TT Talk - Switch bills

The practice known as 'switching' bills of lading refers to the circumstance where a request is made to the issuer/carrier (or the carrier's agent) to issue a second set of bills of lading in substitution for the original documents issued at the time of shipment. This often occurs at a port other than the load port and subsequent to initial loading.

Risks in switching

Whilst there are many reasons to do so, switching bills of lading is usually requested by traders who wish to conceal the identity of the suppliers and the end-users from each other. The reasons are normally quite legitimate, but issuers must be on their guard when dealing with such requests. The main feature of switching is that it is done without the cargo being handed over at the same time; generally it occurs well away from the route the cargo is taking. The immediate issue is whether the party requesting switch bills have the right to do so.

In terms of 'negotiable' bills (ie. those issued 'to order' or 'to order or assign' of either the shipper or the consignee), the shipper in general retains the right to re-direct the shipment before endorsement of the document or delivery of the cargo to the lawful holders of the bill. Therefore, if you have issued a negotiable bill of lading and the shippers request you to amend the name of the consignee and/or the place of delivery, they must return all the original documents to you, free of endorsement, before you agree to make any change.

It is of utmost importance that all the originals of the first bill of lading are collected and cancelled before the replacement set is produced and issued. That is the carrier's only guarantee that the party making the request is truly the owner of the cargo and has rights to its further disposal. The bill of lading issuer must ensure that only one set for the same consignment is in circulation at any one time. Otherwise there is a risk of facing competing claims from two consignees, each holding an apparently valid bill of lading - see lost documents - best practice.

"It is of utmost importance that all the originals of the first bill of lading are collected and cancelled before the replacement set is produced and issued"

The master bill of lading must be addressed to your agent at destination, who must also be kept informed of any changes to the underlying bills. There must also be a link between the company on whose behalf the second bill was issued (the NVOCC) and the shipper or consignee shown in the master bill.

For non-negotiable sea waybills, generally the shipper's right to redirect or to name another consignee remains exercisable before delivery of the shipment to the original consignee. The original waybill need not be returned. Moreover, the shipper cannot just 'endorse' the document to the alternative consignee. The shipper must notify the carriers confirming the information in writing. Without such notice of change, the carrier is entitled to deliver the cargo to the consignee named on the waybill.

Change control

Take great care with amendments. Invariably, switching bills of lading involves issuing a second document with information that differs from the first. Although the process could be regarded as a bilateral alteration of the terms and conditions of the contract of carriage, various difficulties may arise depending on the type of information changed.

As with the delivery of the cargo without production of the original bill of lading, there are clear steps necessary for obtaining an appropriate indemnity before providing switch bills of lading.

Regardless, certain information should not be changed under any circumstances. The date and place of shipment as stated in the original bill of lading must remain unchanged, even where it works to the detriment of an endorsee who has relied on it in a sales contract. Equally, the number of packages or the weight shown in the original bill of lading must not be changed. If the original bill of lading is claused, the switch bill must be identically worded. Finally, any special instructions of the shippers such as temperature requirements should not be changed or omitted.

Other information may be changed provided the new information is complete and accurate. This includes: the names of the shipper, consignee or notify party; the shipper's description of the goods; the name of the ship (if necessary); the place and date of issue (if not the same as those of shipment); the freight and the port of discharge. You should obtain written confirmation from your client, setting out in detail his requirements for the new bill of lading. If significant changes are requested to the cargo details, you should consider getting both evidence to support the changes and an indemnity from the client to protect you in the event of a dispute with the consignee.

"Obtain written confirmation from your client, setting out in detail his requirements for the new bill of lading"

Difficulties may arise if the switch bill is issued in a jurisdiction different from the original; most obviously this might lead to the application of a different international law regime, but also interpretation of the applicable law. The practice of issuing switch bills of lading can be problematic for the issuer, particularly NVOCCs. Where it goes wrong, there is potential full liability exposure, without the application of contractual limits.

We hope that you will have found the above interesting. If you would like further information, or have any comments, please email us, or take this opportunity to forward to any colleagues who you may feel would be interested...

We look forward to hearing from you.

Peregrine Storrs-Fox
Risk Management Director, TT Club

Staff Author

TT Club