In addition to what precedes, the absence of credit knowledge limits the amount of unsecured loans extended in foreign trade and therefore most advances are based on some form of collateral. In the movement of goods, this security lies in the shipping documents which accompany the drafts drawn by the exporters. Because of the prime significance of these documents in all phases of foreign trade finance, they will be considered at the outset. The shipping documents attached to the drafts include, as a rule, the bill of lading, insurance policy or certificate, commercial, consular invoice and several miscellaneous certificates of minor importance. Most essential of the entire set is the bill of lading, which performs two distinct functions. In the first place, it serves as a receipt from the transportation company that the goods have been accepted for carriage and will be delivered to their destination. It is used also as a document which indicates the ownership of the goods.

These two functions offer a basis for classifying bills of lading according to carrier and to negotiability. Bills of lading may be of the following kinds: (1) railroad, for goods moved by rail between domestic points; (2) ocean, for freight shipped on board a vessel to for. eign countries; and (3) through, for merchandise trans_ ported by both rail and steamship or two different steamship lines from inland to foreign points. Bills of lading are not necessarily negotiable. The straight, or nonnegotiable form is filled out in the name of a specified party, known as the consignee, who has the right to demand delivery of the shipment from the carrier without even producing the bills of lading. This type offers no security to the banker who has acquired an interest in the goods through granting a loan to the shipper or consignor. A negotiable bill of lading only is regarded as satisfactory collateral for a lending bank, as this document must first be presented to the carrier before the consignee or any other party can take possession of the goods. Bills of lading are drawn directly to the shipper's order, or in blank and then indorsed by him. In this way the bank holding one or more copies controls the ownership of the goods and can transfer this title by mere indorsement. Bills of lading can be forged easily by freight agents acting in collusion with unscrupulous shippers, and in consequence banks suffered heavy losses for many years. The Knight-Yancey cotton frauds alone cost the banks several millions of dollars through payments made on bills of lading which were supposed to represent shipment of cotton, but which, in fact, were forgeries by railroad employees. To prevent the recurrence of these practices and to protect the rights of banks discounting drafts accompanied by bills of lading, Congress passed the Federal Bill of Lading Act which became effective on January 1, 1917. Among other provisions, this statute holds the carrier responsible for any bill of lading issued by its agents, whether the instrument be true or fraudulent.

The second document in the commercial set is the marine-insurance policy. This is a contract whereby a merchant or a shipowner is indemnified by an underwriter or assurer in event of loss sustained by the assured party. Insurance is not taken out to cover goods transported by rail, for under American law a domestic carrier is fully liable for goods. This statute does not affect an ocean steamship company, which assumes very few of the many risks encountered in conveying merchandise overseas. In forwarding a number of shipments, the sender usually applies to the insurance company for an open or floating policy covering all transactions, and under this general contract a separate insurance certificate is drawn to apply to each shipment. In time of hostilities, shippers also insure their goods against war risk. Since the close of the war mine-risk policies have been continued in order to indemnify owners of merchandise against possible loss from floating mines.

Third in the set of documents accompanying a foreign bill is the commercial invoice. This instrument contains a complete description of the merchandise, the terms under which it has been sold, and the parties involved. The invoice states the quality and quantity of the goods in detail, the price and all discounts, together with the names of the buyer and seller and any agent who may have been party to the sale. The commercial invoice is of particular interest to the bank, which learns the price paid for the goods and is thereby aided in judging the extent of the loan to be granted on this security.

In addition to the bill of lading, insurance policy, and commercial invoice, a foreign draft may also be accompanied by several other documents. In order to secure the entry of goods into certain countries, it is necessary to obtain a consular invoice in which the government representative of the importing country certifies to the origin of the goods and their current value as expressed in the market of the exporting country. The consular invoice can be used by customs officers of the importing country as a means of levying ad valorem tariff duties which are based on the selling price of the goods. Governments sometimes insist upon a health certificate which certifies to the sanitary condition of certain classes of exports which may carry contagious disease. This statement is required especially in the case of hides and skins in order to guard against the spread of anthrax. Importers often demand certificates of weight, measure, and analysis so as to assure themselves that they will receive merchandise of the quantity and quality specified in the contract of sale. Finally, the banker who purchases the bill may exact from the exporter a letter of hypothecation, which recognizes the assignment of all the above documents, and thereby the ownership of the goods, to any holder of the draft.