Recently, there was a discussion in banking and ICC circles relating to a documentary credit that called for “one copy of surrendered bill of lading” to be presented.
What was instead presented were “3 original bills of lading” containing the wording “Original Bill Surrendered at Origin” in the body of the bill of lading.
The bank rejected the presentation on the basis that what was provided was not a “copy” but 3 of 3 original bills of lading, and that none of them contained a carrier’s stamp indicating surrender.
While this issue created quite a stir in banking circles, I see it as a reminder that some banking practices fail to reflect the practical realities of shipping.
Here is why.
When a bill of lading is issued as a negotiable document consigned to a bank (which is not the ultimate receiver), an original bill of lading endorsed by the bank to the ultimate receiver is required for the title to be transferred to the ultimate receiver and goods released.
The destination office of the carrier will typically expect an OBL showing final endorsement to the ultimate receiver before releasing the goods to them.
Now, if the original bill of lading has already been surrendered at origin to the carrier, then how would this endorsement or transfer of title happen from bank to receiver..??
Why, then, would a requirement for a “copy of surrendered bill of lading” even be accepted by the bank, when the only way such a document could realistically be produced would be if:
In practice, it is highly unlikely that banks would allow this sequence. Bankers or exporters pls correct me if I am wrong.
It is worth pointing out that the term “surrendered bill of lading” is itself a misnomer. There is no such type of bill of lading. A surrender is a process, not a document.
A surrender occurs when one or more original bills of lading are handed back by the shipper to the carrier. The location of surrender varies depending on trade circumstances and something as simple and practical as proximity of the customer to the carrier’s office.
The purpose of surrender is usually either:
The process is straightforward:
Beyond banks not fully considering the realities of shipping, there are further questions:
These circumstances strongly suggest an error on the part of the carrier. A carrier should never and would never issue a bill of lading already bearing the notation “Original Bill Surrendered at Origin”, nor should it return all originals to the shipper once they have been surrendered.
Another point raised in the discussion was: “there was a responsibility for the issuing bank to explain how the ‘surrender’ was to be evidenced on the copy of the surrendered bill of lading.”
This explanation is clear: if a “copy of surrendered bill of lading” is required, the only way to evidence it is with a “surrendered” stamp placed by the carrier on the original, with that stamped copy then presented under the credit.
This case highlights the importance of aligning banking requirements with shipping realities.
Documentary credits that call for documents which do not exist in practice, or which cannot logically be produced, place all parties – shipper, bank, and carrier – at risk.
Herein lies the need for banks to better understand and explain the practicalities of shipping to their customers, whether applicant or beneficiary.
In this case, it appears neither the issuing bank, nor the nominating bank, nor the beneficiary raised any alerts on the requirement for a “copy of surrendered bill of lading”.
