Institute Cargo Clauses B:  Compared to the clauses A, clauses B is more restrictive in its coverage.   As a matter of fact, it occupies the middle ground between clauses A and C, being the least and the most restrictive, respectively.

Clauses B offers coverage for:

1)  Fire and Explosion:  Loss or damage suffered by the cargo on account of fire and explosions  are insurable and eligible for claims under this clause.

2)  Sinking etc:  Loss or damage to the cargo resulting from the sinking, grounding, capsizing, etc., of the vessel is covered under this clause.

3)  Collision, etc:  Collision of the ship with another, or other objects, other than water, resultig in loss or damage to the cargo is covered under clauses B policy.

4)  Discharge Loss: The risk of cargo being discharged at a port of distress is eligible for coverage.

5)  Other losses:  Loss or damage to the cargo in transit abroad any land conveyance or transport is eligible to be covered for the risks associated therewith.

6)  Washing Overboard:  Loss or damage on account of cargo getting washed overboard is eligible for coverage.

7)  Water Seepage:  Entry of water into the vessel, etc., thereby causing loss or damage to the cargo, is covered under the clauses B.

8)  Loading/Unloading:  Loss or damage caused in the process of loading and unloading of the cargo is covered under this clauses B.

9)  General Average Sacrifice:  Loss or damage suffered by the insured on account of application of the rule of General Average Sacrifice, in relation to the value of the cargo saved, is also covered under the clauses B policy.

10)  Jettison:  The loss or damage suffered by the assured on account of jettison of his cargo can be covered under the clauses B policy.

In addition to the above coverage, the B clauses policy also affords additional coverage for loss or damage that can be “reasonably attributable to”: Earthquake, Volcanic eruption or lightening.  

Exclusions:  The Institute Cargo Clauses B policies do not include coverage for the loss or damage accruing to the assured on account of theft, shortage, or non delivery of the goods.

Even though the clauses B policies provide greater coverage compared to the clauses C policies, yet it is useful only for certain types of cargo, on account of its restrictions.

Institute Cargo Clauses C:  Clauses C policies offer the least coverage on account of the highly restrictive scope of these policies.

Clauses C policies offer coverage for the following risks, but with the rider of “reasonably attributable to”.  

1) Fire and Explosion.

2)  Sinking of ship etc.

3)  Collision of ship etc.

4)  Cargo discharged.

5)  Transit Losses.

6)  General Average Sacrifice.

7)  Jettison.

  Exclusions:  Clauses C policies do not offer coverage to losses or damages suffered on account of Earthquakes, volcanic eruptions or lightening.   Also exluded are risks like cargo being washed overboard, entry of sea water into the ship and resultant loss or damage etc.

Conclusion:  Insurance obtained under any of the above three Institute Cargo Clauses is subject to respective exclusions.   In spite of that, it is necessary to obtain insurance for the cargo, in view of the uncertainties and dangers posed at various stages of the journey of the cargo.

Further, the enormous protection enjoyed by the carriers under various national and international rules and conventions, gives them ample opportunity to bail themselves out of tough situations, leaving the shippers high and dry.   Even where the carriers are liable to compensate the shippers, such liability is limited in scope and quantum.   It is for these reasons that it is important to obtain insurance and play it safe.

Institute Cargo Clauses:  Historically, London has been the center for marine insurance business, and many of the customs and practices, as well as guidelines relating to this trade have originated from here.

Of  such guidelines, one of the most important one  relates to the extent of risk coverage offered by various marine insurance policies, as laid down in the Institute Cargo Clauses, A, B, and C.   These guidelines have been accepted by several marine insurance organizations across the globe.   The risks covered under these clauses, and the exclusions thereof, are discussed below.

Institute Cargo Clauses-A:  This clause provides the maximum coverage against the risk of loss or damage to the insured cargo.   Because of its very wide scope and application, it is also called “all risks” coverage.

The coverage offered by this type of policy includes loss or damage by fire and explosions, that are not so rare on ships.   It covers the risk of the ship being sunk, grounded, stranded, etc.   Also covered here is the risk of collision between two vessels, the discharge of cargo at a port of distress etc.   That apart, it also covers loss or damage on account of jettisoning of the cargo.   As can be seen, the coverage offered under clause A is quite comprehensive.

Exclusions:  The following are the exlusions applicable to Clause A.

