading. A straight bill of lading is one in which the goods are consigned to a designated party. An order bill is one in which the goods are consigned to the order of a named party. This distinction is important in determining whether a bill of lading is negotiable (capable of transferring title to the goods covered under it by its delivery or endorsement). If its terms provide that the freight is to be delivered to the bearer (or possessor) of the bill, to the order of a named party, or, as recognized in overseas trade, to a named person or assigns, a bill, as a document of title, is negotiable. In contrast, a straight bill is not negotiable.
State laws, which often include provisions from the Uniform Commercial Code, regulate the duties and liabilities imposed by bills of lading covering goods shipped within state boundaries. Federal law, embodied in the Interstate Commerce Act (49 U.S.C. [1976 Ed.] § 1 et seq.) apply to bills of lading covering goods traveling in interstate commerce.
It is important to ensure that, when signing the bill of lading, the description of the goods in the bill of lading is accurate as well as all of the information in the bullet points above. If the bill of lading is inaccurate, with errors, or if not use at all, there are consequences that could occur.
Consequence of Not Used or Inaccurate Bill of Lading
One of the most costly and obvious consequences of not using or filling out a bill of lading inaccurately is that you most likely won't get your product to your desired recipient, but the main consequences are:
- Exposure to Claims: For example, if the bill of lading indicates that the goods were loaded in good order and condition, but the consignee receives them at the destination in a damaged condition, the consignee will be entitled to make a claim for the damage against the bill of lading carrier. Thus, if the information is not accurate, it will be difficult to get your full freight claim paid as you won't have the right information to recover the cost of damage. Another example might be that the bill of lading said there were 100 boxes but only 90 arrived. The consignee will be entitled to make a claim against the bill of lading carrier for the shortage.
Loss of the right to limit liability
- Loss of P&I cover
Loss of the right of indemnity from the
Clearly, as you can see from the points above, that incorrectly using a bill of lading can mean severe consequences. So how can you ensure you are compliant?
Solutions to Ensure Your Bill of Lading is Correct
- Employ a transportation management system and the services of a third party logistics provider: Sometimes, I wonder, how do manufacturers and distributors stay competitive in their core business with all of these details and potential risks that are out there in the logistics and freight world? Using a Transportation Management System, such as the Cerasis Rater, takes all the data entry points you must have in a bill of lading and has them as easily filled out guided fills to decrease the chance of error. The TMS also stores the documents, allows you to email them, and print them for ease of use! Additionally, if you have a provider, like Cerasis, that includes freight claims services for you, that bill of lading is then easily used to make claims easier.
- Use a Consistent and Standard Bill of Lading: There are many online bills of lading forms you can download from the internet, but once you choose one, make sure you use the same one so you are familiar and so are your consignees.
- Triple Check Before Signing: BEFORE you sign, the easiest thing you can do is triple check all of the information that needs to be in the bill of lading (as outlined above) is accurate. It's YOUR signature on a LEGAL document, so it's VITAL to check!
Have any bill of lading horror stories or any other solutions you would provide? Let us know in the comments section below!