In a world of increasingly globalized economic fragmentation, shipping forwarders find themselves dealing with more trading companies and their foreign-to-foreign transactions than old-fashioned factory-to-importer freight.
The success of such contracts often depends on the ability of the trade agent to conceal factory contact details from the end buyer by issuing a conversion bill of lading.
What is a forwarding bill of lading?
A converted bill of lading is a second set of bills of lading issued by the carrier (or its agent) to replace the original bill of lading issued at the time of shipment.
Although it technically handles the same cargo, the information on the converted bill of lading is intentionally redacted for a variety of reasons and is not meant to be the same as the original bill of lading it replaces.
Reasons for Issuing a Conversion Bill of Lading
Conversion bills of lading are only issued upon surrender of the original and may be requested by any of the three parties directly involved in the purchase/sale of the goods: the owner/seller (or authorised representative), the trade agent and the ultimate buyer.
Reasons for needing to convert bills of lading include:
- The seller (probably a trade agent) wants to hide the name of the actual exporter from the consignee to prevent the consignee from entering into a deal directly with the exporter.
- The seller does not want the buyer to know the actual country of origin of the goods.
- The original bill of lading may be detained in the country of shipment, or the vessel may arrive at the port of discharge before the original bill of lading.
- The trade agent prefers to receive payment from the final payee before paying the shipper, thus easing his cash flow.
- The cargo may be resold en route as a high seas sale and the port of discharge must now be changed to another port.
- The destination customs or consignee requests to edit the cargo description. E.g. "tool" instead of "garden tool".
- The goods were originally shipped in small packages on separate bills of lading and the buyer wanted to have only one bill of lading covering all packages to facilitate his sale. The reverse is also true - a single
- bill of lading is issued for bulk cargo, which the buyer prefers to split into multiple bills of lading covering smaller packages.
Tips on how to handle converting bills of lading
1. The freight forwarder shall verify the reliability of the consignor authorized to issue the second set. Obtain their written authorization and a signed bond (countersigned by the bank if the agent deems it necessary) indemnifying the freight forwarder for all consequences of issuing a second set of bills of lading.
2. Freight forwarders should also consider whether they also need to obtain written authorization from other parties who may be affected by their actions, such as shipowners or shippers or banks. If the carrier authorizes the freight forwarder to issue an exchange bill of lading on behalf of the carrier, the written authorization of the shipowner must be obtained. Otherwise, the shipowner will make a valid claim to the agent for the loss caused by the unauthorized issuance of the second set.
3. If the principal requires the agent to issue a conversion order based on the client's indemnity, the agent shall obtain proper wording from the principal before issuing and obtain the complete indemnity approved by the principal.
4. It is also advisable to ensure that the freight forwarder is insured with the insurance for which the transfer order is issued. They should provide their insurance company with the exact reason for issuing the converted bill of lading.
