In international shipping, a Bill of Lading (B/L) acts as a receipt and contract between the shipper and the carrier. It contains all the details needed to process the shipment and create accurate invoices. This document is crucial for maintaining transparency and complying with laws of two or more jurisdictions, especially during cross-border trading. But there may be instances where the bill of lading will need to be updated to reflect changes in destination ports and cargo descriptions, or shippers might want to conceal the supplier name from the bill.
To address these scenarios, shippers need a second set of bills. This second bill of lading replaces the original and is referred to the Switch Bill of Lading.
What is a Switch Bill of Lading
A Switch Bill of Lading is a document that substitutes the original B/L issued at the time of shipment. Switch B/L refers to the same shipment as the original, but the information inside the document might change. It has the same function as that of the original B/L, which is to act as:
- A contract for transportation of goods between the shipper and carrier
- A receipt for delivery of goods at the destination
- A document of title of the goods
Purpose of using Switch Bills of Lading
1. Conceal supplier information from the buyer
Triangle trades are very common in international trading. In a triangle trade, importers deal with an intermediary or distributor instead of directly purchasing from the manufacturer. For example, say an automobile parts distributor based in the UK wants to sell parts manufactured in a factory in the United States to an importer in Germany.
In this case, the UK-based distributor doesn't have an office in the US to arrange the shipment to Germany. In such a case, they will issue a Switch Bill of Lading to replace the original. This new bill will replace the details of the actual shipper with those of the UK distributors, leaving the rest of the details unchanged. The factory in the USA will not be revealed to the importer in Germany, preventing the importers from striking a direct deal with the exporters.
2. Reflect the new shipping arrangements in High Sea Sales
In High Sea Sales (HSS), an importer may buy goods in large quantities from an international entity and then sell them to a buyer while the goods are in-transit by sea. For example, Company A in the United States has purchased a container of frozen foods from Company B in Canada. During the transit of the frozen foods container, Company A finds a buyer in the US called Company C. Company A sells this container to Company C and hands over the title and ownership of the goods. Company C is now the consignee of the shipment, and a Switch Bill of Lading is issued to reflect this development.
Also Read: Export Payment Terms - CAD, DP, DA, LC, OA & Advance Payments
Other reasons to issue a Switch Bill of Lading
Apart from the scenarios of triangle trading and high sea sales, a Switch B/L is used in many other areas of international trading. Some more reasons for issuing Switch B/L include -
- The trading company does not want the buyer to know the actual country of origin of the cargo.
- The original B/L may get held up, and the ship may arrive at the destination port before the B/L.
- Port authorities made a request to edit the cargo description.
Who can request a Switch B/L?
The request for a Switch B/L can only be made by the original seller of the goods, trading agent, and buyer. The original agreement or B/L between the seller and trading agent is switched between the trading agent and the buyer. The ocean carrier or freight forwarder must approve the switched bills after carefully processing the differences in the original and Switch Bill of Lading. After the perusal, only carriers or freight forwarders have the authority to sign the bill of lading. Once the Switch B/L is approved, the initial B/L is taken out of circulation so that only one set of documents remains in effect.
Which details CAN be changed in a Switch Bill of Lading?
When issuing a Switch Bill of Lading, only certain details are allowed to be modified from the initial version. These are:
- Identity of the shipper, notification party, or buyer
- Description of the products
- Details of the port of dispatch
- Place and the date of issue
The changes to the description of the shipment can only be made under the jurisdiction of the original seller. Since the Switch Bill of Lading doesn't make any reference to the original B/L, end buyers will not know if the initial bill of lading has been switched out or not. Although the buyer may ask the carrier about it, the shipping lines are not bound to disclose this information. Any conflict or misquoting will result in severe consequences for the trading agent and the carrier.
What details CANNOT be changed in a Switch Bill of Lading?
The following details must remain the same as in the original Bill of Lading.
