Forwarders Face Increased Risk from Switch Bills

Several organizations, including WCA and iContainers, have warned forwarders about the increased risks associated with issuing “switch” bills of lading. Switch bills are obtained from the carrier on request of the shipper holding the original bills of lading, replacing the originals (which must be surrendered) with a fresh set of originals indicating a different shipper or consignee.

While this practice serves a commercial purpose – generally, to substitute the name of the wholesaler/merchant for the name of the underlying supplier to protect commercial information – it also exposes the freight forwarder to additional risks, including non-payment of duties or charges and even fraud.

According to a recent report by Lloyd’s List, WCA has discouraged members from using switch bills altogether, citing a rising number of cases in which the use of switch bills has resulted in disputes. WCA will no longer arbitrate disputes between members where switch bills have been used.

The iContainers guide on switch bills highlights numerous sources of financial and fraud risk, and has also warned forwarders to exercise greater caution in their use. Where because of a mistake or other reason changes need to be made to a Bill of Lading, they recommend issuance of an amended bill of lading (and paying the carrier’s required fee) rather than obtaining switch bills, according to the Lodestar.

Where the commercial decision is made to use switch bills, additional care and due diligence is required. First and foremost you need to verify the identities of the new parties. Consider where they are located, whether they have assets, and your ability to recover charges from them. Ensure you have established a relationship with them based on the application of the CIFFA STCs (or the STCs of your national association). Make sure responsibilty for e.g. insurance and customs charges is clear. Second, take particular care to ensure the terms of the switch bill match those of the original. If, for example, the new bills are marked “freight prepaid” then a court would likely consider that the forwarder had given up the right to claim freight from the shipper.

Finally, caution as always must be taken in considering any indemnity or guarantee offered by the customer for the issuance of switch bills – or for any other liability, for that matter. Without actual security, generally provided through a bank or similar financial institution, your customer’s indemnity is little more than a second promise to pay charges for which they are already liable and does nothing to ensure assets will be present to satisfy any debt or judgment.

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