Letter of Credit Discrepancies – Letter of Credit Consultancy Services

Blank Back Bill of Lading Not Acceptable

Ozgur Eker (CDCS) Bill of Lading, Bill of Lading Discrepancies, How to Work With a Letter of Credit, Letter of Credit Basics, Letter of Credit Discrepancies, Letter of Credit Documents 28 November 201928 November 2019Blank Back Bill of Lading, Short Form Bill of Lading

A Blank Back Bill of Lading, also known as Short Form Bill of Lading, is a type of transport document that does not include the terms and conditions of the shipment (contract of carriage) on the back side.

Short form bills of lading are not in high demand.

Especially under the letters of credit payments, issuing banks generally demand long form bills of lading, by simply prohibiting presentation of short form bills of lading.

Some examples are:

Short form, blank backed bill of lading not acceptable.
Short form, blank backed and freight forwarder bill of lading not acceptable
Short form, blank backed, claused stale bill of lading / air way bill not acceptable.
Short form, blank backed, charter party and through bills of lading is not acceptable.

What to Do If Letter of Credit Prohibits Presentation of Blank Back Bills of Lading

As an exporter you must examine Field 46A: Documents Required and Field 47A: Additional Conditions.

If you determine that the letter of credit prohibits presentation of blank back/short form bills of lading, you must make sure that the bill of lading you will present contains the terms and conditions of the shipment (contract of carriage) on the back side of the bill of lading.

It is advisable to discuss this issue with your freight forwarder before shipment takes place.

Costs Additional to Freight

Ozgur Eker (CDCS) Bill of Lading Discrepancies, How to Work With a Letter of Credit, Letter of Credit Basics, Letter of Credit Discrepancies 22 February 20196 April 2019Costs Additional to Freight, Costs Additional to Freight Discrepancy

If a letter of credit indicates that costs additional to freight are not acceptable, a transport document is not to indicate that costs additional to the freight have been or will be incurred.

If you are working with CIF, CFR, CIP, CPT trade terms under letters of credit you are likely to see a statement under field “47A: Additional Conditions” such as “Costs additional to freight is prohibited.”

The logic behind these kinds of statements is to fix the freight cost by the issuing banks to the value that was indicated in the credit.

Normally letter of credit rules allow additional costs which may be shown on the transport documents such as multimodal transport documents or bills of lading.

However issuing banks frequently disallow charges additional to freight by inserting a statement in the credits on this effect, when the trade term is CFR, CIF, CIP or CPT.

Remember on FOB, FCA and EXW terms freight is payable at destination, so you should not be having any problem arising from prohibition of costs additional to freight.

You need to look at the letter of credit text on DAT, DAP and DDP trade terms to determine whether costs additional to freight is prohibited or not.

Examples:
47A: Additional Conditions:

Transport document bearing reference by stamp or otherwise costs additional to freight is prohibited.
Costs additional to freight are prohibited.
Costs additional to freight are not allowed.

Which Costs Can be Regarded as Costs Additional to Freight?

According to the International Standard Banking Practice an indication of costs additional to freight can be shown on the transport documents by two ways:

by express reference to additional costs
by the use of trade terms which refer to costs associated with the loading or unloading of goods, such as, but not limited to,
- Free In (FI),
- Free Out (FO),
- Free In and Out (FIO) and
- Free In and Out Stowed (FIOS).

What Happens If a Letter of Credit Prohibits Costs Additional to Freight?

According to the International Standard Banking Practice if a credit indicates that costs additional to freight are not acceptable, a transport document is not to indicate that costs additional to the freight have been or will be incurred.

Related Articles:

Top 5 Discrepancies in a Commercial Invoice

Ozgur Eker (CDCS) Commercial Invoice Discrepancies, Letter of Credit Discrepancies 21 February 20196 April 2019Commercial Invoice Discrepancies, Description of Goods Discrepancy, Incoterms Discrepancy

Commercial invoice is one of the key documents in a letter of credit transaction.

Almost all documentary credits, either commercial or standby, requesting a commercial invoice from the beneficiaries.

On this article I would like to highlight 5 most common commercial invoice mistakes.

Description Of Goods On The Commercial Invoice Does Not Correspond With The Letter of Credit:

This is one of the most frequently seen discrepancies on commercial invoices.