1)  Willful Misconduct:  Willful misconduct of the assured in relation to the insured cargo may nullify the policy, thereby releasing the insurer from his liability to the insured.   If the assured acts in a manner that has the effect of causing loss or damage to his own property, then he loses the protection of the insurance coverage for that cargo.

2)  Ordinary Losses:  Often, cargo, depending on its nature and constitution, undergoes changes in its quantity and or quality, thereby reducing its value.  Similarly, leakage is inherent in certain types of cargo like oil.   Further, certain cargo suffers wear and tear in the course of voyage, without any deliberate action towards this end.   Such losses are excluded from the scope of this clause.

3)  Improper Packing and Loading:  Many a time, shippers do not ensure proper packing and loading of the insured goods, resulting in loss or damage, in the course of the voyage.   Such losses care not covered under this clause.

4)  Inherent Weaknesses:   Certain types of cargo suffer certain inherent weaknesses, that may render them vulnerable to loss or damage.  Insurers would not be responsible for such losses.

5)  Delays:  The insurer is not responsible for loss or damage that can be attributable to delays, even though such delays may be a result of risks that are insured.   For example, a ship may stall on account of mechanical problems, resulting in the fresh fruit cargo on board going bad.

6)  Insolvency, etc., of Carrier:  Loss or damage to the insured cargo, on board a vessel, whose owner is insolvent, bankrupt, or otherwise in financial default, cannot make the insuere liable to settle the claim of the shipper in respect of such cargo.   Financial distress of the carrier affecting the well-being of the cargo, does not make the insurer liable to compensate.

7)  Deliberate Action:  Deliberate actions to cause loss or damage to the insured cargo relieves the insurer of his liability toward the insured.   Deliberate destruction or damage of the cargo is a criminal offence, and cannot be allowed to result in a pecuniary gain to the insured.

8)  War, Civil Disturbance, etc.:  Outbreak of war, or civil disturbances resulting in loss or damage to the insured cargo will not be underwritten by the insurer.   However, some insurers do allow coverage for cargo even under such circumstances, on payment of additional premium.   The current unrest in Thailand, is a case in point.

9)  Un-Seaworthy Vessels etc:  Where the deployment of vessels that are not seaworthy, etc., results in loss or damage to the insured, the insurer would not be liable under the policy to compensate for any loss or damage to the cargo.

                                                                                   To be concluded

Types of Marine Insurance Policies:

1)  Specific Voyage Po9licy:  As the name indicates, this marine insurance policy covers a particular voyage only.   The insurance cover becomes effective when the ship starts its voyage, and expires upon the delivery of the consignment at the place of destination.   It is a one off policy covering only one voyage.

This type of policy is suitable only for those who do not engage regularly in international trade, but only ocassionally.  

2)  Time Policy:  This policy is issued for a particular period of time, normally one year at a time.   The cover under this policy commences from the date and time as specified in the policy, and expires at the end of the stated period.

The assets covered under this policy would enjoy the same for the period of insurance, whatever the course of the voyage.   This policy, though issued normally for a period of one year, may be extended beyond this period, through suitable amendment.

3)  Mixed Policy:  Sometimes a mixed policy is obtained which covers the risk to the insured assets during a specific voyage, for a specific period of time.  It may also be insurance to cover two different types of risk, on land as well as by sea.

4)  Valued Policy:  In this policy, the value of the consignment is ascertained before hand and specified in the policy.   The insurance cover is thus restricted to such stated amount.

5)  Un-Valued Policy:  In this policy, the value of the consignment is not specified in the policy.   Rather the insured is favored with a specific amount of insurance within which he may forward the goods for export.   The value of the goods on a particular voyage is ascertained as and when there is a claim.

6)  Floating Policy:  Also called ‘open policy’, it is popular with merchants and exporters who regularly export goods.   It is convinient for them to obtain a floating policy that offers cover for a specific amount, without reference to the cargo, or the voyage, or the ship.  

Every time a consignment is exported, the details of the same must be conveyed to the insurer, in advance, who takes congnizance of the same, and provides for the necessary cover for the stated cargo on the specific vessel, for the concerned voyage, within the overall limit fixed for the particular customer.

7)  Wagering or Honor Policy:  Normally, only a person with insurable interest is eligible to obtain insurance.   For example, a ship owner for the ship, and the cargo owner for the cargo, and so on and so forth.   Sometimes, an insurer issues a policy to a person without insurable interest, without benefit of salvage to himself (the insurer).

