What Is a Switch Bill of Lading? - VietForward.Com (VFC) | Vietnam Freight Forwarding & Logistics Community

JacobPang · #1 15-10-2011, 09:55 AM

A switch bill of lading is a type of shipping document that is sometimes issued by the carrier who will actually manage the shipment of goods from the seller to the buyer. The documents are known as switch or switching bills of lading because the are used in place of the originating bill of lading supplied by the seller at the time the shipment was picked up from the point of origin. While not utilized in every situation involving the transport of goods, the carrier may determine that there is something about the original bill of lading that is not quite within required parameters, and create this second set to bring the paperwork into compliance.

One of the more common reasons why a switch bill of lading may be necessary is when the originals are found to contain information that is not longer relevant to the shipment. For example, when the shipping process involves a change in the port that will ultimately receive the shipment is changed en route, the carrier may prepare an amended bill of lading that reflects the new port. The creation of a switch bill of lading may also have to do with the need to keep the name of the original shipper unknown for some reason. While the carrier or the carrier agent will be aware of the original shipper, the switch bill of lading will list another agency as the shipper, effectively protecting the originator’s identity.

In some situations, the switch bill of lading may be prepared as a way of arranging the billing to comply with the needs of the buyer. This would mean that if the shipper originally sent several bills of lading to cover multiple units shipped, the carrier or the carrier agent may simplify the process by using the switch bill of lading to list all those units on one central bill, listing them in sections or classes in the bill detail. This approach makes it easy for the recipient to quickly go over the detail on the single bill, sign for the shipment and proceed to take possession of all the units, without the need to deal with a series of multiple bills.

There are some precautions to be observed when using a switch bill of lading approach. The originator of the shipment must be aware of the preparation of the switch bill and provide consent. In addition, the original bills of lading must be surrendered, so they are no longer in circulation. Finally, it is imperative that the structure and terms found in the switch bill of lading are in full compliance with both the shipping regulations port from which the goods were shipped, any ports involved in the transfer of the goods, and the port of destination.

lethanhtung · #2 14-10-2012, 11:53 AM

What is a Switch Bill of Lading and when and why is it used..??

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In the normal course of business you might have come across the term Switch Bill of Lading.. A “Switch” bill of lading is the second set of bill of lading that may be issued by the carrier (or agent) in exchange for the first set of bill of lading originally issued when the shipment was effected..

Why does one ask for or require a Switch bill of lading..?? Switch bills are requested generally when there has been a change in the original trading conditions.. Some of the reasons could be :

Goods could have been resold and the discharge port has now been changed to another port and this could have occurred as a high-seas sale..
The seller (who could be an intending agent) does not wish the name of the actual exporter to be known to the consignee in case the consignee strikes a deal with the exporter directly..
The seller does not want to know the buyer to know the actual country of origin of the cargo so he requests that the port of loading be shown as some port other than the one the cargo was loaded from..
The goods were shipped originally in small parcels, and the buyer requires one bill of lading covering all of the parcels..

The practice of issuance of switch bills of lading is considered by many, including TT Clubs and insurance companies, to be dubious or fraudulent depending upon the reasons why the switch bill of lading is required to be issued..
In order to protect themselves from any possible claims arising out of issuing switch bills of lading, the shipping line/agent have to ensure that

They are covered by their insurance for issuance of such switch bills of lading
They should provide their insurance company with the exact reason for the issuance of the switch bill of lading..
They must have the written authority of the principal before issuing the switch bill of lading, if the issuing party is acting as agents for a shipping line or principal..
They must issue the switched bill only after collecting the first set of bills, as the dangers of two sets of original bills in circulation for the same cargo are many..
The switched set should not contain any information different to that of the original bill of lading, (like incorrect port of loading, or change in the condition and quantity of the cargo).. If switch bills contains misrepresentations, the carrier/agent will be at risk of claims from parties who have suffered a loss because of such misrepresentations..
If the agent has been asked by the principal to issue the switch bill of lading based on an indemnity from the customer, the agent should ensure to get the wording format from the principal and get the completed indemnity approved by the principal before issuing the switch bill of lading..

It seems to be the concerted view of almost all insurance companies covering exports, that a switch bill of lading issued with any misrepresentation or information contrary to the first set issued, without the express acceptance and understanding of the buyer is a fraudulent document..
What do you think..?? Have you had any experiences of issuing/requesting for switch bill of lading..??

lethanhtung · #3 14-10-2012, 12:10 PM

Switch Bill of Lading is ussually used in "Cross Trade" or "Triangle" shipments.

Cross trade involved more than just the seller & buyer and since there are 3 or more parties involved in the transaction, the agent(B) or the middle man may not want the seller(A) or the buyer(C) to know each other, in order to protect his own interest. Hence, the switch B/L.

Seller (A) in China
Agent (B) in Singapore
Buyer (C) in USA

Example of Switch B/L:

Shipment can still ship direct from China to USA or via Singapore(or other country)

1st sector B/L

Shipper: A manufacturer
Consignee: B Agency
Notify Party: B Agency

Port of Loading : China
Port of Discharge : Singapore
Final Destination : Singapore

Cargo description would be unchanged!

2nd sector B/L

Shipper: B Agency
Consignee: C Buying House
Notify Party: C Buying House

Port of Loading : Singapore
Port of Discharge : USA
Final Destination : USA

Cargo description would be unchanged!

