Straight or 'To Order' Bill of Lading

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Dear XX,
I have read your enlightening article published in the DC World with great interest. It reflects that you have done your homework. My congratulations to you as another person being alerted of the problems existing in the international trade arena that cannot be resolved easily. I did find a lot of such problems thirty some years ago when I tried to study on my own on international trade documents, rules, national legislations and UN conventions. As they are drafted by different bodies who do not know what the other bodies are doing, it is not strange that they may have inconsistency, or even conflicts amongst them. Who is going to suffer from this? Of course the traders, either the buyer, seller or the carrier, as evidenced by my involvement in resolving trade dispute as a consultant all these years.
To go back to the issues brought in by your article, here are my responses:
1 FOB is one of the most mis-used or abused trade term due to many reasons.

1.1 The Revised American Foreign Trade Definitions (Thank God, now replaced by Incoterms in USA) has many kinds of FOB and is generally known as "FOB Everywhere". We can have FOB seller's warehouse, FOB the sea carrier, FOB intermediate port, FOB destination, and even FOB buyer's warehouse. Hence this sows the seed of mis-use of FOB under Incoterms, in which FOB can only be used for delivery of goods by the seller, who has to place the goods on board the surface/sea/air carrier (as the shipper) and the buyer is to arrange for contract of carriage with the carrier (as the consignor).
1.2 In 2011, in my retainer service in China trade, I still see purchase orders and LCs from giant USA chain stores using FOB Shenzhen to indicate that goods are to be sent by the seller to the warehouse of the buyer's nominated forwarder in Shenzhen. The buyer's forwarder will issue a forwarder's cargo receipt for seller's presentation under LC and the buyer's forwarder will arrange loading on board as well as arranging for contract of carriage. The bill of lading is sent by the forwarder directly to the USA buyer, not going through the banks. I can say that more than 80 percent of the so-called FOB trade in Asia or the world are following this trade practice. It is definitely not the true FOB under Incoterms 1990/2000/2010.
1.3 Hence it is no use to analyze that under FOB in Incoterms 2010, the seller should be the shipper (for loading the goods on board the ship), and the buyer should be the consignor (to be held responsible for arranging for contract of carriage). This analysis is true only if parties use Incoterms correctly. Once FOB is mis-used as described in 1.2 above, parties are not acting according to Incoterms, although they put Incoterms in their contracts and LCs. Hence anyone can be the shipper or consignor under this mis-used "FOB Shenzhen". And traders now know that, in practice, under their so called "FOB Shenzhen" for example, the shipper can be the the buyer or the buyer's forwarder. In some odd LCs from the market place, the consignor may be even a bank!
1.4 If we refer to FOB under Incoterms 2010, the seller may act as buyer's agent to arrange for contract of carriage but at the cost and risk of the buyer. That means in Incoterms 2010 FOB, the seller may be also the consignor in name sake (please refer to 2 stated here below for underlying reasons). However, some sellers may name the buyer as the consignor by request.

2 Shipper vs. Consignor

2.1 In the market place, the terms "Shipper" and "Consignee" are used interchangeably to mean one and the same party. I heard one scholar saying that the term consignor is classic and official and the term shipper is more customer friendly but they both refer to the same party. If you care to look at the back of the bill of lading, carrier will use another term, "the Merchants", to include all the parties, shipper, consignor, consignee, holder, endorser, endorsee, etc. to make sure every party is covered by the terms and conditions of carriage.
2.2 So merely defining shipper and consignor would not effectively end the disputes. They are also Merchants in the contract of carriage.
2.3 It appears that we should standardise the terms used in different trades and documents, UCP, contracts, conventions, bills of lading, cargo insurance policies, etc. But this is mission impossible from my experience. For example, in UCP operations, bankers, including those responsible for drafting the UCP and ISBP, do not wish to know more about transport and cargo insurance practices.

3 How to end disputes?

3.1 The first and foremost action is to educate the traders to use the Incoterms 2010 correctly, particularly FOB, in the way the drafting committee intends them to do so. I am retained by a USA exporter in Shenzhen to provide "LC escort service" to their exports to giant chain stores in USA to make sure there is no discrepancy in each presentation. I try to talk to the giant chain store executives in Hong Kong buying office and USA headquarters for this issue. The responses are: "We have been doing this for the last twenty years and so far no one comes up to tell us that we are wrong. So far we encounter no problem with our suppliers. So why should we need to change? These trade terms are decided by our senior managers after consulting our legal counsel. We have no gut to ask them to change. To be frank with you, we do not wish to take the risk of losing our jobs. If you do not like our terms, you may go somewhere else". So all I can do is to manipulate with documentation to stay clear of these landmines as far as possible.
3.2 It appears that it is not possible to change the world. If we cannot change others, we have to change ourselves. In that case we may draft new provisions to govern the current market version of "FOB Shenzhen". We may call this the market version of Incoterm 201X. We will lay down the rights and responsibilities of the seller and the buyer in each version, seller's delivery to buyer's forwarder, arranging contract of carriage by seller on behalf of and at cost and risk of the buyer and the like. This sounds easier and more effective.

4 The China Maritime Code gives a very good definition of shipper that plays two roles, as the one who loads the goods on board the vessel and also as the one who contracts for carriage with the carrier.

4.1 FYI I have participated in certificate courses in China Maritime Code, along with other China trade laws in the Zhongshan University in Guangzhou before I moved to Canada. According to a maritime law lawyer from Holman, Fenwick and Willan office in Hong Kong, the China Maritime Code is the most comprehensive maritime code in the world. It took China about 30 years or more to complete it. Hence it includes the best of the maritime legislations from developed countries like USA, UK and Germany.

5 I have encountered more problems, such as goods may not include livestock in certain conventions and some legislations that model the conventions. The good thing is that these inconsistencies or conflicts do provide a market for the consultants :-)
The more you know, the more you don't know!
T. O.

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