8)  Sellers’ Contingency Policy:  This is policy meant to protect the interests of the seller, who may find it difficult to get payment for the goods supplied to the buyer, on account of a change in the quality etc of the goods, for different reasons.

Where the seller of the goods, affords credit to the buyer in an export transaction, but the goods are exported on  F.O.B basis, a peculiar situation arises,  where the  ownership of the goods remains with the seller, but the responsibility for the goods passes on to the buyer.  In such a case, if the buyer does not accept the goods, citing reasons of damage to the goods, then the seller stands the risk of losing money.   The Sellers’ Contingency Policy is meant to address this risk, and protect the interests of the seller.

                                                                                           To be concluded

Intenational Trade, or for that matter, even domestic trade, involves the movement of merchandise from the place of its origin, and or production, to the place of its delivery and or consumption.  

This movement, or transport of goods involves initiating several steps, or actions, till the goods, or cargo reach their final destination.   Some of these steps include loading the cargo on to trucks or railway carriages, or barges from the point of origin to be taken to the vessel, or ship that actually carries the cargo across the seas,  to its destination.  

At every step of the way, from the time the cargo leaves the origin point, till the time it reaches the final destination, and handed over to the consignee, it is subject to several known and unknown risks, that might cause loss or damage to the cargo.

The quantum or extent of loss or damage that the vessel and the cargo within, may suffer, is measured by a system of ‘averages’.   There are two types of ‘averages’, namely, Particular Average, and the General Average, that are discussed below.

Particular Average:  This average relates to two types of situations.   One, where loss or damage occurs, both to the vessel as well as the cargo.   And the other, where loss or damage is restricted to the cargo.  

In the first type of situation, the loss or damage may involve both the cargo and the ship.   Some of the situations where this might happen, are the sinking of the vessel, resulting in the total loss of the vessel and the cargo.   Another example is a collision between two vessels, causing either sinking of the ship, or considerable damage to the ship, and of course, the cargo.   A third example, is where a ship is grounded on encountering an obstruction in its path, in the sea.   Here, considerable damage may be caused to the ship, and to some extent, the cargo.

In the second type of situation, only the cargo on board the ship may be subject to loss or damage.   Typical examples of such loss and damage may relate to one or more of the following: theft/pilferage of the cargo;   degeneration in the quality and quantity of the goods on account of vibrations of the ship;   episodes of turbulence, acceleration or deceleration experienced by the ship on account of exposure to elements, and inclement weather, etc.  

General Average:  This average refers to the loss or damage suffered by one or more of the shippers  whose cargo had to be jettisoned, or thrown overboard, into the sea, in order to save the rest of the cargo.   Certain situations at sea may demand the ’sacrifice’ of certain cargo to safeguard certain other type of cargo.

Naturally, this would be unfair to the shippers that lost the cargo, as they had also obtained insurance for their cargo, like the others.  

Hence, in order to compensate such shippers, who find themselves at the receiving end,  as above, all the other parties involved in the shipment are obliged to contribute towards the losses suffered by the shippers whose cargo had to be jettisoned.

The quantum of contribution to be made by the other shippers depends on the equation between the value of the cargo jettisoned and the value of the cargo thus saved.   Again the value of the cargo that was jettisoned is fixed according to its  insured value.   This process can be a bit complicated, and requires the services of a specialist called the “average adjuster”.

                                                                                      To be concluded

Marine Insurance:  Marine Insurance is that branch of insurance that deals with the coverage of losses or damanges that might befall sea and ocean going vessels, the cargo loaded on board, and also the related infrastructure involved in trade by sea.

As a matter of fact, marine insurance is acknowledged to be the oldest type of insurance.   And for several centuries, London was the center for the marine insurance business, for historical reasons, as Great Britain was the undisputed superpower of the world, in those days.   As such, many of the customs and practices followed in this business originated in London.   For instance, the universally accepted ‘Institute Clauses”, that lays down the rules regarding coverage, and still in vogue.

Rationale for Marine Insurance:  Why marine insurance?   For that matter, why insurance at all?   There must have been a time in history, when insurance was unknown.

Insurance, like several other theories, concepts, mechanisms, systems, and practices,  developed over a period of time, as part of man’s evolution through the ages, to meet his needs, either genuine or contrived.

