June 5, 2024
Behind alls shipments around the world, you’ll find one thing in common: the presence of a Bill of Lading. Every day, some 300 million tonnes of goods are transported by ships around the world. We, as consumers, don’t think much on their routes, instead waiting for their arrival at our closest convenience store. But for companies, the act of transporting products is key to their operations and eventual profits. If they cannot ensure their goods will ultimately arrive from factory to store safely, then they could incur large losses and inefficiencies.
The shipping industry has thus created a robust system to track products and reassure companies they will arrive at their end destinations. Behind it all is an array of documents—many of them physical—that provide the needed protections for businesses to secure their products from purchase orders to invoices. And, amongst them all, none is as crucial or common as the Bill of Lading (or BL) with some 45 million issued every year.
What is a Bill of Lading?
A Bill of Lading is a document that certifies the transport of cargo from one destination to another. Oftentimes, these documents come in the form of a paper bill, with some estimates calculating there are as many as 4 billion Bills of Lading currently in circulation globally. Recently, however, many large companies emitting Bills of Lading have vowed to make an electronic bill that will cut down on waste for the logistics industry (and save up to $6.5 bn in overall costs).
“A Bill of Lading is a document that certifies the transport of cargo from one destination to another”
For those involved, a BL serves three main purposes. First, it is a legal contract that certifies a shipping company is in possession of goods and will deliver them safely to an end destination. That is, the BL serves as an agreement between two parties to provide a service. For the company shipping the goods, it is a safety mechanism where the transportation provider recognizes the products in its possession, and promises to carry them to an end destination. Think of it as a type of receipt confirming the carrier now has the products. If a product were to disappear or failed to reach it would serve as a document in court to defend a company’s interests.
Second, within its legal capabilities, the Bill of Lading is also a “title of goods,” meaning that it certifies the ownership of the products benign transported by the freight shipping company. By being in possession of the BL, the company in question is also certifying its ownership of the goods being transported.
And third, the Bill of Lading serves a crucial function in terms of visibility. By listing all the items being transported, it gives both transportation providers and companies the needed transparency to engage with one another. Companies must accurately list all the products benign shipped, and the shipping company must certify it is in possession of those goods. Thus, for logistics departments trying to understand where their goods are and which container is carrying them, the BL is a crucial document to the shipment industry.
It is worth noting that the Bill of Lading is more commonly referred to as an acronym. In the logistics industry, this document is better known as a BL, BOL, or B/L, for short.
“A Bill of Lading serves three main purposes: (1) it is a legal agreement between parties, (2) it is a title of goods for the company shipping goods, and (3) it is a tool for visibility for all parties involved”
Who issues a Bill of Lading?
In general, a Bill of Lading is issued by the company in charge of transporting the goods to the company that is shipping those goods in the first place. In the world of logistics, the company in charge of moving products across large distances are known as “carriers” as they are carrying the products to their end destination. Meanwhile, companies sending their products through freight carriers are known as “shippers” as they are shipping their products to a different location. Thus, a BL is always given by the carrier to the shipper.
There is also a third party involved in a Bill of Lading: the person or entity that will receive the products at the end destination. In the world of logistics, this party is known as the “consignee.” The consignee could well be the shipper as well or a different company that acquired the goods from the shipper. All three parties—shipper, carrier, and consignee—must be specified in the BL
Actors in a Bill of Lading
(Diagram made by Auba)
Now, it is worth mentioning that companies don’t need to interact with carriers directly to get a Bill of Lading. In many instances, they will likely get their shipping contracts from a third party logistics provider (3PL) or a freight forwarder which will arrange the needed steps for their cargo to be transported by a carrier to their end destination. These actors can also create Bills of Lading, although these come certain caveats which we explore in further detail in the next section.
“A BL is issued by the company in charge of transporting the goods (carrier) to the company that is shipping those goods in the first place (shipper)”
What is the difference between HBL and MBL?
The terms HBL and MBL refer to the process through which a 3PL or freight forwarder creates a BillBL for their clients. In general, the business model of 3PLs requires these companies to acquire large shipping contracts with carriers. They then sell spaces in a ship to smaller companies needing to transport cargo. Since shippers in this case never come in contact with their carriers, instead interacting with them through their 3PLs or freight forwarder, these intermediary agents must also facilitate a BL to them.