According to the latest letters of credit rules the description of the goods, services or performance in a commercial invoice must correspond with that appearing in the credit.

As a result beneficiaries must be very careful when completing the description of goods on commercial invoices.

Example of a Description of Goods Discrepancy:
Letter of credit:
45A: Description of Goods &/or Services
Crushing plant. As per proforma invoice no. :P-111-7 R02 dated 03/07/2012 CFR, Bahrain.

Commercial Invoice
Second Hand Crushing Plant. As per proforma invoice No.: P-111-7 R02 dated 03/07/2012 CFR, Bahrain.

Reason for Discrepancy: Description in the commercial invoice would represent a change in nature, classification or category of the goods.

Commercial Invoice Does Not Show Trade Terms (Incoterms):

When importers and exporters mutually agreed on international trade terms (Incoterms) by stipulating them in a letter of credit, they are bound by these international trade terms as a material part of the contract.

This means that if letter of credit stipulates international trade term under the description of goods section, exporters have to mention this trade term on the commercial invoice as indicated in the credit.

Example of a Trade Term Discrepancy:
Letter of Credit:
45A: Description of Goods &/or Services
420 pcs. of black tires size 275/70R225TL148/145J (152e) MC85 model 2011 as per pro. Inv. No. 011 dated 9/6/2011 FOB: Rotterdam Port – Netherlands Incoterms 2010

Commercial Invoice
420 pcs. of black tires size 275/70R225TL148/145J (152e) MC85 model 2011 as per pro. Inv. No. 011 dated 9/6/2011 FOB: Rotterdam Port – Netherlands Incoterms 2000

Reason for Discrepancy: Incoterms not mentioned correctly. Letter of credit stipulates FOB: Rotterdam Port – Netherlands Incoterms 2010 whereas commercial invoice indicates the trade term as FOB: Rotterdam Port – Netherlands Incoterms 2000.

Commercial Invoice Indicates Goods Which Are Not Mentioned In The Letter Of Credit:

An invoice is not to indicate goods, services or performance not called for in the credit.

This applies even when the invoice includes additional quantities of goods, services or performance as required by the credit or samples and advertising material and are stated to be free of charge.

Example of a Commercial Invoice Indicates Goods Which are not Mentioned in the Letter of Credit Discrepancy:
Letter of Credit:
45A: Description of Goods &/or Services
Power Transformer offload 1 Unit Onan 3phs Cu/cu Dyn11 50hz

Commercial Invoice
Power Transformer offload 1 Unit Onan 3phs Cu/cu Dyn11 50hz
Transformer Spare Parts (Free of Charge)

Reason for Discrepancy: Transformer Spare Parts are not called in the letter of credit. Mentioning these goods on the commercial invoice even if free of charge creates a discrepancy.

Proforma Invoice Presented Instead of a Commercial Invoice:

When a credit requires presentation of an “invoice” without further description, this will be satisfied by the presentation of any type of invoice (commercial invoice, customs invoice, tax invoice, final invoice, consular invoice, etc.).

However, an invoice is not to be identified as “provisional”, “pro‐forma” or the like.

Exporters should not present a proforma invoice instead of a commercial invoice.

Quantity of Goods Not Consistent With Other Documents:

Any total quantity of goods and their weights or measurements shown on the invoice is not to conflict with the same data appearing on other documents.

Presentation – Top 10 Letter of Credit Discrepancies

Ozgur Eker (CDCS) Letter of Credit Discrepancies, Presentation 31 January 20198 February 2019Letter of Credit Discrepancies, Presentation

What is a Discrepancy?

There is no definition of a discrepancy under the current letter of credit rules, UCP 600.
Discrepancy can be defined as inconsistencies on the documents which are presented to the banks under letters of credit transactions.

Prevalence of Discrepancies

Banks find discrepancies on most of the letter of credit presentations.
According to ICC Trade Finance Surveys on average %70 of letters of credit presentations found to be discrepant on first presentation.

Distribution of Discrepancies

This presentation explains the most frequently seen discrepancy types.
By understanding these discrepancies, you will be able to prevent possible grounds for refusal of the documents.

Most Common Discrepancy 1: Inconsistency in Documents

Data on each document presented under a letter of credit must be consistent to each other.
UCP 600 states that “Data in a document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit.”

