In international trade letters of credit (L/C) as payment/financing instrument facilitate the business transaction if the seller and the buyer do not yet have a trust relationship robust enough to bridge the economic and legal distances between countries. When the goods are shipped using at least two different transportation modes, the L/C will call for a standardized document, the “multimodal transport bill of lading,” to acknowledge the receipt of cargo. Paper bills of lading are the medium of choice today, causing all involved parties difficulties, costs, and inefficiencies. So how can the trade industry benefit from digitalisation?
The obvious answer is to deploy a software solution, which enables all parties to access the bill as an electronic document. An electronic bill of lading (or e B/L) is the legal and functional equivalent of a paper bill of lading. The electronic bill of lading must digitize the core functions of a paper bill of lading, namely its legal acceptance as a receipt, as evidence of or containing the contract of carriage and as a document of title. For an industry-wide adoption, which is needed to pave the way for parties in all countries to use such a system, industry accepted best practices need to be understood, which is what this article is all about.
With a letter of credit, the bank of the buyer states that it will pay the amount due to the seller on presentation of a set of specified documents, the “multimodal transport bill of lading” (alternatively the term “combined transport bills of lading” is used). For the consignor (shipper) to receive the money under the L/C, strict adherence to the terms of the letter of credit is necessary. Otherwise, the bank that issued the letter of credit might refuse the payment due to discrepancies. Thus, in the follow section is a list of the six main functionalities, to understand what an electronic version of the multimodal transport bill of lading needs to replicate – namely the identification, signature, correct address, port/airport, content and trade terms and presentation of documents.
General remarks regarding the multimodal transport bill of lading
The multimodal transport bill of lading is either a requirement in the L/C or its use is derived from other terms of the letter of credit. It is possible that the L/C calls for an air waybill or ocean bill of lading, but at the same time, the fields for the airport/port specify a place that is not an airport/port. Or it might be that the port/airport is defined correctly, but also L/C field 44A (place of taking over the goods) and 44B (place of destination of goods) are used and contain locations other than an airport/port. In all these cases, the rules for a multimodal transport bill of lading apply.
What can you do to make sure your multimodal transport bill of lading fulfills all of your L/C bank’s requirements?
The multimodal transport bill of lading has to be identifiable as such.
Clearly identifiable means that there has to be a title of the document reading “Multimodal Transport Bill of Lading,” “Multimodal Transport Document,” “Combined Transport Bill of Lading” or “Through Bill of Lading” – all acceptable terms for the same concept. In any case, it has to be obvious that the document covers at least two different modes of transport – regardless of how the document is titled. In the event of sea shipping, the document must not contain any reference to a charter-party.
The carrier has to be identified on the multimodal transport bill of lading.
The carrier has to be identified on the multimodal transport bill of lading by his official name. The document needs to be signed – on all originals – by one of the following parties:
- the carrier
- an agent of the carrier that is identified as such
- the captain (master) of a ship
- an agent of the captain (master) of a ship that is identified as such
The Multimodal Transport Operator (MTO) may however not sign the document in its function as the organizer of the multimodal transport. The MTO may, however, sign the document in its function as the carrier, master or its respective agent.
Day and place of the issue of the multimodal transport bill of lading have to be noted.
A multimodal transport bill of lading has to be dated and contain the place of issuance. If these details are not in the document, it will be treated as a discrepancy by the L/C bank.
Any subsequent change to the multimodal transport bill of lading has to be authenticated.
Subsequent changes to the documents – including handwritten changes – have to be authenticated by the same party that originally signed the entire document.
The number of originals issued has to be stated in the multimodal transport bill of lading.
The multimodal transport bill of lading can be issued in any number of originals. The number of existing originals has to be stated on each original so that it is evident how many originals constitute the full set.
The multimodal transport bill of lading has to be issued as stated in the L/C.
The multimodal transport bill of lading has to be issued as stated in the L/C, meaning:
- “to order” respectively “to order of the shipper” and blank endorsed
- “to order of” a receiver that is stated by name in the L/C
- to a receiver that is stated by name in the L/C.
The Notify-Address has to conform to the address of the applicant of the L/C (the buyer) according to the L/C.
The Notify-Address (and other contact numbers, if applicable) have to conform to the data about the L/C applicant as stated in the L/C. If none are reported, this field can be left empty.
Is the multimodal transport bill of lading endorsed correctly (if applicable)?
The document needs to be endorsed if it is issued “to order” or “to order of…”
The multimodal transport bill of lading has to state the loading on board of an explicitly named vessel (ship)
In case that the document only names an “intended vessel,” an additional remark that names the actual vessel transporting the goods is necessary.
