Whose Freight Is It Anyway? Consignee Liability for Unpaid Ocean Freight
A negotiable bill of lading is typically made out“ to the order” of a party and can subsequently be reassigned by endorsing the bill. 3 If a bill is negotiable, it acts as a document of title, and a carrier may typically only deliver goods when physically presented with the original bill.
ZACHARY R. CAIN Associate
A shipment of jet fuel travels from Singapore to California, where you, the consignee-owner, happily take possession of your cargo. 1 You had purchased the fuel on Cost and Freight(“ CFR”) terms, 2 so once the fuel is offloaded from the ship and you pay your supplier, you expect that should be the end of your concerns for the delivery. But, as it turns out, the shipper / charterer failed to pay the ocean carrier all the freight charges owed, and now the carrier is looking to you to get paid, claiming you are liable for the unpaid freight under the bills of lading and charterparty. Are you on the hook for those unpaid charges?
As with so many legal questions, it depends.
Who’ s Who and What’ s What? First, a quick vocabulary refresher.
A bill of lading is a document“ issued by the shipowner when goods are loaded on its ship, and may, depending on the circumstances, serve as a receipt, a document of title, a contract for the carriage of goods, or all of the above.” Asoma Corp. v. SK Shipping Co., 467 F. 3d 817, 823( 2d Cir. 2006). Generally,“ a bill of lading is the basic transportation contract between the shipper / consignor and the carrier, the terms and conditions of which bind the shipper and all connecting carriers.” Oak Harbor Freight Lines, Inc. v. Sears Roebuck, & Co., 513 F. 3d 949, 954( 9th Cir. 2008).
A non-negotiable bill of lading, while identifying a consignee, may not be negotiated, and instead is more like a receipt, as well as evidence of the contract of carriage. The carrier is obligated to deliver the shipped goods only to the specific consignee identified on the bill.
Freight in this context is the charge for transporting the goods by ocean carrier.
A carrier is the company that physically transports the goods for the shipper. 4
The term consignor or shipper refers to the party that delivers goods to a carrier for transport.
A consignee“ is the party designated to receive the shipped goods from the carrier.” Kanematsu Corp. v. M / V Gretchen W, 897 F. Supp. 1314, 1315( D. Or. 1995).
A notify party is“ the party to be notified when the goods arrive at their destination.” Dynamic Worldwide Logistics, Inc. v. Exclusive Expressions, LLC, 77 F. Supp. 3d 364, 367 n. 3( S. D. N. Y 2015). Frequently, but not always, the notify party is also the consignee.
What Happens When a Shipper Skips Out on Freight Charges? When Is a Consignee Liable? As the Ninth Circuit recently reiterated,“[ i ] t is well settled that the party who sends the goods— the‘ shipper’ or‘ consignor’— is primarily liable to the carrier for freight charges … After all, the shipper is presumably the consignor; the transportation ordered by him is presumably on his own behalf; and a promise by him to pay therefor is inferred.” Milos Prod. Tanker Corp. v. Valero Mktg. & Supply Co., 117 F. 4th 1153, 1159( 9th Cir. 2024)( internal quotes and citation omitted).
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1. The facts of this scenario are based on those in Milos Prod. Tanker Corp. v. Valero Mktg. & Supply Co., 117 F. 4th 1153( 9th Cir. 2024), cert. denied, 145 S. Ct. 1903, 225 L. Ed. 2d 647( 2025).
2.“ Shipments designated‘ CFR’ require the seller to pay the costs and freight to transport the goods to the delivery port, but pass title and risk of loss to the buyer once the goods‘ pass the ship’ s rail’ at the port of shipment.” BP Oil In’ l, Ltd. v. Empresa Estatal Petroleos de Ecuador, 332 F. 3d 333, 338( 5th Cir. 2003).
3. A negotiable bill“ calls for the freight to be delivered to the bearer of the bill; one who has possession of a negotiable bill of lading is deemed to have title to the shipped goods.” Met-Al, Inc. v. Hansen Storage Co., 828 F. Supp. 1369, 1375( E. D. Wis. 1993).
4. Ingram Barge Co., LLC v. Zen-Noh Grain Corp., 3 F. 4th 275, 277( 6th Cir. 2021). MAINBRACE • 8