With the booming international trade, the pace of cargo transportation is accelerating. Telex Release bills of lading (TELEX) are increasingly being adopted by import and export companies because they effectively solve the problem of “goods arriving but bills not arriving” and accelerate cargo flow.
However, this convenience carries numerous hidden risks, particularly in countries like the Middle East and South America. Due to unique trade policies and complex business environments, the risk of losing control of cargo ownership when using TELEX Release bills of lading increases dramatically. A single misstep could lead companies to lose both money and goods.
In this article, Weefreight will deeply analyze typical cases in this region, construct a risk matrix, and provide companies with precise prevention and control strategies.
- The Operational Logic and Risk Sources of TELEX Release Bills of Lading
TELEX Release bills of lading are essentially electronic derivatives of traditional bills of lading. The process is as follows: the shipper submits a telex release request to the carrier and provides a letter of guarantee. Upon acceptance, the carrier no longer issues the original bill of lading or recalls the full set of original bills of lading already issued. Instead, the carrier notifies the destination agent by telex, allowing the consignee to collect the goods with proof of identity or a faxed copy of the telex release bill of lading. This model bypasses the circulation of the original bill of lading, greatly improving collection efficiency. However, this also means that the shipper prematurely relinquishes control of the goods. If a credit crisis, operational error, or unusual policies in the destination country arise in the transaction chain, control of the goods can easily be lost, resulting in serious losses.
II. The Middle East: The Dilemma of Trade Sanctions and Credit Risk
(I) Saudi Arabia Case: Bank Sanctions Lead to Withholding of Payments and Loss of Title
Company A, a home textile exporter in Nantong, Jiangsu Province, met Company B, a Saudi Arabian buyer, through Alibaba International Station. The two parties began trading in 2020, agreeing to pay against a copy of the bill of lading (DP) using the FOB trade term, with the carrier selected by the buyer. In October of the same year, Company A shipped two shipments totaling over US$60,000. While the first shipment, valued at over US$30,000, was successfully paid, the second shipment, valued at US$29,000, encountered difficulties. During payment, the Bank of China informed Company A that the bank remitting the payment was on the sanctions list and that the payee and purchaser were different (the buyer, in a tax evasion arrangement, had remitted part of the payment from a company account and part from a personal account). Company A was required to provide a substantial amount of documentation, lest the payment be returned. Company A was unable to meet the bank’s requirements within a short period of time, and the payment was ultimately returned. At this point, Company A, trusting the buyer’s promise of “repayment upon return,” telexed the bill of lading as per the contract without receiving the repaid amount. However, after receiving the goods, the buyer delayed rescheduling payment, leaving Company A in a difficult position.
(II) Risk Matrix Analysis
Credit Risk: Under the DP settlement method, the buyer’s creditworthiness is crucial. In this case, the Saudi buyer, Company B, failed to fulfill its promise of repayment after the payment was returned, maliciously withholding payment and severely damaging Company A’s interests. This reflects the fact that in Middle Eastern trade, companies often fail to assess the creditworthiness of buyers. They are prone to falling into credit traps when rashly conducting business and implementing telexed releases based solely on a few past transaction records or verbal promises.
Policy Risk: Due to the complex geopolitical landscape of the Middle East, the region is often subject to various international sanctions, and bank settlement channels are unstable. If a company fails to pre-emptively check whether the bank in the trading partner’s country is on the sanctions list and fails to include clauses in its contracts to address such policy changes, it could lose control of the goods after releasing the bill of lading by telex if payment is blocked due to sanctions, resulting in the loss of both money and goods.
Operational Risk: When Company A was clearly informed by the bank that there were payment issues and the risk of a return, it failed to adhere to the principle of “releasing the bill upon receipt of payment” and blindly trusted the buyer, prematurely releasing the bill of lading by telex. This significant operational error directly led to the loss of control over the goods and highlights the company’s lack of a rigorous risk control mechanism in its decision-making process for telex releases.
III. South America: A Cargo Ownership Crisis Triggered by Policy Orientation and Freight Forwarding Chaos
(I) Brazilian Case: New Customs Regulations and Freight Forwarder Negligence Lead to the Release of Goods Without B/L
In October 2018, Shaoxing Xuerui Import and Export Co., Ltd. commissioned Aona Global Logistics (Shenzhen) Co., Ltd. to ship a batch of fabric worth US$77,539.43 from Ningbo, China to Navegantes, Brazil. The foreign buyer prepaid US$17,970, leaving US$59,569.43 unpaid. Aona issued a House Bill of Lading (BL) stating that Xuerui was the shipper and BELL was the consignee and notify party. The cargo was actually carried by Yang Ming Marine Transport, and Ningbo Xinggang International Shipping Agency Co., Ltd. issued an Ocean Bill of Lading (BL) on behalf of the actual carrier. Aona held the original Ocean BL. The cargo arrived at the port of destination on February 4, 2019, and was picked up by the consignee on February 8, without having the original bill of lading returned. Xuerui sued Ona, seeking compensation for the loss of payment resulting from the release of goods without a bill of lading. Ona argued that the goods were released from a customs-controlled warehouse after being delivered to the port authorities in accordance with Brazilian law, and that it and the actual carrier did not consent to or assist in the release, thus disclaiming liability. Ultimately, the court ruled that Ona was not liable for delivering goods without an original bill of lading, and Xuerui’s claim for payment was unsuccessful.
