Letter of Credit Forum

Hello Catalyst
I am not sure what I have said that is 'contrary'? Perhaps I have expressed myself poorly...

First off, please bear in mind that “FOB” of itself is not only an “Incoterms” rule, it is a commercial term which has many meanings in many contexts – it is also a customs valuation symbol which has a separate meaning entirely separate and unconnected to commercial terms.
Certainly it is ALSO and Incoterms rule, and as an Incoterms rule it has always been restricted to sea and inland waterway transport. So, as an Incoterms rule, you would not use FOB in airfreight in a sales agreement, (but see my note below, my question on “CIF” in the context of the credit.)

In Incoterms rules, unless modified in the sales contract or by customary practice between the parties, the seller need only provide the buyer with the usual document to evidence the delivery of the cargo to the vessel’s rail. It is supplementary (and only on the buyer’s request and at their risk of failure to secure it) that the seller must specifically produce a document that also functions as a transport document.
Hence my disagreement with the advising bank’s statement: there is no direct association to FOB and a transport document. But, whatever document is called for, it must certainly evidence the maritime handover of the underlying goods.

If the advising bank has a right to reject the credit or query it, then perhaps there is a basis to reject the document in terms of the UCP or the credit itself, but that is NOT what was being said in the initial post. The advising bank was saying that the document was incompatible with the term. I contend that, not only is the advising bank’s assertion incorrect, as a general proposition it is outside the scope of banking for the bank to even contemplate the problem.

Commercial terms in general, and Incoterms rules in particular, regulate the relationship between the seller and the buyer. The credit is a contract between the beneficiary and the issuing bank. There is NO connection between these two sets of parties, neither in their respective contracts nor in the broader context at law – hence the ‘separateness' of the credit from the sales contract, a central tenant of the UCP.

Now, a question for you as a negotiating bank; A credit is presented to you along with a set of documents which are fully compliant in every respect. However, the credit calls for the Incoterms rule CIF (which we know to be seafreight only) but with an air waybill called for as the transport document. Remember, the documents are compliant, the air waybill is in order and the Incoterms rule CIF is emblazoned across the commercial invoice.
Now: is there a discrepancy in this contradiction?

Answer: I think it is “No” - but if you disagree, can you tell me under what article of the UCP you could possibly reject this?

tick, tick, tick (that’s time passing...)

We could, however, be sure that the tendering of the air waybill in terms of the sales agreement is unacceptable – either the document is wrong and Incoterms CIF is right or the air waybill is right and the Incoterms rule (that is to say, the seller and buyer’s choice of this rule) is incorrect. But it is all irrelevant in the credit

So, what advantage was it to the banker to know the Incoterms rule, how did the use of the Incoterms rules strengthen the banker’s, the applicant’s or the beneficiary’s position?

Commercial terms, formed under whatever rules, are private matters of contact between sellers and buyers.

In our case in point, the advising bank has no involvement or authority in the issue they are disputing.

Please, if I am unclear, let me know: this is a subject I enjoy debating and if you wish to engage me on it, I would welcome it.

However, it is only an opinion...

cheers

phill doran

 ...thus: another step on the road to mercantile enlightenment...