Most Common Discrepancy 1: Inconsistency in Documents

Example: If the description of goods stated differently under the same presentation on two different documents, this will create an inconstancy in documents discrepancy.
- Bill of Lading: Description of goods: “Red Apples”
- Certificate of Origin: Description of goods: “Bananas”

Most Common Discrepancy 2: Incorrect Data

UCP 600 states that ” A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank must examine a presentation to determine, on the basis of the documents alone, whether or not the documents appear on their face to constitute a complying presentation.”
If the exporter enters a data in any requested document resulting a conflict with the credit terms and conditions, then the exporter will receive an incorrect data discrepancy.

Most Common Discrepancy 2: Incorrect Data

Example : Letter of credit asking a bill of lading which should be showing “Port of Loading” as “Newark Port USA” as below,

44E: Port of Loading/Airport of Departure
NEWARK PORT USA

• If presented bill of lading is showing “Port of Loading” as “Port of Philadelphia USA”,
then the beneficiary will be receiving an incorrect data discrepancy from the issuing bank.

Most Common Discrepancy 3: Late Shipment

Latest date of shipment is the latest date for loading on board/dispatch/taking in charge.

There are two important point needs to be taken care of:

Latest date of shipment is the date of the transport document not your loading date from your factory. For example, if credit requires of a bill of lading as a transport document; the latest date of shipment is the on board date of bill of lading.
Latest date of shipment will apply only if the credit request presentation of a transport document.

Most Common Discrepancy 3: Late Shipment

• Example : Letter of credit requires presentation of a bill of lading with the details below.

46A: Documents Required
3/3 Original bill of lading clean and shipped on board to the order of Banque al Baraka d`Algeria, notify applicant marked freight prepaid.
44C: Latest Date of Shipment
121210 (Should be read as 10.December.2012)

•The beneficiary has to present a bill of lading showing “ship on board” date earlier than the latest date of shipment indicated in the letter of credit.

Most Common Discrepancy 4: Late Presentation

If presentation contains a transport document, the exporter has to collect all the required documents and present them to the nominated bank within 21 days after the shipment according to the letter of credit rules.
Some issuing banks may shorten this standard period, especially when the transit time between port of loading and port of discharge is very short.
If the exporter could not complete the presentation within permitted period, then the exporter will likely to receive a late presentation discrepancy

Most Common Discrepancy 4: Late Presentation

Example : Letter of credit requires presentation of a bill of lading with the details below.

31D: Date and Place of Expiry
130121 China
46A: Documents Required
Full set of clean shipped on board ocean bills of lading drawn to the order of United Bank ltd, Sana’a Yemen showing freight prepaid and marked notify Applicant.
48 : Period for Presentation
21 Days

Exporter has to complete the presentation not later than 21 days after the bill of lading date.

Most Common Discrepancy 5: Letter of Credit Expired

According to current letter of credit rules except as provided in sub-article 29 (a), a presentation by or on behalf of the beneficiary must be made on or before the expiry date.
If the beneficiary makes the presentation after the expiry date, then he will likely to receive a letter of credit expired discrepancy.
Normally banks should not accept any document that has been presented after the expiry date of the credit. However, banks mostly prefer leaving the ultimate decision to the applicants on this regard and evaluate late presentation after the expiry date as a discrepancy.

Most Common Discrepancy 6: Absence of Documents

The exporter has to present exact number of documents as it is requested under the letter of credit. For example, if the credit requires:

a. “Invoice”, “One Invoice” or “Invoice in 1 copy”, it will be understood to be a requirement for an original invoice.
b. “Invoice in 4 copies”, it will be satisfied by the presentation of at least one original and the remaining number as copies of an invoice.
c.“One copy of Invoice”, it will be satisfied by presentation of either a copy or an original of an invoice.

Most Common Discrepancy 7: Carrier not defined on the bill of lading / bill of lading signed by Improper Authority

UCP 600 Article 20 indicates that :

A bill of lading, however named, must appear to:

i. indicate the name of the carrier and be signed by:

– the carrier or a named agent for or on behalf of the carrier, or
– the master or a named agent for or on behalf of the master.

Any signature by the carrier, master or agent must be identified as that of the carrier, master or agent.
Any signature by an agent must indicate whether the agent has signed
for or on behalf of the carrier or for or on behalf of the master.

