Legal Definitions - order bill of lading

An order bill of lading is a crucial shipping document that serves multiple purposes in commerce, particularly in international trade. It acts as a receipt for goods, a contract between the shipper and the carrier for their transportation, and most importantly, as a document of title that is negotiable.

What distinguishes an "order" bill of lading from other types is its negotiability. This means that the right to receive the goods it represents can be transferred from one party to another. The bill is typically issued "to the order of" a specific party (often the shipper or a bank). Whoever legally holds this document, through proper endorsement and delivery, has the right to claim the goods from the carrier upon their arrival. This feature makes it an essential tool for financing transactions, allowing goods to be bought, sold, or used as collateral while they are still in transit.

Here are some examples illustrating the use of an order bill of lading:

• International Trade and Financing: A coffee exporter in Colombia ships a large container of specialty beans to a buyer in Canada. The exporter obtains an order bill of lading made out "to the order of [Exporter's Bank]." The exporter then presents this bill of lading, along with other required documents, to their bank to receive payment or a loan against the shipment. The bank, now holding the bill of lading, can then transfer it to the Canadian buyer's bank once the buyer has paid for the coffee. The Canadian buyer's bank then releases the bill of lading to the buyer, who presents it to the shipping company at the port of destination to claim the coffee.

  Explanation: This example demonstrates how the order bill of lading acts as a transferable document of title, allowing the goods to be financed and ownership transferred securely between parties in different countries, even before the goods physically arrive.

• Selling Goods in Transit: A distributor in Miami orders a significant quantity of electronics from a manufacturer in South Korea. While the goods are still on the ocean, the Miami distributor receives an offer from a retail chain in California to purchase a portion of the shipment immediately upon its arrival at a West Coast port. The original order bill of lading was issued "to the order of [Miami Distributor]." The distributor can endorse the bill of lading over to the California retail chain for the relevant portion of the goods. This allows the retail chain to claim their part of the shipment directly from the port, streamlining logistics and avoiding the need for the goods to first be shipped to Miami.

  Explanation: This illustrates how an order bill of lading facilitates the sale and transfer of ownership of goods while they are still being transported, enabling more flexible and efficient supply chain management.

• Collateral for a Loan: A construction company imports specialized heavy machinery from Europe. To finance this expensive purchase, the company secures a loan from a commercial bank. As part of the loan agreement, the bank requires the order bill of lading for the machinery to be issued "to the order of [the Bank]." This arrangement means the bank holds the legal right to the machinery until the loan is fully repaid. If the construction company were to default on the loan, the bank, as the holder of the order bill of lading, would have the right to claim the machinery. Once the loan is completely satisfied, the bank endorses the bill of lading over to the construction company, transferring the right to claim the machinery.

  Explanation: This demonstrates the use of an order bill of lading as a form of collateral, providing security for a lender by giving them control over valuable goods until the borrower fulfills their financial obligations.