What is a Switch Bill of Lading?
A switch bill of lading is often used when a “triangle trade” takes place. In other words, it will be employed in the event that an importer is purchasing products from a middleman or a distributor as opposed to the manufacturer itself. This is also quite common when the previously mentioned middleman is located within a different country of origin. So, a switch bill of lading will be issued in replacement of the original document. However, it still accurately represents what is contained within the shipment itself.
What are Some Examples of When a Switch Bill of Lading is Needed?
From a very general point of view, this certification will be necessary during instances when the initial trading stipulations or the outbound logistics have been modified. Here are three situations which could warrant the issuance of a switch bill of lading:
- The location of the original port of discharge has changed.
- The initial country of origin needs to remain hidden from the buyer.
- The identity of the exporter remains obscure so that the seller can remain acting as the middleman (as opposed to the buyer contacting the manufacturer directly).
As mentioned previously, it is important that the contents found within the switch bill of lading match those associated with the original document. Assuming that multiple transactions are taking place during a triangle trade (an exchange between the factor, the trader and the importer), a switch bill of lading needs to be created for every subsequent shipment.
Where Can This Switch Occur?
This is a rather broad question and the answer will depend upon the shipping route. Let us assume for a moment that a product is being sent from Moscow to New York City via Berlin and London. In this case, it is possible to write up a switch bill of lading at any one of the stops contained within this route. However, the shipping line itself must have legal offices within the proposed city.
Are There Any Legal Concerns with a Switch Bill of Lading?
This is an understandably important question. There can be times when switch bills of lading are issued in order to mask the origins or a product or the identity of a prohibited manufacturer. However, the legality of these documents is generally determined by discovering whether or not there was a proven intent to commit fraud. This type of misrepresentation could also include the ultimate buyer being unaware of the initial switch or in the event that the list of shipped contents was modified without the express knowledge of all parties involved. Having said this, a forgery is said to have occurred when:
- A representation has been falsely made, or
- It was made without knowing whether the document was valid, or
- The issuer knowingly falsified the switch bill of lading itself.
To put this another way, most interpret these situations as occurring when there was a known issue as opposed to simple careless bookkeeping. It is nonetheless a fact that even accidental discrepancies can cause grave legal consequences if they are allowed to remain in place.
How Can Shipping Agents Protect Themselves?
Considering the concerns outlined in the last section, it is only logical to assume that shippers wish to protect themselves (and their insurers) against instances of potential fraud. There are several steps which can be taken. First and foremost, they will need to be legally covered by their insurance provider for any issuance of a switch bill of lading. Other actions can include:
- Describing the exact reason why the switch bill of lading is needed.
- Only creating the switch bill after the initial bill of lading has been obtained and verified.
- Comparing the information contained within both documents before accepting the switch bill.
If any misrepresentations or inconsistencies are found, the agent or seller could be affected by any claims filed by the buyer (assuming that losses or damages had resulted from such a situation).
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Frequently Asked Questions
Will the Buyer be Informed of a Switch Bill of Lading?
What Types of Details Can be Changed Within a Switch Bill of Lading?
There are two general sections which can be modified:
- The identity of the shipper, notification party or consignee.
- The general description of the cargo (for instance, “books” as opposed to “financial books”).
Notwithstanding the two situations mentioned above, all other details between the two documents must match. This includes the port of discharge (POD), the port of loading (POD) and the number of items as well as their aggregate shipping weight.
Who is Legally Allowed to Request a Switch Bill of Lading?
This type of certification can only be requested by the principal or the owner of the cargo. This arises from the fact that the bill is essentially a representation of ownership. So, only entities which possess the original set of documents will be entitled to request a modification
Who is Allowed to Approve Switch Lading Bills?
Anyone carrying or forwarding freight to a specific location has to option to approve a switch bill of lading. Still, it should be mentioned that all possible differences need to be closely examined before approval. Assuming that there are no issues, the new bill can then be approved. It is also important to mention that the previous document needs to be taken out of circulation in order for the new one to take effect.
What are the Time Frames to Take Into Account for Switch BOLs?
As shipping often represents a complicated and carefully timed logistical process, it is a good idea to look at time limits. In most cases, it is best to issue the new lading bill before the cargo itself arrives at the port destination. However, many companies will not accept such a modification if it is submitted fewer than 72 hours prior to the anticipated arrival. There are also instances when specific shippers will require advanced notice (such as more than five or seven working days). This is why it is always a good idea to check with the shipping line in question in order to ensure that any specific stipulations are met.
When Can the New Switch Bill of Lading be Released?
There are other concerns when referring to the release of the new switch bill of lading. In most cases, the new document cannot be released until the terms and conditions associated with the first transaction (between the initial seller and buyer) have been legally satisfied. Assuming that the payment has been made in full, the products can then be released to the second buyer (or consignee). During this interim, it is also important that the original bill of lading is presented by the secondary buyer. There may be delays if the previous conditions have not been met. This is why it is sometimes recommended to employ what is known as an express switch lading bill.
Can More Than One Switch Bill of Lading Be Issued for the Same Cargo Shipment?
This is another rather “grey” area and it therefore deserves attention. The owner (sometimes referred to as the “master”) does not have the legal authority to issue an additional switch bill of lading until the first document has been cancelled. However, there may be certain times when a clause supposedly permitting a switch is mentioned within a contract. This is always a dubious situation; particularly if the document in question was not created by the original owner of the goods. His or her consent will always be required. Furthermore, any party possessing an unauthorised switch bill of lading (or for that matter, a standard bill of lading) does not have the legal right to possess the contents mentioned within the description.
How can I Safeguard Against Fraudulent and/or Misrepresented Switched Bills of Lading?
While there is no doubt that switch bills of lading are often quite useful in the event that a shipment is changing hands between more than two parties, it is also a well-known fact that acts of fraud can and will occur from time to time. There are a number of ways to mitigate the risks involved. Three suggestions are:
- To thoroughly establish the reliability of the entity issuing the second set of documents.
- To physically confirm authorisation in writing.
- To request a letter of indemnity that has been signed and notarised (if necessary) by the issuing entity.
There can also be instances when such a document can be countersigned by a building society or a bank. This could be particularly useful if the principal is not a well-known supplier.
Can a Carrier be Forced to Issue a Switched Bill of Lading?
This question revolves around the discrete contractual clauses between two parties. Still, it is generally unrealistic to ask a supplier to create a new switch bill of lading. The only time when this would not be the case is if a specific clause within the contract stipulated that such a request must be granted. If these provisions are not made clear from the beginning, it is wise to ask for further clarification.
Summary: Putting it All Together
A switched bill of lading is an important part of any trade agreement and it can also represent a pivotal facet within the supply chain finance of any organisation. This is why it is critical to appreciate the role that such a document plays. Although these certifications have fallen under a certain amount of scrutiny (notably from shipping insurers), the fact of the matter is that they can often expedite the transfer of goods between multiple third parties. Please feel free to use this article as a guide in the event that any issues arise. It is also prudent to contact the appropriate governmental agency if answers to more in-depth questions are necessary.