TFPD_01: On board bills of lading for multimodal transports
Trade Finance Paradigm #1: On board bills of lading for multimodal transports
And so I start off with the first Trade Finance Paradigm: On board bills of lading for multimodal transports
When the UCP 600 was drafted not many changes was made to the transport documents. One change was however made: The order of the transport documents was reshuffled so that the “Transport Document Covering at Least Two Different Modes of Transport” (i.e. the multimodal transport document) was now the first in line. The first transport article you meet when reading the UCP 600 from the beginning is the “Transport Document Covering at Least Two Different Modes of Transport.” The logic behind this is:
“Because transport by more than one mode of transport is the more common form in which goods are transported from seller to buyer, the Drafting Group placed this article as the first of the transport document articles.”
In any case – this is the explanation offered by the “Commentary on UCP 600” (page 81) written by the UCP 600 Drafting Group.
In fact the argumentation is totally right! As such; all “sea” transports are multimodal. The goods are not produced at the port – and the goods are not sold from the port! But – how many multimodal transport documents do you see required under LCs? I see only a very small percentage. For the clear majority of sea shipments – the LCs still call for a bill of lading!
But – what is the problem with that?
The bill of lading usually goes hand in hand with a trade terms where delivery is made when the goods are on board the ocean vessel (e.g. Incoterms FOB or CFR). However in most cases the goods are delivered to the carrier at a terminal – and the period of time from the seller has delivered the goods to the carrier to it is on board the vessel may be quite long. During this period “delivery” (as per the trade term) may not have been made. Consider a FOB shipment – where the buyer arranges the transport … and the goods are delivered by the seller to the carrier appointed by the buyer. Here it makes no sense that the seller is responsible for the goods while at the warehouse of the carrier – appointed by the buyer.
Then there is the contract of carriage. I have had many discussions with shipping lines, and they do not understand the banks focus on “on-board.” The shipper and the shipping line / carrier will enter into a contract of carriage – where the shipping line / carrier will be responsible to move the goods in question from “point A” to “point B.” Is the transport more “insecure” because the agreed transport start at a place (e.g. a terminal)? Is the shipping line / carrier less obligated when they issue a transport document that is not “on-board?” I guess not!
In many cases the contract of carriage describes multimodal transports rather than port-to-port shipments.
Another issue – coming back to the LC – is that although the “Transport Document Covering at Least Two Different Modes of Transport” has a priority place in the UCP 600 – it seems that it is not well thought through!
The order of the transport document articles in the UCP 600 is as follows:
Article 19 – Transport Document Covering at Least Two Different Modes of Transport
Article 20 – Bill of Lading
Article 21 – Non-Negotiable Sea Waybill
Article 22 – Charter Party Bill of Lading
Article 23 – Air Transport Document
Article 24 – Road, Rail or Inland Waterway Transport Documents
Article 25 – Courier Receipt, Post Receipt or Certificate of Posting
As mentioned the “Transport Document Covering at Least Two Different Modes of Transport” is first in line. Fair enough. The next two are the “Bill of lading” and the “Non-Negotiable Sea Waybill.” Comparing these two articles you will find basically only one difference: The name of the document. Both are so-called “port-to-port” transport documents. This means that when you need a “port-to-port” transport document in an LC, then you can choose between a non-negotiable sea waybill and (logically) a “negotiable” bill of lading. However when you need a multimodal transport document you do not have such choice? Of course it makes a difference if the transport document is “negotiable” or “non-negotiable.” But no such distinction exists for the multimodal transport document – in the UCP 600.
Going one step deeper; the ISBP will tell you that: “…the transport document must not indicate that shipment or dispatch has been effected by only one mode of transport, but it may be silent regarding the modes of transport utilized.” (ISBP 2007 paragraph 68).
This is against the very practice of the multimodal transport document. The UNCTAD/ICC Rules for Multimodal Transport Documents as well as in the FIATA standard conditions used for the FIATA Multimodal Transport Bill of Lading indicates: "... these conditions shall also apply if only one mode of transport is used" (Article 1.1).
Read more about the multimodal transport document in my article “MMTD under the magnifying glass” DCInsight Vol. 12 No.1 January-March 2006 or in my book “From Beginning to Beginning” page 102.
Similar looking at the list of UCP 600 transport documents it is obviously NOT possible to require a multimodal non-negotiable sea waybill! And in fact the sea waybill perhaps ought to be document number 1 or 2 in the list! There are many advantages in using sea waybills – but under LCs they are never used! In fact IF one were to consider clean electronic presentations under an LC the non-negotiable sea-waybill would be ideal! Except of course for UCP 600 article 21(a)(iv) which reads:
“be the sole original non-negotiable sea waybill or, if issued in more than one original, be the full set as indicated on the non-negotiable sea waybill.”
This provision makes no sense, as the “original” has no value. A PDF will do! I.e. ideal for an electronic presentation!
Read more about the non-negotiable sea waybill in my article “The Invisible Article – Thoughts on UCP Article 24” – LC Monitor March/April 2006 Volume 8, Issue 2 or in my book “From Beginning to Beginning” page 119.
In other words; the current practice regarding the use of transport documents within LCs is far from optimal.
One problem is that the “bill of lading” (as per UCP 600 article 20) is used as a “catch all” transport document article. In far the most cases it is a wrong choice! The wrong usage of the bill of lading creates problems for the commercial contract – and for the LC.
BUT above all – the consistent use of the traditional negotiable bill of lading is a main obstacle for making the whole of the LC process more electronic!
This paradigm is a showstopper for the development of the LC as an instrument!
So here are some thoughts to consider:
The commercial parties:
When trade terms are Select^ed – consider it carefully – and do NOT choose a trade term because you “use to!” Often when the transport is containerised Incoterms FCA or CPT is far more appropriate than FOB and CFR!
Choose the transport document carefully. If the trade term is FCA or CPT – it will not be appropriate to require a bill of lading in the LC! Often a multimodal transport documents will work much better!
Consider carefully if you really need a negotiable bill of lading (i.e. is there a need to sell the goods while in transit), or will a sea-waybill do the job?
Help and educate your customers – and challenge them regarding their chooses of trade terms and transport documents.
Suggest to the customers that they ONLY use bill of lading when absolutely needed. Introduce the multimodal transport document and the non-negotiable sea waybill! They are not “strangers” they have their own place in the UCP 600!
Work towards creating products within the LC process which that are more electronic – and more “Straight Through!” E.g. based on non-negotiable sea waybills – and standard LC wordings.
When (and yes – that may be after a long time) the UCP 600 is revised then it would be optimal to replace the multimodal transport documents, bill of lading and non-negotiable sea waybill with the following two:
Bill of lading
Which must indicate shipment from and to ports and/or places depending on the usage of SWIFT field 44. I.e. a “negotiable” transport document indicating a “port-to-port” or “Multimodal” transport depending of the requirements in the LC.
Which must indicate shipment from and to ports and/or places depending on the usage of SWIFT field 44. I.e. a “non-negotiable” transport document indicating a “port-to-port” or “Multimodal” transport depending of the requirements in the LC.
Look out for the next paradigm "ICC can only make money by high priced publications and hard protected copyrights" .... coming soon ....
Take care of each other – and the LC!
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