The port of loading/airport of departure and the port of discharge/airport of destination have to comply with the conditions stated in the Letter of Credit.
The port of loading/airport of departure and the port of discharge/airport of destination have to be the ones stated in the Letter of Credit. If the goods have been taken over at another location than the port of loading/airport of departure stated in the Letter of Credit, then the actual port of loading/airport of departure have to be stated in an additional remark. If the multimodal transport bill of lading only states an “intended port of discharge” or “intended airport of destination,” then the actual port of discharge/airport of destination have to be stated in an additional remark to the multimodal transport bill of lading.
Given the case that the terms of the Letter of Credit only state a geographical region as the port of loading/airport of departure or the port of discharge/airport of destination (e.g. “ANY PORT IN EUROPE”). Then the actual port of loading/airport of departure or the port of discharge/airport of destination still has to be stated explicitly in the multimodal transport bill of lading.
If the Letter of Credit states a country for the port of loading/airport of departure or the port of discharge/airport of destination, it is not mandatory to also state the country in the multimodal transport bill of lading.
Example: In the Letter of Credit the port of discharge is stated as “Qingdao, China.” It would be acceptable to write only “Qingdao” in the field for the port of discharge in the multimodal transport bill of lading. This would not be considered a discrepancy by the banks.
Place of Taking in Charge of the goods and Place of Final Destination have to comply with the terms of the Letter of Credit.
Place of Taking in Charge of the goods and Place of Final Destination in the multimodal transport bill of lading have to be consistent with the places stated in field 44A and 44B of the Letter of Credit. In the case that the Letter of Credit only states a geographical region (e.g. “ANY PLACE IN GERMANY”), then any place that is located in Germany can be stated in the multimodal transport bill of lading.
Content and trade terms
Description of goods, markings, weights and number of pieces, measures and kind of units, etc. may not contradict any other L/C documents.
Especially the specification of the description of goods, the number of pieces, the number of goods, weights, etc. will often also be printed on the commercial invoice and other documents like the packing list, weight list). It is important that these numbers do not contradict each other, but for a consistent picture. So if the weight is stated to be “1,520.00 kg” in the multimodal transport bill of lading, the respective number stated in the weight list or commercial invoice may not differ from this amount.
The freight payment remark has to comply with the conditions of the Letter of Credit.
The statement “freight prepaid” or “freight collect” / “freight payable at destination” has to be consistent with the terms of the Letter of Credit. The costs – if stated – should also be in conformity with the freight costs stated on the commercial invoice.
Because of the nature of multimodal transport, transshipments are necessary when transporting goods with more than one modes of transport.
The field 43T of the Letter of Credit should thus state, that transshipments are allowed.
If the Letter of Credit does not permit partial shipments, there may only be presented one multimodal transport bill of lading.
Only if an entire load of goods is carried with the same mode of transport on the same route with the same destination, multiple multimodal transport bills of lading may be issued. However, transport on different modes of transportation or different dates would not be acceptable.
The multimodal transport bill of lading may not state any defects of the goods or packaging.
The multimodal transport bill of lading may not state any defects of the goods or packaging. However, it does not explicitly have to contain the word “clean.” Neither would it be a discrepancy if the word “clean” first appears on the multimodal transport bill of lading, but is then struck out.
If the multimodal transport bill of lading points out reservations, that the goods or the packaging may not be suitable for the carriage, this would not be considered a discrepancy. For instance, any reservations that the goods or the packaging are not suitable for transport, this would be a discrepancy.
Connection to the delivery contract or letter of credit
If the number of the Letter of Credit or number of the delivery contract are to be included in all documents as per the terms of the Letter of Credit, then these numbers also have to be stated on the multimodal transport bill of lading.
Presentation of documents
The full set or the number of originals and copies stated in the Letter of Credit has to be presented.
The number of originals issued, which together for the full set, is stated in the multimodal transport bill of lading itself. If one single original is presented to claim the goods, all remaining originals become void. Because the remaining originals become worthless, the buyer usually demands the exporter to submit the full set under the letter of credit. This way, the exporter has no original documents to reclaim the goods.
If the multimodal transport bill of lading contains a remark that the transport of a container unit is covered by more than one multimodal transport bill of lading, then all originals of all transport documents have to be presented.
The date of loading or taking over the goods is considered to be the date of issue of the multimodal transport bill of lading.
If the document contains a separate “on board” remark or taking over the remark, then this date will be considered the date of loading / taking over the goods. In any case, the date of loading or taking over the goods may not be later than the latest delivery date according to the Letter of Credit. The complete set of L/C documents have to be presented to the bank within 21 days after the date of loading/taking over the goods and in any case before the expiry date of the Letter of Credit. The L/C may, however, extend or shorten that 21 day period.
