By Hari Menon
For those in the shipping and freight industry, ‘shipped on board’ could be a familiar term. It means that specific goods have been received and loaded onboard the ship on the said date. Typically, shipped on board appears on all bills of lading.
It is a confirmation from the shipping company to the shipper or the party dispatching the goods that have been loaded onboard their ship. That sounds pretty straightforward, right?
Is it mandatory to show the shipped on board date on a bill of lading (BOL)?
Though it may not be mandatory, it helps to specify when the shipping line received the goods from the shipper. But the shipped on board date is quite important, especially when it comes to a letter of credit.
Letter of Credit
What is a letter of credit? In international trade, it is a financial guarantee from the buyer’s appointed bank to the seller-nominated bank for payment of goods dispatched by the seller to the buyer. This letter ensures that the bank issuing such a guarantee pays the seller in case the buyer defaults in making payment.
Business organizations that have to deal with new or one-time customers usually prefer transacting through a letter of credit. It is also called a documentary credit in some countries.
To understand the importance of the term shipped on board, let us take a quick look at how a letter of credit works.
The buyer requests his bank to issue a letter of credit favoring the seller’s bank.
The buyer-nominated bank issues the letter, usually backed by some kind of security or collateral from the buyer.
The bank issuing the letter of credit, known as the issuing bank, assures the seller’s bank of payment by the buyer and a guarantee to pay in the event of default by the buyer.
Sometimes the letter of credit may be coordinated between the buyer’s and seller’s banks through another international bank which is then known as the negotiating bank.
Thus, the buyer and seller are now connected through the issuing bank and the seller’s bank.
Goods are shipped by the seller according to the terms agreed with the buyer.
The seller receives a bill of lading (BOL) once the goods are loaded on board the ship. The bill of lading will specify that the goods have been shipped on board.
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The seller hands over this bill of lading along with other shipping documents to his bank which will then pass it on to the issuing bank, requesting payment.
Once the issuing bank is satisfied with the correctness of the bill of lading and other accompanying shipping documents, it informs the buyer who makes payment to the bank.
The original shipping documents are released to the buyer for clearance and receipt of the goods when it arrives at the destination port.
The issuing bank releases payment to the seller’s bank.
As you can see here, shipped on board is an important notation on a bill of lading as far as a letter of credit is concerned. It confirms that goods have indeed been loaded and received onboard the ship.
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