In fact, marine insurance traces its history back to the origin of international trade.   The export of commodities from one country to another over seas and oceans, and the consequent risks posed to both the vessels and the cargo on board, led to the realization for the need to ‘cover’ these risks.   The ‘idea’ was to ensure that the ship, as well as the cargo reached their destination safe and sound.  

This ‘idea’, over a period of time, developed into a formal insurance policy, subject to legal terms and conditions;  and today, no ships sets sail with cargo, without the comfort of a insurance policy to take care of the various risks it faces in its journeys across the seas and oceans.

Hence, given the uncertainties associated with international trade, and the consequent adverse affects that can derail businesses engaged in international trade, it has become compulsory, as it were, to play it safe, and obtain suitable marine insurance for the merchandise involved.

Another important rationale for obtaining marine insurance is the fact that, invariably, the carriers wriggle out of a good part of their liability to the insured, by virtue of the protection afforded to them under various international conventions, like the Warsaw Pact, the Hague Rules etc.   Under these conventions, the liability of the carriers is limited, and may be even lower than the value of goods insured.

Risks faced in international Trade:  The various risks faced by the exporters and importers, as well, that are sought to be neutralized, or managed with the help of insurance, that is, marine insurance, are discussed below.   They may be divided into two classes of risks, namely, Standard Risks, and Exceptional Risks.

Standard Risks:  Standard risks are those that are encountered in the normal course of the voyage.   These include the risks of sinking, grounding, etc., of the vessel.   Also included are fire accidents, explosions, and the like.

Exceptional Risks:  These risks are those that do not occur normally, but on account of exceptional circumstances.   Like a war, civil war and disturbances, strikes, etc.  

A current example of a civil disturbance is Thailand, where anti Government protesters have taken over streets and Government buildings, forcing the Thai Government to declare emergency in parts of the country, and cancel the prestigious ASEAN conference.

These type of situations, which can crop up without notice, have to be taken into account, when engaging in international trade, and suitable insurance be obtained to counter such risks to one’s commercial and financial interests.

                                                                                        To be concluded

Insurance Documents:  Insurance documents are also called risk covering documents, because they are concerned with providing cover to eliminate or mitigate the risk associated with the international trade transactions, where merchandise is transported from one country to another.  This is fraught with consequences both for the exporter and the importer, apart from the Bankers who have a valuable interest in these transactions.   Practically, no international trade transaction takes place nowadays, without the support of insurance cover to take care of the inherent risks of international trade.

The most common type of insurance policy prevalent in international trade is the Marine Insurance Policy, because the major portion of the international trade is carried over the seas and oceans.   Within this category of insurance, there are different policies to suit the nature of merchandise and the nature and quantum of risk associated with the voyage, etc.  For instance, perishable goods being exported over long distances would require additional facilities to ensure their safe and sound arrival at the port of delivery, and requires a different kind of insurance policy compared to the export of iron ore, for example, from one part of the world to the other.   Similarly,  the menace of the Somalian pirates in the Gulf of Aden would require a suitable coverage for merchandise passing through the Gulf of Aden.  

Insurance policies to cover international trade transactions may be of two types-specific or open.   The specific policy is one that covers a particular voyage involving the  specific merchandise.   The insurance cover will cease upon the completion of the voyage.   On the other hand, the open policy is one where the insurers issue a blank policy to cover shipments of different types of merchandise to different consignees, and deliverable at different ports.   The shipper is permitted to effect any number of shipments to any number of destinations within the overall limit fixed for him by the insurer.   Generally, the only requirement is for the shipper to give prior notice of each shipment within the specified time limit and become eligible for the cover.

Another important feature of insurance policies is that they are freely assignable by blank endorsement, without notice to the insurers.   Any person acquiring an insurable interest in the policy gets the necessary cover from the insurer.

Insurance Cover Note:  Sometimes, the details of the shipment or the ship are not available, and it become difficult to obtain a specific insurance policy for the goods.   As a stop gap arrangement, till such details become known, the insurance company issues a Insurance Cover Note, valid for a short period of time, that would enable the shipper to provide the full details of the shipment and the ship or vessel.

Certificate of Origin:  Certain countries require of the importer to obtain from the exporter, a certificate testifying to the fact of the local origin of the merchandise that is being imported.