Most Common Discrepancy 8: Incorrect Description of Goods

• The description of the goods, services or performance in the invoice must correspond with the description in the credit.
• The description of goods, services or performance in an invoice must reflect what has actually been shipped or provided.
• If a trade term is part of the goods description in the credit, or stated in connection with the amount, the invoice must state the trade term specified, and if the description provides the source of the trade term, the same source must be identified (e.g., a credit term “CIF Singapore Incoterms 2000” would not be satisfied by “CIF Singapore Incoterms”).

Most Common Discrepancy 9: Incorrect Endorsement / Absence of Endorsement

If a bill of lading is issued to order or to order of the shipper, it must be endorsed by the shipper.
The draft must be endorsed, if necessary.
If a signature or endorsement is required to be on a document consisting of more than one page, the signature is normally placed on the first or last page of the document, but unless the credit or the document itself indicates where a signature or endorsement is to
appear, the signature or endorsement may appear anywhere on the document.

Most Common Discrepancy 10: Partial Shipment or Transshipment Effected Despite L/C Terms

Transhipment means unloading from one means of conveyance and reloading to another means of conveyance. (whether or not in different modes of transport)
Partial shipment means shipment of goods not whole in one lot, but in more than one lots.
If the letter of credit prohibits partial shipments and/or transhipment, the exporter must act accordingly.
Please keep in mind that the letter of credit rules allow transhipments under certain circumstances even if the credit prohibits so.

Correct Addresses of the Beneficiary and the Applicant

Ozgur Eker (CDCS) How to Work With a Letter of Credit, Letter of Credit Basics, Letter of Credit Discrepancies 11 June 20187 April 2019Applicant, Beneficiary, Name and Address

When the addresses of the beneficiary and the applicant appear in any stipulated document, they need not be the same as those stated in the credit or in any other stipulated document, but must be within the same country as the respective addresses mentioned in the credit.

Laura from Germany is asking a question regarding the beneficiary’s address.

She would like to know whether banks can control the address indicated in the letter of credit by comparing it with their internal systems. Below you can find her question and my answer respectively.

Question:

Good day,

I would like to know whether you can advise what responsibility the bank would have if they receive an L/C for their client, to the correct NAME of the beneficiary BUT the address indicated in the L/C does not match with the address in the registry of the bank (customer’s address).

Is the bank supposed to recheck this information BEFORE accepting the L/C?

Also, when the bank receives the shipping documents from their client, again the address in the invoice, packing list, etc. is NOT the same address as they one they have in their registry.

Would very much appreciate your comments.

Thanks / regards

Laura

Answer:

Dear Laura,

“Wrong name and address of the beneficiary or applicant” is one of the most common discrepancy types under l/c transactions.

A beneficiary of the letter of credit has to present discrepancy free documents in order to get his payment from the issuing bank.

The issuing bank has to follow the letter of credit rules when checking the documents.

Related article of the letter of credit rules is mentioned below:

Article 14 – Standard for Examination of Documents
j: When the addresses of the beneficiary and the applicant appear in any stipulated document, they need not be the same as those stated in the credit or in any other stipulated document, but must be within the same country as the respective addresses mentioned in the credit. Contact details (telefax, telephone, email and the like) stated as part of the beneficiary’s and the applicant’s address will be disregarded. However, when the address and contact details of the applicant appear as part of the consignee or notify party details on a transport document subject to articles 19, 20, 21, 22, 23, 24 or 25, they must be as stated in the credit.
k. The shipper or consignor of the goods indicated on any document need not be the beneficiary of the credit.

As it is seen from above quotes, neither the address of the beneficiary or the address of the applicant has to match the addresses stated in the letter of credit. Only exception of this rule is the the consignee or notify party details on the transport documents.

Additionally, according to the letter of credit rules the shipper or consignor of the goods indicated on any document need not be the beneficiary of the credit.

Which means that 3rd party documents are acceptable.

But in some situations, the issuing bank do not allow presentation of 3rd party documents by adding special conditions to the letter of credit.

As a result it is advisable to use both beneficiary and applicant names on the documents as stated in the letter of credit.

Also try to copy the correct addresses of the beneficiary and the applicant to the documents from the letter of credit without making any mistake.

There is no ground for a bank to check a beneficiary’s address with his internal system, as long as the letter of credit do not indicate so.

I assume the issuing bank may have suspected from a fraudulent transaction.

What Happens If a Letter of Credit Calls For a Wrong Incoterms?