Based on this understanding, the disconnect in the speed at which global trade moves vs. that at which trade documents move needs to be considered – and the inefficiencies caused because of it. Therefore a digital solution to replicate and automate the processes based on 21st-century technology is much needed. The cloud-based platform shall address, but is not limited to these major pain points:
- The solution needs to allow all parties to draft internationally accepted electronic documents, such as electronic bills of lading (or eB/Ls), warehouse warrants, certificates of origin, invoices and other supporting documentation, which reflect the industry-wide standard and norms.
- The solution shall facilitate the exchange of original electronic documentation. Thus parties need to have access to a cloud-based platform compliant with the highest levels of data protection to store and share legal documents such as the eB/Ls.
- Neutrality – Due to the heterogeneity of involved players, e.g. banks, manufacturers, freight forwarders, terminal operators, customs, etc. the service provider needs to ensure a high degree of neutrality to avoid any conflicts of interest amongst the involved parties (companies, countries).
- Presenting and transferring the documents electronically requires e-signatures. Under the ESIGN Acts, which is recognizing e-signatures and has been enacted in all of the top 25 trading nations by today, the solution shall integrate the e-signature functionality, for example, offered by e.g. Kofax SoftPro, DocuSign, Adobe EchoSign.
- Banks need to adopt the eUCP supplement, meaning they need to sign up to the platform and allow for original e-docs to be presented to them instead of paper. To avoid complex technical and procedural integration, the platform shall mimic the current workflow between traders and banks. For interbank payment transaction, an interface to the SWIFT network is required. The integration of multi-bank platforms e.g. eLCY and Global Trade Corp would increase industry-wide acceptance.
One of the solutions is – CargoDocs – a software platform that is trusted by over 4,500 companies today. The company delivers significant value to the entire supply chain by enabling importers, exporters, traders, ship operators and banks to streamline processes, reduce working capital needs and risk, while considerably improving collaboration, compliance, and visibility across trade organizations.
Workflow CargoDocs Platform, Source: www.essdocs.com
Asked in an interview for the market adoption of CargoDocs, the Co-Founder Alexander Goulandris replies: “In 2005 when starting our user base, we began with the big commodity flows like energy and agriculture where you often end up with quite long sales chains. We decided that the easiest way to break into and build out those markets, for example, Cargill and Bunge in the agriculture space, BP and Shell in energy and BHP Billiton and Vale in metals and minerals.” On the questions of security, Goulandris answers: ” My experience is that plenty of people can create a fake paper bill of lading; with a good photocopier or printer, they could probably do it in 30 minutes. It takes someone far more sophisticated to create an electronic fake – so, when it comes to comparing the two, paper is far less secure.”
In a client case study, CargoDocs estimates close to a quarter of a million dollars savings per year using the platform for the refinery industry:
1. Improved Jetty Utilisation $100,000 per year. This impact creates additional time for maintenance, reduces knock-on costs when jetty utilization is high such as demurrage costs, and enables loading of more vessels per jetty over a month.
2. Paper Savings $70,000 per year. This impact results from removing the need for redundant high-capacity printers, reduced printer cartridge, and paper costs, courier costs, hard documentation storage costs and error-related costs; plus all the benefits associated with auto-distribution and auto-filing of eDocs
3. Reduced Inter-Terminal Moves $65,000 per year This impact results from removing the need to attend the vessel post completion of loading to provide documents to the Master. In addition to time savings and the cost associated with revisiting loaded vessels, there is a significant health & safety benefit due to reduced vessel visits
4. Amendment Savings $10,000 per year This impact results from removing the need to appoint agents, reduced time spent chasing original paper documents, reduced time spent re-cutting documents and courier costs associated with approximately 5% of shipments which require amendments at the refinery.
Summing up, the electronic bill of lading is being used today and offers trading partners significations advantages along the supply chain. Paperless trade is however only possible if the main functions of paper documents (identification, signature, correct address, port/airport, trade terms and presentation of documents) are replicated in an online software solution that is safe, secure, neutral and mimics globally accepted standards. Then savings in assets utilization, resources and processes can be lifted for the benefit of all involved parties.
The article is founded on the work of Arnas Braeutigam and a serious of interviews with him. Arnas has always been drawn abroad and started his banking career in the international division of Landesbank Berlin. For seven years, he structured export finance transactions and improved IT tools for the international sales team.
On his website trafima.de, Arnas is offering a comprehensive knowledge base on letters of credit for exporters. Meanwhile, Arnas has moved on to financing startups for Berliner Sparkasse.