The purpose of this document is to ensure that goods are exported from the country that is not in the blacklist of the importing country.   Apart from that, it also serves the purpose of complying with official requirements in regard to quotas, if any, applicable to the exporting country, under different international trade agreements.

Summary:  To summarise, there are different types of documents required to be submitted by the exporters and importers under the mechanism of the documentary credit.   Broadly, these documents may be divided into Financial documents, Commercial documents, Transport documents, Insurance documents etc.

Among the financial documents, the Draft or the Bill of Exchange is the primary one, that facilitates payments for the exports made by the seller.  

Among the commercial documents, the invoice is the King, that provides all the details of the transaction, with reference to the merchandise, the quality, the quantity, the rates, the discounts offered, the net price, the ports of loading and delivery, the payment terms etc.  

Among the transport documents, of course, the Bill of Lading is the Queen.   Being a quasi negotiable document, it is a document to the title of goods, and enables the consignee to take delviery of the goods that he had ordered from the exporter.  

And finally, among the risk covering documents, the Insurance policy holds the pride of place. 

                                                                                                           Concluded

1)  Container Bill of Lading:  This bill of lading indicates that the goods under shipment are packed and are carried in containers, and not spread out as loose cargo.   This means the goods are secure and at one place which makes it handy to deal with.

2)  Combined Transport Bill of Lading:  This bill of lading is issued when the goods under shipment have to cover the voyage utilizing different modes of transport, like in the case of the through bill of lading.   However, the difference here is, that the carriers or their agents take responsibility for the sound condition of the goods, and its safe delivery at the port of destination.

3)  Lash Bill of Lading:  Sometimes goods are loaded on a barge to be unloaded on to a parent vessel.   In such cases, the bill of lading issued is called the lash bill of lading.   This bill of lading is similar to the ‘received for shipment’ bill of lading.   However, such a bill of lading can be upgraded to a regular ‘on board bill of lading’ with the help of a clause to that effect.   The clause states that the goods on the barge are put on board the parent vessel.

Apart from the above types of bills of lading, there are a few others like the “Crocka Bill of Lading”, issued by carriers to cover the journey of goods by road;  and “House Bill of Lading” issued by associations of forwarding agencies that do now own vessels.

Airway Bill:  Where goods are exported or transported by air, the concerned Airline company issues an Airway Bill, just like the sea carriers issue a Bill of Lading.   However, airway bills are not negotiable instruments, and hence not compulsory to be in possession of the consignee to enable him to take delivery of the consignment.   Hence it is not all that safe.

The Airway bill is an acknowledgement  of receipt of goods within mentioned by the Airline company or their authorised agents, for the purpose of despatch by air to the named consignee.   Normally the goods are kept at the designated delivery point of the Airline company and the consignee is expected to take delivery of the same.   The Airline company delivers the goods to the consignee after proper identification.

Air Consignment Note:  This is issued by the forwarding agents of the Airline companies.   It contains details of the merchandise, the name and address of the shipper and the consignee.

House Airway Bill:  There are what are called as Consolidating Agents, who consolidate air cargo on behalf of a number of consignors or shippers, and book the same for despatch by an Airline company.   The Airline company, in turn, issues only one Airway Bill to the consolidating agent.   The agent then issues a House Airway Bill to each of the shippers.

Postal Receipt:  Another way of despatching merchandise in international trade is through the medium of the Postal Authorities.   This despatch may cover sea voyage, or air travel, or both.

Multimodal Transport Document:  Also called Combined Transport Document, it involves different modes of transport through which the goods have to pass, before reaching the port of destination.   This one document takes care of the entire voyage or journey of the consignment, without the seller having to arrange for multiple transport documents.

                                                                                      To be concluded

1.  On Board Bill of Lading:  This is the preferred type of bill of lading and universally acceptable.   In fact, as a general rule, this type of bill of lading is insisted upon, on account of its soundness in relation to the underlying terms of carriage and the protection it offers to both the buyer and the seller, apart from the Bankers who are party to the transaction.

This bill of lading acknowledges the fact that  the goods under the contract have been put on board the named vessel, for shipment to the named port.   For the exporter, this document fulfills his legal obligations as to acceptable form of delivery under the contract.   Being universally acceptable and legally sound, the On Board Bill of Lading offers the exporter, the assurance of proper completion of shipping formalities.   For the importer, the On Boarad Bill of Lading evidences the shipment of the contracted goods on board the named ship, and deliverable at the named port.   As all the details are specific, including the name of the vessel, the importer enjoys peace of mind, not having to worry about the location of the merchandise or the carriage conditions applicable to it.