Ozgur Eker (CDCS) Commercial Invoice Discrepancies, How to Work With a Letter of Credit, Letter of Credit Basics, Letter of Credit Discrepancies 20 May 20187 April 2019Incoterms, Incoterms Discrepancy, Letter of Credit Discrepancies

Daily practice shows us that Incoterms are not used in a correct way as per ICC rules.

Exporters and importers frequently use wrong incoterms in their sales contracts.

These kinds of mistakes would be very evident, especially when the parties decide to use a trade term with an unsuitable mode of transport.

On today’s post I try to explain the consequences of using a wrong incoterms under a letter of credit transaction.

Understanding the Incoterms:

Incoterms are the short form of International Commercial Terms and they are published by Commercial Law and Practice Commission of ICC.

Latest version of Incoterms rules are called Incoterms 2010 which has been in force since 01.01.2011.

According to Incoterms 2010 rules

FAS FREE ALONGSIDE SHIP (… named port of shipment),
FOB FREE ON BOARD (… named port of shipment),
CFR COST AND FREIGHT (… named port of destination) and
CIF COST, INSURANCE AND FREIGHT (… named port of destination) can only be used in a port-to-port sea transportation.

Remaining 7 seven Incoterms,

EXW EX WORKS (… named place),
FCA FREE CARRIER (… named place),
CPT CARRIAGE PAID TO (… named place of destination),
CIP CARRIAGE AND INSURANCE PAID TO (… named place of destination),
DAT DELIVERED AT TERMINAL,
DAP DELIVERED AT PLACE and
DDP DELIVERED DUTY PAID (… named place of destination) can be used in all modes of transport including port-to-port sea transportation.

incoterms 2010 classification — Incoterms 2010 Classification

But what happens if a letter of credit calls for a wrong incoterms such as FOB Singapore Changi Airport Incoterms 2010 or CIF Tokyo Airport Incoterms 2010?

According to ICC Banking Commission the exporter must fulfill the conditions stated in the letter of credit.

Even if a wrong Incoterms has been used in the letter of credit, the exporter should use this wrong trade term without making any corrections, otherwise issuing banks will refuse his presentation and he may be having difficulties to receive his payment under L/C.

Example 1:

Letter of Credit:

45A: Description of Goods &/or Services
CRUSHING PLANT. AS PER PROFORMA INVOICE NO.:P-111-7 R02 DATED 03/07/2012 FOB Singapore Changi Airport Incoterms 2010

Commercial Invoice :
CRUSHING PLANT. AS PER PROFORMA INVOICE NO.:P-111-7 R02 DATED 03/07/2012 FCA Singapore Changi Airport Incoterms 2010

Reason for Discrepancy: Trade terms stated in the commercial invoice is not consistent with the letter of credit.

Example 2:

Letter of Credit:

45A: Description of Goods &/or Services
6480CARTONS PREMIUM BRAND A10 CANNED PINEAPPLE CHUNKS IN NATURAL JUICE CIF NEWYORK PORT USA INCOTERMS 2000

Commercial Invoice:
6480CARTONS PREMIUM BRAND A10 CANNED PINEAPPLE CHUNKS IN NATURAL JUICE DAT NEWYORK PORT USA INCOTERMS 2010

Reason for Discrepancy: Trade terms stated in the commercial invoice is not consistent with the letter of credit.

Top 10 Letter of Credit Discrepancies

Ozgur Eker (CDCS) How to Work With a Letter of Credit, Letter of Credit Basics, Letter of Credit Discrepancies 16 May 20187 April 2019Bill of Lading Discrepancy, Certificate of Origin Discrepancies, Commercial Invoice Discrepancies, Incoterms Discrepancy, Inspection Certificate Discrepancies, Late Presentation Discrepancy, Late Shipment, Late Shipment Discrepancy, Letter of Credit Discrepancies, Letter of Credit Expired, Packing List Discrepancies

Discrepancy can be defined as an error or defect, according to the issuing bank, in the presented documents compared to the documentary credit, the UCP 600 rules or other documents that have been presented under the same letter of credit.

According to the LC Market Intelligence Survey conducted by DC-Pro in year 2005 the average discrepancy rate on first time presentations under export letters of credit is 56%.

Although the report is quite out-dated, the figures are presumably almost identical today.

Discrepancies create problems especially for the exporters.

