This document addresses the implications of using electronic Bills of Lading (eBL) in banking, particularly concerning the control banks have over the discharge process and their liability. eBL enhances the bank’s ability to manage the discharge process without additional liability. The sections below elaborate 2 possible scenarios. The first is in line with current industry practice, allowing the cargo discharge against a letter of indemnity when additional flexibility is needed. The second one is instead provides the bank with increased control over the release process

Scenario 1: Allowing cargo discharge with letter of indemnity

While the use of Secro eBL will substantially reduce the number of cases where a LoI would be needed, keeping in the financing agreement an option to use discharge LoIs would be a possible approach to achieve additional flexibility and preserve the current industry practice. This approach might be useful, for instance, during bank holidays or weekends, when the bank might not be able to promptly transfer the eBL to the final consignee for cargo discharge

Even if an LoI would be issued, the certain and traceable ownership of the eBL provided by Secro’s Vault and History Log services, would mitigate risk usually associated with the LoI

Scenario 2: Not allowing cargo discharge with letter of indemnity

The provision to use a discharge LoI can be omitted from the financing agreement. In this case it is worth nothing that the bank would enjoy much stronger control over the discharge process than what it happens today with paper bill of lading. In other words, If the provision allowing cargo discharge against an LoI is not included in the financing agreement, the vessel would be prevented from discharging without the surrendering of the eBL. This approach might be practical if the bank would decide to hold on the eBL in its vault, until certain conditions are met, or because the buyer defaulted.

Would this cause the bank to have additional liability?

Banks, when holding a paper BL as security, are not liable to the carrier under the paper BL unless they are also the consignee and demand delivery of the goods. The bank’s role as a holder of the paper BL does not inherently impose liability. Instead, liability arises only if the bank makes a claim under the paper BL or demands delivery in its own name. In the Secro eBL system, banks can instruct carriers without assuming additional liabilities, as the relationship between the charterer and the owner under the eBL remains unchanged. This separation ensures that the bank’s actions do not cause other contractual obligations unless the bank explicitly demands delivery. Furthermore, in cases where goods are discharged into storage under the custody of the bank, a collateral management agreement (CMA) can be utilized to ensure the proper handling and release of eBLs, maintaining the bank’s position as a holder of security.

If a Bank is a Holder and a Consignee (Interim Endorsee), or Just a Holder of eBL as Security, is the Bank Liable to Carrier Under eBL?

To be liable under a BL, the bank must fulfill three conditions: being a holder, being the consignee, and demanding delivery of the goods. Without demanding delivery, the bank is not liable under the BL, even if it holds the BL as security. Carriers may request directions from the bank when it is both a holder and a consignee, but the bank’s liability does not extend beyond providing reversible directions. When the bank holds the BL as security, carriers can request information but not directions. The bank’s involvement in the discharge process is limited to ensuring that the BL’s status as security is clear, without taking on additional responsibilities or liabilities.

Conclusion

The adoption of eBLs offers significant advantages in terms of flexibility, control and risk management for banks. Banks can either keep their current process unchanged, and allow for discharge against LoIs, or alternatively exclude the LoI option from their financing agreement, to achieve additional control without increasing liabilities

This white paper is not intended to provide legal advice and the reader is invited to conduct his/her own due diligence