- Place and date of shipment (particularly important for time-bound cargo)
- Information on hazardous, reefer, and out-of-gauge (OOG) cargo
- Terms of the cargo
- Any clauses in the original B/L
- Payment conditions
- Place of loading
- Date of loading
- Any special instructions like shipping temperature requirements
Procedure to issue Switch Bill of Lading
Step 1: The original exporter of goods, trading agent or the final buyer can fill in the Switch B/L standard application form provided by the carrier. This application has two columns - one for entering information from the original B/L and the other for adding the amended information.
Step 2: The next step is to submit all three copies of the original B/L. This submission can be made via email, online, or in person at the carrier office. Businesses need to check with the carrier office about the timelines for accepting B/L requests as they might differ for every carrier. Most carriers do not accept requests after 3 working days before the ship's arrival at the port of discharge.
Step 3: The parties that requested the Switch Bill of Lading will receive the bill once the carrier has verified and approved the request. The original bill of lading is annulled and removed from circulation.
Step 4: When the approved document is received, the requesting party will make the payment and collect the amended bill from the carrier's office. This entire process takes a few working days.
What are the risks associated with Switch B/Ls?
Switch Bills of Lading carry certain risks, both for owners of the goods and for freight forwarders/carriers who issue them. These risks include:
1. Theft and misdelivery of claims
The carrier might face claims of misdelivery of cargo when there is more than one set of bills circulating for the same cargo. A fraudulent shipper may sell the cargo to two different consignees using the Switch B/L. If the initial set of bills is not canceled, both consignees may present the bill to the carrier, who could end up facing claims for the full cargo value.
2. Misrepresented claims
Carriers and freight forwarders need to be careful when authorizing Switch B/L requests with illegal motives. These could be - Hiding the country of origin to get around sanctions or import dutiesduyt Hiding the identity of a banned manufacturing business Forging the date of shipment
3. Prejudiced insurance cover
Some Protection & Indemnity Insurance (P&I) companies exclude cover for liabilities arising out of Switch B/Ls. Illegality in the Switch bill could also lead to loss of P&I insurance. For instance, if the cargo description provided in the Switch B/L is found to be incorrect, cover for cargo claims, fines or discretionary cover could be lost.
Also Read: Documents Required for Import-Export Customs Clearance
Best practices for handling Switch Bill of Lading
Freight forwarders and carriers need a set of best practices to minimize risk and protect themselves in the event of an illegal Switch B/L. The best practices are as follows -
- Properly verify the information about cargo description, country of origin, and date of loading and confirm the reason for the switch with the requesting party
- Get a signed letter of indemnity from the requestor, stating that they will assume responsibility for any risks associated with bill switching
- Get the ship owner's authorization in writing if the carrier has issued the Switch B/L
- Verify whether the original B/L has been collected and canceled before issuing the new bill
- Keep the shipper, consignee, and trading agent informed about any switching requests
- Ensure that your P&L insurance provider covers risks around Switch B/L
FAQs
1. Can you tell a Switch B/L from an original B/L?
There is no information included on the Switch B/L to indicate that it is not the initial B/L However, the final buyer or consignee can ask the carrier whether the bill of lading has been switched, and the carrier may give this information at their discretion without disclosing any other details.
2. Can you request for a Switch B/L?
The Switch B/L can be requested if you are - Original seller/owner of the goods Trading agent or distributor Final buyer of the goods
3. Is there any time limit for issuing Switch B/Ls?
The carrier has to issue the Switch bill of Lading once all documents are received and before the shipment arrives at the destination port.
4. Where can a bill of lading be switched?
This depends on the carrier's coverage. If the carrier covers all ports, the bill of lading can be switched anywhere, but the carrier/freight forwarder needs to have an office in the country where the Switch B/L is being issued.
5. What can be changed in the Switch B/L?
The shipper, consignee, notify party details, and cargo description are the details that can be modified.
