In an increasingly globalized world with segmented economies, shipping agents find themselves dealing with more trading companies and their foreign-to-foreign transactions than the old-fashioned factory-to-importer shipments.
The success of such contracts typically hinges on the ability of trading agents to conceal the factory’s contact from the end buyer through the issuance of a switch Bill of Lading.
A switch Bill of Lading refers to a second set of Bill of Lading issued by the carrier (or its agent) to substitute the original bills of lading issued at the time of shipment.
Even though it technically deals with the same cargo, the information on the switch B/Ls, for various reasons put forth below, is intentionally edited and is not meant to be identical to the original B/L it replaces.
Just like the original, the switch B/L serves as:
In most cases, a switch B/L is used in order to edit the shipper information, i.e. replacing the actual factory details with the trading agent’s. That said, there may be various other motives for requesting a switch B/L.
Switch B/Ls are only issued against the surrender of the original set and may be required by any of the three parties with direct involvement in the purchase/sale of the cargo: the cargo owner/seller (or an authorized representative), the trading agent, and the end buyer.
The reasons for requiring a switch B/L include:
The Switch B/L can only be officially requested by the cargo owner or principal. In other words, since the Bill of Lading represents ownership, only the company holding the full set of documents can request for a switch B/L.
Advice: the request should only be made if the company has all three original B/Ls in hand, except in the case of a Telex Release.
After the request has been made, the switch bill must be approved by the carrier and the freight forwarder, who needs to very meticulously compare the differences between the original B/L and the new and proposed Switch B/L to make sure everything that needs to match, matches.
Note: only the carrier or freight forwarder is allowed to sign a Bill of Lading.
Once the switch B/L has been approved for issuance, the carrier and/or freight forwarder must make sure that the original set of B/Ls is taken out of circulation and cancelled before the switch B/L can be released. This is important as it ensures that there is only one set of documents in force to prevent problems.
When requesting for a switch B/L standard procedure must always be followed to ensure a smooth process. Here’s an example of how a switch B/L may be requested and processed.
Consider these three parties:
The first and original set of B/L will have been issued with A as the shipper and B as the consignee. The cargo owner may later request for a switch B/L listing B as the shipper and C as the consignee.
Here’s a visualization of how a switch B/L works:
Other changes to the shipment description may be made, but only under the cargo owner’s written authority and only to certain information such as to the condition of the cargo, payment terms, place and date of loading, Incoterms, etc.
Any inconsistencies on the switch bill will result in the carrier and his agent (if the agent has issued the switch bills) facing risks of claims from parties who have suffered a loss as a result of these misrepresentations.
Switch bills of Lading do not contain any information that indicates that they are not the initial and original B/Ls. However, the consignee or end buyer is at liberty to ask the shipping line whether the bills were switched. Shipping lines are not legally obliged to divulge this information. But it’s common practice for them to do so without disclosing any further details.
When a switch bill is issued, a new invoice and packing list must also be issued to reflect the new changes accordingly and accurately.
As per our example, this means showing company B as the supplier and company C as the buyer/consignee. This not only avoids exposing the supplier’s identity but also maintains consistency with the new set of Bill of Lading.
In recent years, there’ve been multiple cases of fraud under switch bills, which have caught the attention of shipping lines. This highlights increased risks for cargo agents such as:
For further reference, there are various case studies available online showing how different courts arrive at different verdicts based on the misinterpretations and misuse of the Switch Bill of Lading.
Freight forwarders should verify the reliability of the principal party authorizing the issuance of the second set. Obtain their authority in writing and a signed letter of indemnity (and countersigned by a bank if deemed necessary by the agent) indemnifying the cargo agent for all consequences of issuing the second set of Bills of Lading.
Freight forwarders should also consider whether it is also necessary to obtain written authority from the other parties who may be affected by his action (eg. the ship owner or the shipper or a bank). If a freight forwarder is authorized by a charterer to issue a switch Bill of Lading on behalf of the carrier, written authority by the ship owner must be obtained. Failure to do so will result in the ship owner having a valid claim against the agent for losses resulting from the issuance of the second set without authority.
If the agent has been asked by the principal party to issue the switch bill based on an indemnity from the customer, the agent should get the proper wording from the principal and get the completed indemnity approved by the principal party before issuing it.
It is also advisable to ensure that the cargo agent is covered by their own insurance for the issuance of switch bills. They should provide their insurance company with the exact reason for the issuance of the switch bill of lading.
At iContainers, we analyze Switch B/L requests thoroughly and on a case-by-case basis. Together with innovation, we work hard to provide quick, efficient and tailor-made solutions for our customer’s satisfaction, and help our partnering agents secure stable and recurring businesses.
"Don't underestimate the value of Incoterms and their impact on international trade."
Aliona Yurlova, Business Development Manager at iContainersDOWNLOAD THE FREE GUIDE