This is the simplest switch B/L, and there are alot more complicated ones.
It depend very much on the need of the parties involved.

However, the origin of the goods has to be decleared as China! NOT Singapore.

lethanhtung · #4 14-10-2012, 12:18 PM

What is switch bill of lading and function of this BL?

“Switch” bills of lading are a second set of bills of lading issued by the carrier (or by the carrier’s agent) in substitution for the set issued at the time of shipment. The agent who is asked to produce the second set is often not at the load port. The holder of the bills may decide, for one reason or another, that the first set of bills is unsuitable, and the carrier is put under commercial pressure to issue switch bills to satisfy his new requirements. Some of these reasons are: • The original bill names a discharge port which is subsequently changed (perhaps because the goods have been resold);

• A seller of the goods in a chain of contracts does not wish the name of the original shipper to be known;

• The goods were shipped originally in small parcels, and the buyer requires one bill of lading covering all of the parcels to facilitate his on-sale.
The perils of having two sets of bills of lading in circulation for the same cargo are obvious and shipagents must make sure they follow these rules:

• The principal’s written authority should be obtained to issue switch bills;

• They should only be issued if the first complete set has been surrendered;

• They should not contain misrepresentations, eg as to the true port of loading, or the condition of the cargo. If switch bills contain misrepresentations, the carrier/agent will be at risk of claims from parties who have suffered a loss because of such misrepresentations.

In practice “switch” bills of lading are often issued in addition to, and not against surrender of, the first set. The reasons for this practice are various; the first set of bills may be held up in the country of shipment, or the ship may arrive at the discharge port in advance of the first set of bills. Another reason, however, is that the party trading the goods wants to assist his cash flow by receiving payment from the end receiver before he pays the shipper. The shipagent may be instructed by his principal to issue a second set of bills of lading and may be offered a letter of indemnity by the principal, or by the party who receives the “switch” bills.

Shipagents have found themselves on the receiving end of claims from the holders of the first set of bills of lading (eg the shipper, a bank or a party to whom the bills of lading have been negotiated) with nothing to rely on but a worthless indemnity. A long established or multinational shipagent may make a more worthwhile target for the bill of lading holder than a charterer with no assets or a shipowner who has sold the ship in question, or a trader who has become bankrupt.

To protect himself or herself the agent must:
• Ask whether the principal authorising the issuance of the second set is reliable;

• Obtain the principal’s authority in writing, and a letter of indemnity signed by the principal (and countersigned by a bank if deemed necessary by the agent) indemnifying the agent for all consequences of issuing the second set of bills of lading.

The agent should also consider whether it is necessary to obtain authority from any other party who might be adversely affected by his action (eg the shipowner or the shipper). If the agent is authorised by the charterer, but issues bills of lading on behalf of the master, the shipowner would have a valid claim against him if he has acted without the owner’s prior knowledge and consent.

If the principal has asked the agent to obtain a letter of indemnity from the party receiving the second set of bills of lading, the agent should get the wording and security (eg counter-signature by a bank or not) approved in writing by the principal. The agent should keep the indemnity in a safe place and make reasonable efforts to obtain the first set of bills.

lethanhtung · #5 14-10-2012, 12:20 PM

Season of the switch (BL)

To switch bills with the purpose of changing the shipper’s details, thus obscuring the name of the true shipper, is most likely to be viewed as an act of fraud for the very reason you highlight – it is a misrepresentation, (and one just as significant as misrepresenting the condition of the cargo) which is knowingly undertaken by the carrier, on a document of value: i.e. a fraud. Just as, in a cre**** there is no such thing as a ‘minor’ discrepancy, so there is no such thing as a ‘minor’ misrepresentation.

If the carrier’s principal – the ‘true’ shipper – was a willing party to this ‘switch’, then they would have/should have, booked only ‘as agents’ for the second party, and the bills should be issued only once and with the second party’s name as ‘shipper’.

It is possible that an error was made at the time of booking, that there is no ‘switch’, but just the incorrect use of one company name over another. But then we would expect the bills to be surrendered by the first party (who made the booking) to the issuing carrier at the place of issue in exchange for a new and correct set. The carrier would have every right to call for whatever security they felt necessary (if necessary) to perform such a service.

Secondly, any indemnity secured by a carrier will not protect them from a claim made by a third party, it will simply allow the carrier to counter-claim against the issuer of the indemnity i.e. there will be two actions – the claimant against the carrier and the carrier against the issuer of the indemnity. An indemnity cannot be used to ‘deflect’ the claimant from the carrier onto the party who issued the indemnity. The carrier having no way of calculating the value of the claim to be made by the claimant – given that it can be linked not just to the value of the cargo but also to consequential losses – will always be exposed, regardless of the ‘sum’ they are indemnified for.

Any indemnity is a corruption of the original contract undertaken.
One final point, and one I am not certain of, is the position regarding the ‘true’ shipper and the ‘fraudulently’ named ‘false’ shipper in the event of a General Average claim on a bill consigned ‘to order’ where we have no consignee. Who has the liability to meet the GA contribution?
I think that would be one for the courts to test – but if anyone has experience in such matters, I for one would be interested as to who has to settle the claim?

Only an opinion...