What is the function of a "to order" bill of lading?

On my previous article I have explained the differences between a negotiable bill of lading and a non-negotiable bill of lading.

I have also described the importance of negotiable bill of lading in international trade on the same article.

I strongly recommend you to see my previous article titled with "How to complete consignee and notify fields of a bill of lading?" before reading this page in order to better understand today's post.

Today I want to explain the function of a "to order" bill of lading in foreign trade businesses.

Usage of "to order" bills of lading in international trade:

If you are dealing with letter of credit payments either as an export, importer or a bank professional, you may realize that the issuing banks demand the bill of lading to be made out to their orders.

In letters of credit transactions, issuing banks include a statement similar to one of the below examples under field 46A-Documents Required:

  • Full set of clean shipped on board ocean bill of lading showing 'freight prepaid' drawn to the order of ABC Bank Limited, branch, 81, Road. Kakrail, Dhaka-1000, Bangladesh and marked notify applicants of the letter of credit bearing our both letter of credit no. dtd. 2014.09.14. 
  • Full set clean on board bills of lading made out to the order of International Commercial Bank, Jeddah marked freight prepaid and notify: Al-Tamim Jeans Factory Co. P.o.Box. 2030, Jeddah 21400, Saudi Arabia. 
  • Full set of clean (on board) marine bills of lading in 3/3 originals issued by shipping company's on it's letter head format and issued to the order of the Housing Bank for International Trade and Finance showing freight payable at destination and notify applicant and indicating name and address of the shipping company's agent in China.
Why issuing banks demand the bills of lading made out to order of themselves under letter of credit payments.

Issuing banks want to secure the shipment and take all preventive actions against delivery of the consignment to the applicant without their acknowledgment. In order to achieve this result, issuing banks request negotiable bills of lading, which should be issued to order of the issuing banks, from the exporters under letter of credit transactions.

Once a bill of lading made out to order of the issuing bank, then this means that it is issued in negotiable form and fulfills two main functions:
  • consignment cannot be delivered to the applicant, which is usually the importer company, because carrier is only entitled to release the goods to lawful holder of the original negotiable bill of lading against surrender of the original transport document at the port of discharge.
  • issuing bank endorses and delivers the bill of lading to the applicant only after the issuing bank receives the letter of credit amount from the importer.
What is the function of a "to order" bill of lading?

To order bills of lading have two functions in international trade transactions:

  • They prevent delivery of the cargo to unwanted parties. 
  • Consignee can transfer the title of goods to another party with endorsement and delivery of the original bill of lading.