Negotiable Bill of Lading

What it is

“Lading” refers to loading cargo onto a ship. A bill of lading is a legal document between a shipper and a carrier that describes the goods, quantity, and destination, and it serves as both a receipt and a contract of carriage. A negotiable bill of lading (also called an order bill of lading) is a form of this document that can be transferred to third parties and thereby transfers title (control) of the goods named on the document.

How it works

Receipt and contract: The bill of lading acknowledges that goods have been received by the carrier and sets out the terms under which they will be transported and delivered.
Transfer of title: A negotiable bill must be made “to the order of” a named party. By endorsing and delivering the document, the named consignee (or holder) conveys the right to claim the goods to another party.
Condition requirement: For negotiability, the bill is typically required to be a clean bill of lading — indicating the goods were received in apparent good condition. If damage or defects are noted, the bill is “claused” or “fouled,” which can affect negotiability.

Transferring a negotiable bill of lading (typical steps)

The consignor prepares a bill made “to the order of” the consignee and signs/stamps it.
The consignee endorses (signs) the bill to transfer it to a third party, then physically delivers the original document to that party.
The carrier or its agent releases the goods to whoever presents the original negotiable bill at the destination.

Clean bill vs. straight (uniform) bill of lading

Clean bill of lading: Issued when goods are received in apparent good order and condition. A clean bill supports negotiability and is often required in trade finance.
Claused or fouled bill: Notes defects or damage; may prevent or complicate transfer and reduce its usefulness in financing.
Straight (uniform) bill of lading: A non-negotiable form adopted historically to limit carrier liability and simplify delivery. It is only deliverable to the named consignee and cannot be transferred to third parties.

Why it matters

Enables sale and financing of goods while in transit by allowing title to be transferred through endorsement and delivery of the document.
Protects carriers by documenting receipt and condition of cargo and by defining delivery instructions and liability limits.
Affects risk allocation among shippers, buyers, carriers, and banks involved in documentary transactions.

Key takeaways

A negotiable bill of lading is both a receipt and a transferable contract of carriage that can pass title to goods.
Negotiability requires the document be made “to the order of” a party and is generally supported by a clean bill.
A straight (uniform) bill is non-transferable and deliverable only to the named consignee.
Notations of damage (“claused” or “fouled”) can undermine negotiability and commercial utility.