Once the documents are rejected, the issuing banks can only pay the credit amount, if and only if the importers accept the discrepancies.

Leaving the payment decision to the importers’ hands is a great deal of frustration for the exporters.

There are many reasons why exporters present discrepant documents, but the most important ones are:

lack of knowledge,
could not understand the letter of credit mechanism and
underestimating the risk factors associated with the letter of credit transaction.

On this page, you can find 10 most frequently seen discrepancies with examples in letters of credit.

Discrepancy Number 1 : Inconsistency in Documents

UCP 600 states that “Data in a document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit.”

So if banks find inconsistency between documents, they raise a discrepancy.

Example: Container Number not in Accordance with the Bill of Lading Discrepancy

Discrepancy Number 2 : Incorrect Data

Information any one of the document presented is not comply with the letter of credit terms and conditions.

Banks examine the documents under a letter of credit according to the letter of credit rules in order to determine whether the presentation is complying or not.

According to Article 2, a complying presentation means a presentation in accordance with the terms and conditions of the credit, the applicable provisions of the UCP 600 and international standard banking practice.

As a result if banks find out that at least one of the letter of credit condition is not indicated on the presented documents, they raise a discrepancy.

Example: Insurance Coverage is Insufficient Discrepancy

Discrepancy Number 3 : Late Shipment

Goods shipped after the permitted shipment date or period.

If date of the transport document such as the bill of lading date corresponds to a later date than the latest date of shipment stipulated in the credit, then banks raise the late shipment discrepancy.

Example: Multimodal Bill of Lading Late Shipment Discrepancy

Discrepancy Number 4 : Late Presentation

Documents presented later than 21 days after shipment or after the number of dates stipulated in the letter of credit.

If the credit is silent on the latest date of presentation, then you have to present your letter of credit documents within 21 days after “the date of shipment”.

But please keep in mind that this period can be shorten by the credit. As a result you need to read your credit very carefully in order to determine your presentation period.

Discrepancy Number 5 : Letter of Credit Expired

Documents presented after the letter of credit has expired.

Normally banks should not accept any documents that have been presented after the expiry date of the credit.

However, banks left the final decision to the applicants on this regard by evaluating the late presentation as a discrepancy.

Discrepancy Number 6 : Absence of Documents

Documents required by the letters credit is missing. Missing document discrepancy may also cover insufficient number of original documents presentation.

For example, the UCP 600 demands presentation of all original insurance documents if the insurance document states that it is issued more than one original.

If it is clear on the insurance document that it is issued in two originals, then the beneficiary has to present both originals of the insurance documents. If the beneficiary presents only one original instead of two originals, then the issuing bank raises absence of documents discrepancy.

Example: All Originals of Insurance Policies Have Not Been Presented Discrepancy

Discrepancy Number 7 : Carrier Not Defined on the Bill of Lading

The name of the carrier on the bill of lading is not defined and bill of lading is not signed by the master, the carrier or an agent on behalf of the carrier or master.

UCP 600 Article 20 indicates that:

A bill of lading, however named, must appear to:
i. indicate the name of the carrier and be signed by:
– the carrier or a named agent for or on behalf of the carrier, or
– the master or a named agent for or on behalf of the master.

Any signature by the carrier, master or agent must be identified as that of the carrier, master or agent.

Any signature by an agent must indicate whether the agent has signed for or on behalf of the carrier or for or on behalf of the master.

If banks could not locate the name of the carrier on the face of the bill of lading, then they mention this point as a discrepancy.

Example: Carrier Not Identified and Bill of Lading Not Signed As Per UCP 600 Discrepancy

Discrepancy Number 8 : Incorrect Description of Goods

Description of goods indicated on the invoice and other trade documents differs from the description of goods stated in the credit.

According to the international standard banking practice, the description of the goods, services or performance shown on the invoice is to correspond with the description shown in the credit.

There is no requirement for a mirror image. For example, details of the goods may be stated in a number of areas within the invoice which, when read together, represent a
description of the goods corresponding to that in the credit.

A goods description indicated on any other document may be in general terms not in conflict with the goods description in the credit.

If banks determine that the description of the goods not corresponding to the letter of credit, they raise incorrect description of goods discrepancy.

Example: Description of Goods Discrepancy

Discrepancy Number 9 : Incorrect Endorsement / Absence of Endorsement

Bill of lading, insurance policy or draft (bill of exchange) not endorsed by the beneficiary of the credit.

