In some cases, Letters of Credit (L/C) between the seller and buyer of a cargo stipulate that Bill of Lading (B/L) must be claused Freight Prepaid. Buyer of the cargo is then entitled to assume that freight has indeed been paid when the Bill of Lading (B/L) eventually come into buyer’s possession. In fact, be it is equal to fraud to reach an alternative agreement between seller and carrier (shipowner) and mark Bill of Lading (B/L) Freight Prepaid where none or only partial freight has been paid.
If shipowner releases Bill of Lading (B/L) marked Freight Prepaid before receiving any or all freight, that shipowner is in effect admitting receipt of all freight. Shipowner may find extreme difficulty in obtaining any balance, on the other hand shipowner is being obliged to deliver the cargo in full to the holder (receiver) of the Bill of Lading (B/L). There can be no objection in adding a clause of bills such as freight payable as per charterparty. Shipowner or shipowner’s port agent should retain Bill of Lading (B/L) marked Freight Prepaid until the freight is actually received by the carrier (shipowner).
Most voyage charter-party forms give a carrier (shipowner) a lien on the cargo for non-payment of freight and deadfreight. However, lien clause will not apply if the shipowner has released Freight Prepaid Bill of Lading (B/L). In some cases, charterers offer to issue a Letter of Indemnity (LOI) indemnifying shipowners for issuing Freight Prepaid Bills of Lading (B/L) without physical receipt of the freight. Depending on shipowner’s (carrier’s) trust of the charterer, some shipowners accept such a Letter of Indemnity (LOI), but wise shipowners demand that Letter of Indemnity (LOI) is countersigned by a first-class bank.