(II) Risk Matrix Analysis
Policy Risk: In 2013, the Brazilian Ministry of Finance amended its regulations, stipulating that after customs clearance, importers can collect goods without the original bill of lading. The customs clearance process now requires the importer or freight forwarder to take the original bill of lading to the shipping company in exchange for a delivery note, then proceed to customs for clearance. Upon clearance, the goods can be collected with a customs goods release certificate. This policy change weakened the carrier’s control over the goods, leaving companies at risk of having their goods released without a bill of lading, regardless of whether the bill of lading was released electronically or through normal bill of lading transactions. Furthermore, Brazil’s policy of streamlining customs clearance procedures and improving efficiency has, to a certain extent, compromised exporters’ rights to their goods.
Freight Forwarding Risks: In this case, freight forwarder Aona, despite holding Ocean BL, failed to effectively manage the cargo delivery process and, when the cargo was picked up at the port of destination, failed to fulfill its obligation to safeguard the shipper’s cargo rights. The South American freight forwarding market is plagued by irregularities. Some freight forwarders, driven by profit, collude with importers to release cargo in violation of regulations. Alternatively, due to insufficient operational capabilities, they fail to respond effectively to policy changes at the port of destination, resulting in cargo losses for exporters. Companies that choose to work with freight forwarders with poor qualifications and a poor reputation will significantly compromise cargo rights when using telex release bills of lading.
Legal Risks: Disputes involving telex release bills of lading and cargo release without bills of lading vary significantly across different countries. The laws of some South American countries are vague on carrier liability, tending to protect the interests of domestic importers. This makes it difficult and costly for exporters to enforce their rights there. For example, even though Xuerui Company pursued legal action to enforce its rights, it ultimately lost due to the destination country’s laws’ exemption of carrier liability. This highlights the shortcomings of companies in cross-border trade, such as insufficient understanding of destination country laws and the lack of legal risk mitigation plans.
IV. Risk Prevention and Control Strategy Construction
(I) Preliminary Credit Assessment
Establish a professional credit assessment team or utilize a third-party credit rating agency to conduct comprehensive background checks on potential trading partners in the Middle East and South America, covering factors such as financial status, operating history, and past trade dispute records. Transaction limits, settlement methods, and cargo release conditions should be set based on the assessment results. Telegraphic release bills of lading should be strictly avoided for clients with low credit ratings.
(II) Detailed Contract Terms
Key terms such as the applicable conditions for telegraphic release bills of lading, payment timelines, and the cargo pickup process at the port of destination should be clearly defined in the trade contract. To address the risk of bank sanctions in the Middle East, stipulate that if payment is delayed due to policy reasons, the buyer must change the paying bank or provide another valid payment method within a specified time period; otherwise, the seller has the right to reclaim the goods. To address policy changes in South America, stipulate that if policy adjustments at the port of destination affect cargo ownership, the buyer must assume additional security liability or pay the full payment in advance.
(3) Freight Forwarder Qualification Review
Select a freight forwarder with extensive operational experience, a good reputation, and NVOCC (Non-Vessel Operating Common Carrier) qualifications in the Middle East and South America. Regularly assess the freight forwarder’s service quality and business compliance. Sign a detailed freight forwarder service agreement that clearly defines the freight forwarder’s responsibilities and obligations during telex release bills of lading operations, including safeguarding cargo ownership, promptly transmitting cargo information, and responding to emergencies at the port of destination. If the freight forwarder fails to fulfill these responsibilities and causes damage to cargo ownership, the freight forwarder will be held accountable according to the agreement.
(4) Legal Risk Warning
Employ professional lawyers familiar with international trade and Middle Eastern and South American laws. Conduct regular legal training to ensure that business personnel understand the impact of the latest regulatory and policy changes in the destination country on telex release bills of lading operations. Before major transactions, consult with a lawyer and develop a legal risk response plan. If a cargo ownership dispute arises, the plan can be quickly activated to maximize legal recovery.
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