The On Board Bill of Lading invariably bears a notation “Shipped on Board” or similar term, testifying to the fact of the goods being loaded on board.   As pointed earlier, this is the preferred type of Bill of Lading.

2)  Received for Shipment Bill of Lading:  This Bill of Lading merely acknowledges receipt of goods for shipment.   It does not specifically state by which ship or vessel the goods would be transported, and when.   In case of delay in transporting,  goods may be stored in the warehouse till such time as they are actually transported by the next available ship.

This type of Bill of Lading is inferior to the On Board Bill of Lading, and generally not preferred.

3)  Short Form and Long Form Bill of Lading:  In the Short Form Bill of Lading, the terms and conditions for carriage of goods are not mentioned as is the normal rule.   Instead, this bill of lading  provides details of the consigner, consignee, the name of the vessel, the date of shipment, the port of loading and delivery, etc.   Charter Party Bill of Lading is generally of this type.

The Long Form Bill of Lading is just the opposite of the Short Form one.

4)  Clean Bill of Lading:  A Clean Bill of Lading indicates the absence of onerous notations and clauses relating to the defective condition of the goods.   A Clean Bill of Lading means the carrier has received the goods in order, that is, they are apparently in sound condition.   This is a major plus point,  both for the exporter and the importer.   The carrier is acknowledging the fact that the goods are received in good order, and consequently, he is obliged to deliver them in the same condition and order.

5)  Claused Bill of Lading:  This is the opposite of the clean bill of lading.   This bill of lading contains clauses and notations referring to the defective condition of the goods under shipment.   This is not good for the exporter, as well as the importer. 

In a case like this, the carriers and their agents are not responsible for delivery of the goods in good condition, as they have not received them in such good condition, in the first place.   This is also called a “Dirty Bill of Lading”.

6)  Through Bill of Lading:  It is a bill of lading that is issued to cover the entire voyage by utilizing more than one mode of transport.   Since the goods have to be transhipped, the carriers involved do not give an undertaking to ensure safe delivery of goods.

7)  Straight Bill of Lading:  A  Bill of Lading in which the goods are to be delivered directly to the consignee, bypassing the usual procedure is called the straight bill of lading.   It is risky to deal in such bills of lading.

8)  Charter Party Bill of Lading:  Where a vessel is hired or space within the vessel is hired to effect the shipment of goods by anyone, the bill of lading covering such shipments is called the Charter Party bill of lading.

                                                                                                  To be continued.

Transport Documents:  In trade transactions, whether domestic, or international, movement of goods or merchandise is one of the most important and critical functions.   Especially in international trade involving movement of merchandise from one country to another, with different rules, regulations, customs, etc., it is of prime importance to ensure safety, security and proper despatch and receipt of the goods, from end to end, without any mishap in between.

There are different ways of transporting merchandise like by way of land, water and air.   The major portion of international trade  is effected by water involving ships and other vessels of various descriptions.   And the transport document involved in transporting goods by sea or ocean is called the Bill of Lading.

Bill of Lading:  This document is issued by the shipping company or carrier, that owns the ship through which the merchandise is exported.   Alternatively, it may be issued by the agents of the shipping company.  

The Bill of Lading is an acknowledgement by the shipowners or the carriers, or their authorised agents, of having received the merchandise to be shipped, from one place to another, as specified, and to be delivered to the person named in the Bill of Lading as the consignee.

The shipowners or carriers require of the seller or exporter or the shipper of goods to declare the nature of goods, the quantity, the quality, description, weight, etc., of the goods to be shipped.   They, in turn, acknowledge receipt of such merchandise, and loading the same on to a named vessel.   They further undertake to deliver the merchandise at the specified port of destination, and to the named person, or consignee, subject to certain terms and conditions.   The Bill of Lading is thus, a contract of carriage of goods.

The Bill of Lading is also a document of title to goods, as the merchandise is deliverable to the consignee named in the transport document.   In other words, the consignee has the right to receive the merchandise on the strength of the Bill of Lading.   The Bill of Lading testifies to the entitlement of the consignee to receive the goods shipped therein.

