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 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.
Anon-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).
But when the shipper/consignor is unavailable to recover against (due to insolvency or similar issues), carriers are motivated to find alternative targets for payment. The obvious option is the consignee, as the party who received the shipped goods and thereby received the benefit of the cargo’s shipment. Accordingly, it is not uncommon for an unpaid carrier to attempt to recover against the consignee based on the bills of lading under a breach of contract theory.[5]
Will a court hold the consignee liable for the outstanding charges? As one district court explained:
“A party is not bound to the terms of a bill of lading unless the party consents to be bound. Although intended third-party beneficiaries may enforce contract terms in their favor, the mere fact that a party is a beneficiary does not create contractual obligations for that beneficiary. Contractual obligations cannot be imposed on an intended beneficiary absent a showing that the third party manifested acceptance to be bound... The mere fact that a party is a consignee or third-party beneficiary is insufficient to warrant a finding that [that party] was bound by the terms contained in the bills of lading.”[6]
I Didn’t Agree to That, Did I?
There are a few recognized methods by which a non-party to a bill of lading will be held bound by the document’s terms.
First, a non-party consignee may accept the terms of the bill of lading if it files a lawsuit under the bill (say for damage to the cargo occurring during the voyage) and thereby attempts to benefit from the bill’s terms.[7]
Alternatively, acceptance of bill terms can be implied by a consignee’s longstanding course of conduct vis-à-vis the carrier. If a consignee repeatedly received cargo from the carrier in the past and acted per the carrier’s bill terms, the consignee is effectively estopped from later denying those same provisions should not apply.[8]
A consignee can also become a party to a negotiable bill of lading and thereby assume obligations under it by presenting the negotiable bill of lading to the carrier and accepting the goods under it. The act of presenting the negotiable bill serves to adopt the bill’s terms.[9]
Finally, if an agent of the consignee negotiates the bills of lading on the consignee’s behalf, traditional agency principles permit courts to find that the consignee impliedly consented to the bill’s terms.[10]
So, Whose Freight Is It Anyway?
In the case described at the outset of this article, the original negotiable bills of lading were not available when the vessel arrived. Instead, the carrier released the jet fuel based on a letter of indemnity issued by the shipper/charterer, who ultimately did not pay the freight due to the carrier and instead entered into a foreign debt restructuring action. The consignee denied any liability for the unpaid freight, noting that it had purchased the fuel under a contract placing the costs of shipment on the seller, who was not the shipper, and arguing that it had neither presented the negotiable bills nor otherwise demonstrated any affirmative “consent” to be bound by the applicable bills of lading or the obligation to pay freight. The district court granted summary judgment to the carrier based on the carrier’s argument that the consignee had impliedly consented to be bound by the bills of lading by accepting the cargo.
On appeal, the Ninth Circuit clarified that the key case relied upon by both the carrier and the district court did not go as far as they believed. The Court of Appeals explained that States Marine International, Inc. v. Seattle-First National Bank, 524 F.2d 245 (9th Cir. 1975), had only “modestly extended freight rules established in railroad cases to ocean carriers ‘operating under tariffs’—that is, from railroad common carriers to ocean common carriers.” In those earlier railroad cases, courts holding consignees liable for unpaid freight for goods shipped pursuant to non-negotiable bills had been primarily concerned with ensuring that publicly filed tariffs (i.e., standardized shipping rates set for common carriers) were evenly enforced, to avoid potential rate discrimination. But the jet fuel in this case had been shipped under private (and not common) carriage, such that States Marine did not apply and no implied obligation to pay the outstanding freight arose on the part of the consignee based on receiving the cargo. The Ninth Circuit accordingly reversed and remanded, given that the consignee had neither expressly nor impliedly consented to be bound by the applicable bills of lading.
This case points out the risk of potential double liability exposure to a consignee of goods when the shipper/charterer fails to pay freight costs to the ocean carrier. Consignees may wish to consider including indemnity language in their purchase contracts requiring the seller to indemnify the consignee should the carrier make a demand for freight at delivery. If not, and the consignee takes delivery of the goods upon presentation of the bill of lading, the consignee may subject itself to unexpected liability.
[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).
[5] Equitable theories of recovery, such as quantum meruit, are generally unavailable when a contract (like an ocean bill of lading, or a charterparty that may be incorporated by reference into the terms of the bill of lading) governs the specific transaction at issue.
[6]Dynamic Worldwide Logistics, 77 F. Supp. 3d at 374–75 (cleaned up; internal citations and quotations omitted).
[7]Kawasaki Kisen Kaisha, Ltd. v. Plano Molding Co., 696 F.3d 647, 655 (7th Cir. 2012). See also Kukje Hwajae Ins. Co. v. M/V HYUNDAI LIBERTY, 408 F.3d 1250, 1254 (9th Cir. 2005) (“We have held that a cargo owner ‘accepts’ a bill of lading to which it is not a signatory by bringing suit on it.”).
[8] See, e.g., Sea–Land Service, Inc. v. Landis, No. Civ. A. 94–6153, 1996 WL 4120 (E.D. Pa. Jan. 3, 1996) (holding that a consignee defendant was bound by the terms of a bill of lading where “[f]or approximately ten years, the defendant had been using the [common carrier] to deliver goods,” “all of the [common carrier’s] invoice-freight bills and bills of lading contained the provision [at issue]” and “there [was] absolutely no evidence that the plaintiff had ever contested the terms during th[e] contractual relationship”).
[9] See Neilsen v. Jesup, 30 F. 138, 139 (S.D.N.Y. 1887); OOCL (USA) Inc. v. Transco Shipping Corp., 2015 WL 9460565, at *4 (S.D.N.Y. Dec. 23, 2015). See also Ingram Barge Co., LLC v. Zen-Noh Grain Corp., 3 F.4th 275, 282 (6th Cir. 2021) (White, J., dissenting) (“[W]hat matters when dealing with a negotiable bill of lading is who physically presents the bill and accepts delivery of the cargo under it.”).
[10] See, e.g., Laufer Grp. Int'l v. Tamarack Indus., LLC, 599 F. Supp. 2d 528, 531 (S.D.N.Y. 2009); A.P. Moller–Maersk A/S v. Ocean Express Miami, 550 F.Supp.2d 454 (S.D.N.Y. 2008).
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