Switch Bills of Lading: When to Use Them (+ Their Risks)
October 28, 2022 Documentation
Over the course of your international shipment, you may have heard the term “switch bill of lading”, or simply “switch bill”. You may be wondering what that’s all about.
You’ll find that the term often arises during a triangle shipment. This refers to a trade organised between two countries, however, the seller of goods is not physically located within these countries.
Rather than manufacturers selling directly to the buyer, triangle trades have been developed to create an arrangement of buyers purchasing from sellers who in turn purchase from manufacturers.
In order to guarantee the sanctity of these relationships, the identity of the manufacturer is hidden from the buyer and only privy to the seller using – you guessed it – switch bills of lading.
So, if you’re looking to find out how switch bills of lading work, you’ve come to the right place.
Recap: What is a Bill of Lading?
Before looking at switch bills of lading, it makes sense to understand the concept of bills of lading generally.
Also known as a BoL, a bill of lading is a document that confirms the acceptable condition of goods received by a Carrier to a Consignor. It also acts as evidence for the contract between the Carrier and the Shipper, and is also a receipt of goods.
There are three ways you can issue a bill of lading:
- The Straight Bill of Lading – when a BoL is issued to a “named consignee”. The document is not negotiable and not transferrable.
- The Sea Waybill – when a BoL is issued to a “named consignee” with no originals. It is also not negotiable or transferrable.
- The Negotiable Bill of Lading – this is when a Bill of Lading is issued in original “to order” (or to the order of a bank, or to order of the shipper). It is also often referred to as an Order Bill.
For more detailed information on this topic, make sure to review our blog on what is a Bill of Lading.
What is a switch bill of lading?
Interestingly, a switch bill of lading is not actually a type of bill of lading.
A switch bill is simply a second bill of lading that replaces the first and is ultimately “switched” during transit.
It’s simply just the second set of BoL that can be issued by the carrier “in exchange of” or “substituting” the first set of BoL issued.
How does it differ from other bills of lading?
As stated above, switch bills of lading aren’t actually “bills of lading”.
It’s important not to fall into the trap and think they fall into their own categories of “bills of lading”.
In any event, a switch bill’s details generally differ from other bills of lading in that it mostly has different shipping information to disguise the original manufacturer’s details or, more so, the original source of the product.
When are switch bills used?
There are many instances when a switch bill will be used over the course of an international shipment.
- When the seller wishes to disguise the manufacturer of the product to prevent themselves from being “cut out” of a triangle trade shipment (more on this below).
- The country of origin must be disguised for one reason or another (for instance, the seller may not want to know the buyer to know where the goods are actually coming form, so he or she will ask that a new port of loading is shown).
- The goods may have been sold during transit and the discharge port must now change.
- The description of the goods must be edited.
- The goods on multiple Bills of Lading are to be consolidated onto another Bill of Lading, in this case – the switch bill.
Bills of lading can typically be switched anywhere, and for shipments from any location (although this may differ depending on the carrier).
Below, we’ll elaborate on point #1 above as it is common for switch bills to be used in these “triangle shipments”, often called a cross shipment – where a shipment occurs between two countries (none of which the seller is based in).
Think of the following example: you’re in Australia, selling a product to someone in Singapore, but your product is manufactured in China. A cross trade will see the product being shipped from China to Singapore. It’s called a ‘triangle’ trade because there are three countries involved – the country of origin (China), the destination (Singapore), and the seller’s country (Australia).
In this case, an exporter in Australia may be inclined to leave out the details of the factory on the original Bill of Lading (i.e. China).
A switch Bill of Lading, therefore, is used to conceal the original source of the goods being provided to an importer. This is to ensure that the exporter can mitigate the possibility of the importer in Singapore going through the Chinese factory itself, consequently cutting out the Australian “middleman”.
What can be changed on the Switch Bill of Lading (and what can’t)?
Changes that can be made to the bill of lading include the identity of the shipper and the consignee. Arguably, the description of the goods, the ship’s name, the date and place of the issue, the freight and the port of discharge can also be changed.
These changes must be made with care, as misrepresentation can lead to claims issued by individuals affected by the switch bill of lading’s alterations.
But there are certain things on a switch bill that should never be changed, such as:
- The place and date of the shipment;
- Cargo details (such as the dimensions, weight, etc.);
- Information relevant to hazardous cargo;
- Information relevant to reefer cargo (for instance, temperature settings);
- Information relevant to Out of Gauge cargo; and
- The original clauses on the BoL.
The risks: are Switch Bills of Lading legal?
Well, generally, there’s nothing specific to say that they are illegal.
But there may be a strong argument that they are fraudulent (or misleading and deceptive, and therefore possibly illegal in some jurisdictions).
While the switch bill itself does not indicate that it is not the original bill of lading, it is common courtesy for this information to be obliged – even though it may or may not be legally required to say so.
There are scores of risks when issuing switch bills, some of which include:
- Different versions of the BoL circulating around, presenting a risk of the carrier delivering goods to the wrong person;
- Creating inaccurate details;
- Switch bills being used to fraudulent draw on a letter of credit (or to defraud a buyer or a seller); or
- One set of BoLs incorporating a different charter document, with an altogether different jurisdiction clause or even different freight rates.
Alterations present in the switch bill of lading must match the invoice and packing list, meaning that new versions of both of those documents must be produced.
But it’s always best practice for a shipper to:
- Make sure the BoL is switched before cargo handover;
- Verify very closely that the principal who authorised the issuing of a second set of BoLs actually has authority to do it;
- Get that authority’s signature and a signed indemnity letter in writing indemnifying the cargo agent for all consequence of issuing that set; and
- Return to the carrier all insured originals from the first set of bills (free from endorsements) and cancel before switching – you don’t want two sets of originally bills circulating around.
While switch bills do have their benefits, there is a lot that can go wrong.
Which is where professionals can step in to help.
Get a Professional to Talk About Your Switch Bill Shipments
Our freight forward specialists here at ICE have had decades of experience dealing with all sorts of bills of lading for many different types of international shipments.
To mitigate the possibility of the aforementioned risks coming back to bite you, speak to the experts today by getting in touch with us or requesting a quote below.Request A Quote
or call us on 1300 227 461
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