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All About Switch Bill Of Lading – Role, Risks And Best Practices

These days, buyers of internationally traded goods and shipping agents are less likely to deal directly with manufacturers and factories and more with a trading company. A trading company buys goods in one country and sells them in another, playing the part of a middleman. A common feature of this type of triangular trade is the switch bill of lading.

A bill of lading (B/L) is issued by a carrier (or its agent) to the shipper as a contract of carriage of goods. It also serves as a receipt for cargo accepted for transportation as well as a document of title of the goods. The shipper transfers the B/L to the consignee after receiving payment for the goods. The consignee can take delivery of the cargo only after presenting the B/L to the carrier. This is how the process usually works. Now, a switch B/L is a second B/L issued “in substitution” for the original B/L at any stage of the shipment. A switch B/L serves a specific purpose in international trade, which is the topic for today’s piece. Read on to know:

• What is a switch B/L?
• Who can request for it and who can issue it?
• When is it used?
• What can and cannot be changed on a switch B/L?
• How is a switch B/L processed?
• Legal concerns and risks
• Best practices

What is a switch B/L?

A switch B/L substitutes the original B/L issued at the time of shipment. It is not to be confused with a duplicate B/L, which is issued when the original is lost. While a switch B/L applies to the same shipment as the original, the information it contains varies to a certain degree (more on this later). It, however, serves the same purpose as the original B/L, which is to act as:

• A contract for carriage of goods between the shipper and carrier
• A receipt for delivery of goods for the consignee/agent at destination
• A document of title of the goods

Who can request it?

A bill of lading is a document of ownership. Hence, only a cargo owner or principal can request a switch B/L. The party making the request must possess the full set of original documents.

Who can issue it?

A switch B/L request can be approved by a carrier, their agent or a freight forwarder.

When is it used?

This is best explained with an example. A distributor (trading company) in Hong Kong buys plastic car parts from a factory in China and sells them to an automobile firm in the United States. It has the goods shipped directly from China to the US. It is common practice for such a transaction to have two sets of B/L. The original covers the transaction between the factory (shipper) and distributor (consignee). It is issued to the shipper after the cargo clears customs at the port of loading. Now, after the factory transfers the B/L to the distributor, the latter surrenders the document to the carrier/forwarder and requests a switch B/L. The switch B/L covers the transaction between the distributor (now the shipper) and the final buyer in the US (now the consignee). It can be issued at any stop on the vessel’s route, provided the carrier has a legal office in that country. The purpose of the switch B/L, in this case, is to change the shipper information. The distributor wants to keep the identity of the manufacturer hidden from the buyer and vice-versa to prevent the two from dealing directly with each other and cutting out the middleman.

Here are a few more reasons why a switch B/L might be requested:

• The trading company wants to keep the buyer in the dark about the country of origin. Again, this might be to keep the identity of the manufacturer hidden from the importer.
• The goods were resold en route and the port of discharge must be changed.
• The goods arrived at the port of discharge before the B/L.
• The goods were shipped in small parcels under multiple B/Ls but the buyer prefers a single B/L covering all the goods, or vice-versa.
• Customs at destination or the consignee made a request for the cargo description to be edited (for example, “plastic parts” instead of “plastic car parts”).

What can and cannot be changed?

The following information on a switch B/L can be different from the original B/L:

• The names of the shipper, consignee or notify party (the party to be notified when the cargo arrives at destination)
• The description of the goods (“tools” instead of “gardening tools”, for example)

Any other details must remain the same as in the original, especially:

• The date and place of shipment (this is particularly important for time-bound goods as the buyer might suffer a loss if they are misled about the shipment date)
• The number of packages
• The weight of the cargo
• Any clauses included in the original B/L
• Any special instructions issued by the shipper, such as temperature requirements

How to request and receive a switch B/L

Step 1: Fill in the switch B/L application form provided by the carrier. The standard form has two columns – the first for information contained in the original B/L and the second for the amended information.

Step 2: Submit the application with all three copies of the original B/L. You may do this via email, online or in person at the carrier office/counter. Different carriers have different time frames for accepting a switch B/L request, though most don’t entertain requests later than three working days before the ship’s arrival at the port of discharge.

Step 3: After the carrier verifies and approves your request, it will send you an amended B/L.

Step 4: Once you have approved the amended document and no further clarifications are required, you can collect the switch B/L from the carrier at their counter/office after paying the fee. The entire process takes a few working days on average.

Legal concerns and fraud risk

Switch bills of lading come with an element of risk, both for cargo owners and, especially, for the freight forwarders/carriers who issue them. Before approving a switch B/L, the forwarder/carrier must ensure all three copies of the original are collected and cancelled. What happens if a single shipment has more than one set of bills circulating at any point of time? If the shipper has been dishonest, it might lead to a situation where there are two or more consignees holding valid bills at the port of destination. And the carrier/forwarder could end up facing claims worth the full cargo value.

It is this risk of fraud that makes it critical for forwarders to watch out for switch B/L requests made with illegal motives. These might include:

• Concealing the country of origin to get around sanctions or to evade import duty
• Hiding the identity of a banned manufacturer
• Forging the shipment date and place

This is also the reason freight forwarders’ associations warn their members against issuing switch B/Ls, advising them instead to amend the original B/Ls as much as possible.

Fraud isn’t the only risk when dealing with a switch B/L. Even accidental inconsistencies can have legal consequences. Forwarders must also be aware of the laws in different countries, especially if the switch B/L is issued in a jurisdiction different from the original.

For cargo owners, an illegality could lead to the loss of protection and indemnity insurance. For example, if the cargo description provided in the switch B/L is found to be incorrect, cover for cargo claims, fines or discretionary cover might be lost. (Discretionary cover compensates against losses arising from risks that aren’t expressly itemised in the insurance policy, such as vessel confiscation due to infringement of customs laws).

Best practices for handling switch B/Ls

So, how can freight forwarders and shipping agents protect themselves? Following these industry best practices will certainly minimise the risk:

• Ask the party seeking a switch B/L the reason for their request. Watch out for information about cargo description, country of origin or date of loading that might be misleading.
• Verify the reliability of the request party. Freight forwarders’ associations advise their members to get a signed letter of indemnity (written authorisation) stating that the requestor will assume responsibility for any risks arising from the bill switching. Having the letter of indemnity counter-signed by a reputable bank adds an extra layer of security. If the changes requested are significant, you might also want to get evidence to support these changes.
• If you have been directed by the carrier to issue the switch B/L, get the ship owner’s authorisation in writing.
• Issue the switch B/L only after collecting and cancelling the original B/L. Carefully check the information on both documents. Ensure the amended information is accurate and complete.
• Inform the shipper, consignee and agent at destination about any request for switching or changes.
• Ensure your insurance provider covers the issuance of a switch B/L.

Last notes

A final few things to remember when your transaction involves a switch B/L:

• You can’t tell a switch B/L from an original B/L. But, as the final buyer, you can ask the carrier if the bills have been switched and they will disclose this information.
• The issuance of a switch B/L means that a new commercial invoice and packing list, reflecting the changes, must also be issued.

All in all, a switch bill of lading can be tricky to handle for any party to a trade transaction. It’s important to proceed with caution.

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