Letter of Credit Forum

It is not clear who "XXXX bank" is. Is it the issuing bank or the advsing bank?

First up, from my experience, you will find it hard to convince any chinese supplier to accept this term, and their bank will certainly advise them against it.  They are likely to insist on the full set to be consigned to the order of the issuing bank, and with the full set to be presented under the LC.

Supposing the supplier agrees to despatch 2/3 B/Ls (consigned in this manner) direct to the buyer, but without the endorsment by the issuing bank, goods cannot be cleared. If the issuing bank were to endorse such B/Ls and allow clearance of goods in advance of a formal presentation under the LC, it would be obliged to pay under the presentation yet to be made. Understandably, it will only agree to such action, provided the applicant indemnifies the bank, and agrees to accept the documents as presented, notwithstanding any discrepancies that may arise.

Hi,

Why on earth does it take twenty days for the docs to get to you? Is that inefficiency on the part of your seller, their bank or your bank, or all three combined? The seller should be presenting docs within a maximum of say three days after vessel departure, their bank even though it has up to 5 banking days should only take no more than 2 days, there are two days courier transit from China to India, your bank should only take no more than 2 days even though it can take up to5 banking days. So we have say 3+2+2+2 equals 9 days plus throw in 2 more for a weekend. But equally it should be factored in by you as an undeniable fact of life that the ship will arrive at your end before the docs do.

Solution number 1: on your L/C show a presentation period of maximum 7 days to force the seller to present docs quickly.

Solution number 2: if cargo arrives before the docs come through your bank, arrange with your bank to issue an indemnity to the carrier to allow you to claim the goods, knowing then that your bank will probably take additional security from you and will not be able to reject the docs because of any discrepancies .

Solution 3: include on your L/C a clause that the B/Ls are to show "14 days free demurrage allowed at discharge port" to give you a breathing space till you receive the docs through the proper channels in the proper way.

I hope this helps. By the way, I'm curious, why do you want contact details of each respondent?

Bob

Thanks for the post. Talking about shipment, as another form of shipping, I don't know what is going on with the airline industry, but they keep losing money, and soon they'll all be charging a carry on fee. Spirit Airlines already does – but then again, the smaller value centered airlines have to in order to stay afloat. There has to be some reason why airlines are virtually running for payday cash advances, and getting desperate. Either they're paying out board members and administration an excessive amount, or they have to determine something else. (Well…if ANY business loses money, executives are being overpaid.) It's getting to the point where the only cost effective way to travel is either Greyhound or Amtrak.

Sir

You can amend the L/C as you mentioned and there is no any issue from any bank, if the beneficiary is accepting this clause.

Contact : tulsipillaiex@hotmail.com

Regards Tulsi / Dubai

Hello,

The ‘point’ behind the bill of lading – as opposed to any other seafreight document – is that control over the possession of the cargo (and/or its disposal) can be regulated through the document rather than through the tangible cargo. Put simply, the seller (as shipper) can stop a third party having access to the cargo by withholding the bill of lading from them.It should be self-evident that this can be best achieved with only one bill of lading in circulation, but if you are working with three, so be it. But, it should be equally self-evident that if you are working with three (or more) identical documents then the ‘magic property’ of the bill being the means to withhold access to the cargo can only remain true if all three bills travel together, are negotiated together and are handed over together.

That’s the first point. If the beneficiary is prepared to split the set of bills, then the bill of lading was not the appropriate document to call for in the first place.

A second ‘magic property’ of the bill of lading is that (if correctly endorsed), it can allow a holder to acquire the rights of the party from whom they acquired the document – including therefore the right to pass these rights onto a third or fourth party etc. In your example, the shipper (as beneficiary) can sell the bills to the bank (to whom the bills are consigned) and by endorsement; the bank can either pass control onto a specific third party (endorsed in full) or any ‘holder’ of the bill (endorsed in blank). For example, the bank may be withholding access to the goods (through their possession of the bill) until the applicant pays them for the credit. If the applicant defaults, the bank, by endorsing the bills, may sell the goods to another buyer.

Again, this whole scheme would collapse if the bank had less than ALL of the documents which have these powers.

Worse case, one bill goes through to the buyer – as per your proposal – and the documents are found (under the credit) to be discrepant. The consignee with the one ‘original’ bill claims the goods although simultaneously as applicant they let the credit expire by declining (through the issuing bank) any amendment.

How would the carrier distinguish the bank’s ‘true’ endorsement by way of a rubber stamp and a scribble on the back of a bill as opposed to any-old-rubber stamp that a less scrupulous buyer may concoct without the bank’s approval?

Perhaps worse still, imagine if one bill goes to the buyer (who as applicant defaults on the payment to the bank) and the beneficiary’s presentation is fully compliant. The bank tries to recoup their loss by on-selling the cargo to another buyer (by endorsement of their 2/3 ‘originals’) and the new ‘buyer’ then finds that the underlying goods have already been collected by the initial applicant...what then?

I understand your problem of transit times and demurrage and I would not assume the authority of the bank in this case, but I suspect you may need to tackle the delay problem differently.

For example you could either;

1.  Accept demurrage as being the cost of doing business with someone who does not trust you (for, if they trusted you, they would offer you a line of unsecured credit and you’d not need to open the bank credit to induce the shipment) or;

2.  Offer some other bank or non-bank security rather than a credit or;

3.  Simplify the credit to ensure a complaint presentation with the minimum of delays and thus enable the bank(s) to verify the documents that much quicker – keep it simple. The most elaborately worded credit will only get you paper, not cargo: so there is no security in making it complex – all that happens is the paper moves more slowly. Make it simple and help keep the paper moving. Perhaps even offer a waiver against rejecting discrepancies when the credit is first opened - but again, if this is the case, what was the point of the credit in the first place - a collection may be better suited and quicker...etc.

Other posters, better versed in this than I am, will no doubt be able to guide you further and may well have a more elegant solution for you to ponder...

phill doran

"...in armour bright, the merchant men..." 

Hi Friend,

this is common in shipments within the medeiterranean sea.

Naturally your bank will require to you to accept documents under l/c, as presented.

Other comments appreciated

Ciao