Switch Bills of Lading – basic concern

The issue of a set of bills of lading in exchange for (switching) another set (original) of bills of lading is a trade practice. Insurance protection is in question for a claim that arises from such practice, especially when the bills of lading were properly issued but somehow gave rise to a claim. Switching is a practice to meet trader's requirement when his role is more of an intermediary having purchased and resold the goods to his buyer. The intention is to conceal the identity of the original supplier from his buyer, the receiver of the goods. However, there are other reasons for switching, such as

•  The breaking up of the cargoes for reselling to various buyers separately (different consignees).
•  To reflect freight payment status.
•  To avoid customs duties.
•  For reselling without payment for the goods by the intermediary trader to his supplier.
•  To meet sale contract terms

When an NVOCC is required to issue a switch set of bills of lading, it is preferred that there should be an understanding or set of terms governing such arrangement in case somehow there is an irregularity leading to a claim. In issuing a set of switch bills of lading, it is essential that the original set is returned before releasing the second set. The risk of competing claims from different consignees is high if there is a failure to obtain the original set.

If there are changes on the details of goods such as markings, quantity, etc switching of bill of lading should not be allowed. If it is necessary, a letter of indemnity should be obtained from the party requiring the switch bills of lading. Such letter of indemnity should reflect the agreement and changes if agreed upon in the switch bills of lading when for commercial reason these have to be done. Carrier under NVOCC status would appreciate that the ocean/master bill of lading may not reflect its position if the NVOCC bills of lading were issue to switch with the original bills of lading issued by another NVOCC. Complication on claims may arise with regard to the ocean/master bill of lading.

Finally it is necessary to note that there could be different terms and conditions in the two bills of lading under switch. How this will affect the second carrier remains to be seen.

Disclaimer: Individual practice of insurers differs. No professional advice is intended in this note.