Discrepancy Number 10 : Partial Shipment or Transshipment Effected Despite L/C Terms

Exporters have to be very careful with the partial shipments and transshipments.

Please read credit text and determine if credit allowed or not allowed partial shipments and transshipments.

Example: Partial Shipment Discrepancy

Inspection Certificate Discrepancies

Ozgur Eker (CDCS) Inspection Certificate Discrepancies, Letter of Credit Discrepancies 7 March 20187 April 2019Inspection Certificate, Inspection Certificate Discrepancies, Letter of Credit Discrepancies

On this page you can find most common discrepancies related to the inspection certificate, which is issued under a typical letter of credit transaction.

Discrepancy can be defined as an error or defect, according to the issuing bank, in the presented documents compared with the documentary credit, the UCP 600 rules or other documents that have been presented under the same letter of credit.

Inspection in international trade can be defined as a process of checking the quality of goods against the contractual requirements.

Inspection certificate is the document that is usually issued by the inspection company after completion of the inspection.

Inspection certificate provides data on the result of the inspection.

Inspection Certificate Discrepancies

Inspection Certificate Not Issued and Signed by the Party Required by the Letter of Credit
Total Quantity Indicated on the Certificate of Inspection is not in Accordance with the Bill of Lading and Certificate of Origin
Inspection Certificate Is not Dated within the Timeline Required by the Documentary Credit
Inspection Certificate Identifies Different Goods Inspected Inconsistent with Those Described by Commercial Invoices
Inspection Certificate Indicates That Goods Do not Comply with the specifications
Inspection Certificate Indicates That Packing is not as per L/C.
Pre-shipment Inspection Certificate Shows Date of Inspection a Later Date Than Date of Shipment

Important Points Regarding the Inspection Certificates under Letter of Credit Rules:

When a credit requires the presentation of an inspection certificate, this will be satisfied by the presentation of a signed document titled as inspection certificate, or bearing a similar title or even untitled, which fulfills its function by certifying the result of the indicated action, for example, the results of the inspection.
When a credit requires the presentation of a pre-shipment inspection certificate, which relates to an action required to take place on or prior to the date of shipment, the certificate must indicate:

a. an issuance date of the certificate is no later than the date of shipment; or
b. stating that the inspection of goods took place prior to, or on the date of shipment,
c. the exact title of the required certificate, such as, “Pre‐shipment Inspection Certificate”.

An inspection certificate should be issued by the institution stated in the credit.
When a letter of credit does not state the title of an issuer, any institution including the beneficiary could issue the inspection certificate.
When a letter of credit indicates specific requirements with respect to inspection, the data regarding the inspection mentioned on the inspection certificate should comply with those requirements.

Inspection Certificate Not issued and Signed by the Party Required by the Letter of Credit Discrepancy

inspection certificate not issued as per letter of credit

Inspection in international trade can be defined as a process of checking the quality of goods against the contractual requirements.

Because, the importer and exporter are located in different countries, and they are usually living very away from each other, as a result it would not be feasible for the importer to send someone to check the quality of goods for each shipment.

If the importer (the applicant) is not able to send a person he trusts to the place of shipment, he can ask an internationally recognized inspection company, such as the Geneva-based Société Générale Surveillance (SGS) to perform the inspection required.

The applicant will instruct the inspection company as to the manner in which it is to check the goods and what they must look for. (1)

Third party inspection services in international trade can be grouped under two main categories.

Previous Shipment Inspections, which are performed before the goods are shipped from the exporter’s factory and
Post Shipment Inspections, which are performed after the goods are shipped from the exporter’s factory.

Inspections, which are performed before the goods are shipped from the exporter’s factory are as follows:

Pre-Production Inspection (PPI)
During Production Inspection (DUPRO)
Pre-Shipment Inspection (PSI)
Container Loading Supervision (CLS) or Container Loading Inspection (CLI)

Inspections, which are performed after the goods are shipped from the exporter’s factory are as follows:

Post-Shipment Inspection (2)

Inspection certificate is the document that is issued by the inspection company after completion of the inspection. Inspection certificate provides data on the result of the inspection.

The inspection certificate should be issued by the party stated in the letter of credit.

According to the letter of credit rules and standard banking practices an inspection certificate, however named, must appear to be issued and signed by the entity stated in the letter of credit.