From the above it is seen that a Bill of Lading is a vital document that conveys the passage of the  merchandise from the exporter’s country to the importer’s.   Further, it testifies to the conveyance of the title of goods from the exporter or seller to the importer or buyer.

The Bill of Lading evidences three stages of the transaction, beginning with the loading of the merchandise on the vessel named for the purpose;  secondly, the voyage undertaken by the vessel from the port of loading to the port of delivery, and berthing at any port in between;  an thirdly, delivery of the merchandise at the destination port to the consignee, who is entitled to receive the goods.

The Bill of Lading is a unique document, in that, it combines the qualities of a full fledged transport document with certain qualities of a financial document, like a Bill of Exchange or Draft.   As we have seen,the Bill of Lading entitles the consignee to receive the goods by endorsement and delivery of the document, thereby putting the goods into his possession.   However, a Bill of Lading, being essentially a carriage contract, is subject to laws relating to the carriage of goods, and not to the negotiable instruments like the Draft.   Hence, the Bill of Lading is also called a Quasi Negotiable Instrument.

The Bill of Lading vies with the Bill of Exchange in importance and effect.   While the Bill of Exchange deals with the payment aspect for the merchandise being traded, the Bill of Lading deals with the delivery aspects of such merchandise.

There are different types of Bills of Lading, that will be discussed in future articles.

                                                                                           To be continued.

Documents under Documentary Credits:  There are four types of documents that are dealt with under a Documentary Credit.   They are Financial Documents, Commercial Documents, Transport Documents and Insurance Documents.   Apart from these four, there is another set of documents called the regulatory documents.

 Financial Documents: 

Draft or Bill of Exchange:  This is the most important of the financial documents.   A Draft or a Bill of Exchange may be defined as a financial instrument drawn by one person called the Drawer upon another called the Drawee, demanding payment for the goods or services supplied, in terms of the relative Documentary Credit.

In the specific context of international trade, a Bill of Exchange is drawn by the exporter on the importer making a demand for payment of a specific sum of money for the supply of goods and or services as specified under the relative Documentary Credit.   The Bill of Exchange must also be drawn as required under the Documentary Credit.

The Draft or Bill of Exchange testifies to the fact that there is a commercial transaction underlying this instrument involving the sale and purchase of goods and services.   These goods/services are defined under the Documentary Credit.   There is a specific value of these goods/services.   And they have to be supplied within a specified period.   That makes it incumbent upon the drawee to make payment for the goods/services received under the Documentary Credit, within the specified time.   This specified time for the payment may be immediate, i.e. at sight, which means the drawee has to make good the payment on presentation of the documents, or on demand, or at sight.  

Or the documents may be drawn on usance basis, where the drawee is given time to make payment after a certain number of days, from the date of the Draft.   This method of payment is again divided into two types.   The first being on DP basis,  i.e. documents against payment basis.   Here documents are released to the drawee only upon payment of the Draft.   The second type being DA basis, i.e. documents against acceptance basis.   Here documents are released to the drawee upon acceptance of the Draft by him and to be paid on maturity date, as per the terms of the Documentary Credit.

The Bill of Exchange has legal status, except in certain countries, where it is stated otherwise.   It is an all important documentin a Documentary Credit, that enables the beneficiary of the Credit to demand and receive payment.   It also acts as a receipt for the drawee when acknowledged as such by the drawer.   Hence it is a comprehensive financial instrument that facilitates the international trade transactions by offering the means for compliance of the terms of the Documentary Credit.   It is a medium that brings together the exporter and the importer, and binds them together under a financial pact, that protects the financial interests of both of them.

Looking to the importance of this document, it is imperative that it be drawn properly and worded as per internationally acceptable standards to avoid any misinterpretation, or misunderstanding or even misuse.   It must be specific and unambiguous.

Other Financial Documents:  Among the other financial documents that are noteworty is the Promisory Note.   A Promisory Note is also a financial instrument, in writing, drawn by a person called the Maker, who promises to pay a specific sum of money to the person called the Payee.   The Promisory Note may be payable on demand, called a Demand Promisory Note, or payable after a certain period of time from the date it is drawn, called Usance Promisory Note.   In the context of international trade transaction, the Maker of the Promisory Note is the buyer or the importer, and the Payee of the Promisory Note is the seller or the exporter.

                                                                                           To be concluded