“The terms HBL and MBL refer to the process through which a 3PL or freight forwarder creates a BL for their clients”
When interacting with a 3PL or Freight Forwarder, a shipper is likely to receive two types of Bills of Lading. First is an aggregate BL known as the Master Bill of Lading or MBL. This document comes from the carrier company and is given to the 3PL or Freight Forwarder. As 3PLs or Freight Forwarders arranges freight costs with the carrier company for the many containers for all of its clients, it receives one original BL which details all the containers they acquired in a given vessel: the Master Bill of Lading. The 3PL or Freight Forwarder then emits a specific BL to its client containing the products they are shipping in a given container ship, i.e. a smaller document specifying the share of the Master Bill of Lading corresponding to each client. This second, more specific Bill of Lading created by the 3PL is known as a House Bill of Lading or HBL.
In general, the Master Bill of Lading is a contract between the carrier and the 3PL or Freight Forwarder, while the House Bill of Lading is a contract between the 3PL or Freight Forwarder and the shipper. While the Master Bill of Lading contains the entirety of containers and goods transported by a 3PL or Freight Forwarder, the House Bill of Lading only references the fraction that is relevant for a specific client.
Differences between MBL and HBL
(Diagram made by Auba)
“In general, the Master Bill of Lading is a contract between the carrier and the 3PL or Freight Forwarder, while the House Bill of Lading is a contract between the 3PL or Freight Forwarder and the shipper.”
Who needs a Bill of Lading?
Anyone who is transporting goods across long distances will need a Bill of Lading. More specifically, you need a Bill of Lading if you are either a company shipping a good or a transportation provider in charge of moving the goods in question (also known as shippers and carriers). The purpose of the BL, afterall, is to provide legal protection and visibility for companies as they send considerable amounts of cargo from across large distances. Although the companies in question will not issue the BL, they are certainly in need of it to ensure their legal and property rights.
“Anyone who is transporting goods across long distances will need a Bill of Lading”
When is a Bill of Lading issued?
A Bill of Lading is issued after the products being shipped are finally loaded into the vessel or vehicle that will transport them to their end destination. As such, the carrier company will wait until the goods are safely in position and, oftentimes, have already begun the journey to their final destination. The exact time will vary based on a number of factors including the practices of your carrier company and the internal processes of any 3PLs you are currently working with to arrange transportation of goods. Don’t be surprised if a Bill of Lading is issued after the vessel has already departed, as this can be standard practice across some carriers.
“A BL is issued the moment in which the products in question are finally loaded into the vessel or vehicle that will transport them to their end destination.”
What is in a Bill of Lading?
A Bill of Lading contains all the needed information for the transportation of goods across considerable distances. This often includes the port of origin, and port of destination, as well as the terms of payment. It is also meant to include the information from the carrier in charge of transporting goods.
Crucially, all Bills of Lading must specify the three actors involved in the transportation of a good: the shipper (those sending a product), the carrier (those in charge of transporting the product in question), and the consignee (those receiving the product). It could well be the case that the consignee and shipper are the same company in different ports or countries. But even in those cases, the needed information must be provided to ensure the cargo can be safely delivered to the intended parties.
Similarly, the BL must contain a thorough description of the materials inside of a container. This includes the weight of the material, total count, and descriptions for the goods in question.
“A BL contains all the needed information for the transportation of goods across considerable distances”
Bills of Lading are also assigned an individual number for identification known as the Bill of Lading Numbers. These identifiers are chosen by the carriers following a set of international practices. The Bill of Lading Number consists of 11 digits divided into three categories. The first four, often in the form of letters, are a specific code assigned to each, while the fifth digit serves as a category identifier. The following six digits are a unique serial number assigned to every shipment and, finally, the last digit is known as a “check digit” and is intended to help determine potential errors in the BL.
The Standard Pattern for Bill of Lading Numbers
(Diagram made by Auba)
So, why are BLs important?
Bills of Lading are the fundamental agreement that ensures global trade. In them, carriers and shippers are able to protect themselves in case of any errors, while providing visibility on the goods being transported at any given time. Above all, it serves as a contract that protects shippers from potential losses of their goods as they entrust carriers with the responsibility of bringing them successfully to their end destination.
Icon credits: smashingstocks – Flaticon, Iconjam – Flaticon, and Ainul Muttakin – Flaticon