For example, if the letter of credit requires that pre-shipment inspection certificate should be issued by SGS, Intertek or CCIC Inspection Company, the inspection certificate that has been presented by the beneficiary must be issued and signed by one of these independent inspection companies.

If issuing bank finds out that an inspection certificate has not been issued and signed by the entity as required by the letter of credit, then the issuing bank will raise a discrepancy, which is known as inspection certificate not issued and signed by the party required by the letter of credit.

Letter of Credit Discrepancy Example: Inspection Certificate Not Issued and Signed by the Party Required by the Letter of Credit

A letter of credit has been issued in SWIFT format, subject to UCP latest version, with the following details:

Letter of Credit Conditions

Field 45A: Description of Goods and or Services: 20 mtons of %100 organic Italian Extra Virgin olive Oil. Delivery Terms: CIF Port of Newark, USA Incoterms 2010.

Field 46A: Documents Required:

Beneficiary’s dated and manually signed commercial invoice in duplicates bearing full description of goods and its quantity, net and gross weight, unit and total price.
Insurance policy covering all risks showing claims payable in USA.
3/3 full set original clean bills of lading made out to order of issuing bank, notify applicant company indicating freight prepaid stating the name, telephone and fax numbers of carrier’s agent in port of discharge. Bill of lading should evidence shipments made in refrigerated 40′ closed containers.
The original inspection certificate issued not prior to marine bill of lading date by S.G.S or its authorized agent on S.G.S letter head certifying that the goods shipped/inspected are in conformity with the quality, quantity, and packing of the goods loaded are strictly complying with specifications of the goods indicated in the relative Purchasing Instruction, the terms of the l/c and all subsequent amendments as presented to S.G.S by the importer. The inspection certificate shall verify that the goods are in conformity with USDA organic food standards.

The beneficiary presented an insurance policy as shown on the below picture.

Inspection Certificate

Discrepancy: Inspection certificate should have been issued by S.G.S or its authorized agent on behalf of S.G.S inspection company. On the other hand, the inspection certificate has been issued by another inspection company.

Reason for Discrepancy: According to letter of credit rules and standard banking practices an inspection certificate, however named, must appear to be issued and signed by the entity stated in the letter of credit.

References:

Documentary Credits in Practice, Second edition 2009, Nordea, Page:174, Reached: 07.March.2018
What is a Pre-Production Inspection (PPI)?, www.advancedontrade.com, Reached: 07.March.2018

Multimodal Bill of Lading Discrepancies

Ozgur Eker (CDCS) Letter of Credit Discrepancies, Multimodal Bill of Lading Discrepancies 6 March 20187 April 2019Letter of Credit Discrepancies, Multimodal Bill of Lading, Multimodal Bill of Lading Discrepancy

Multimodal transportation is the movement of one unit load from origin to destination by several methods or transportation under one document without breaking up the unit load.

The development of container traffic has made this possible, as containers can travel from end to end without being opened/unloaded/reloaded during the course of the journey.

The advantage for those who make use of multimodal transportation is that they have one document only for the whole operation and that the operator is legally responsible for a satisfactory overall performance by his own staff and by the agents or branches that he is employing.(1)

Multimodal bill of lading is the transport document that covers at least two different modes of transport.

On this page you can find most common discrepancies related to the multimodal bills of lading under the letters of credit transaction.

Multimodal Bill of Lading Discrepancies

Important Definitions Regarding the Multimodal Bill of Lading under Latest Letter of Credit Rules:

According to latest UCP 600 letter of credit rules a multimodal bill of lading should not bear any indication that it is subject to charter party.
All original multimodal bills of lading printed by the carrier must be presented to the bank by the beneficiaries.
It is hard to prevent a transshipment in a multimodal transportation as a result even letter of credit prohibits transshipment multimodal bill of lading can state ‘Transshipment may/will take place.”
Multimodal bill of lading should be regarded as a negotiable transport document like a bill of lading if the last mode of shipment in the entire journey is completed by sea transportation.
More than one notify parties could be stated in a multimodal bill of lading.
‘To Order’ or ‘To the order of shipper’ means that multimodal bill of lading should be endorsed by the shipper as per letter of credit instructions.

References:

Shipping and Incoterms, Practice Guide, UNDP Practice Series, Page: 6

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