Letter of Credit Documents

What are the Differences Between Air Waybill and Bill of Lading?

Ozgur Eker (CDCS) Air Waybill, Bill of Lading, Letter of Credit Documents, Logistics ,
Differences Between Air Waybill and Bill of Lading

What Does Bill of Lading Mean in Export and Import Businesses?

Bill of lading (B/L) is a transport document, which is used in port-to-port sea shipments, issued and signed by a carrier or its agent, generally on a pre-printed carrier’s bill of lading format, evidences the terms and conditions of the carriage of goods between port of loading and port of discharge.

What are the Main Features of a Bill of Lading (B/L)?

  • A negotiable bill of lading represents the title of the goods and normally has to be surrendered at the port of discharge to the carrier’s agent to obtain delivery of the goods.
  • A bill of lading is regarded as a negotiable document if issued “to order and black endorsed” or “to order of a (named party)”.
  • A bill of lading issued and signed by a carrier or an agent on behalf of the carrier is called a master bill of lading.
  • A bill of lading issued and signed by a freight forwarder is called a house bill of lading.
  • There are certain differences exist between a master bill of lading and house bill of lading.
  • A bill of lading generally issued subject to Hague Rules, The Hague-Visby Rules and US COGSA (US Carriage of Goods by Sea Act 1936. ) etc.
  • Because a bill of lading is used in port-to-port sea shipments, it can be used in conjunction with all the trade terms defined in Incoterms 2010 rules.

Figure 1 : Bill of Lading Sample

Figure 1 : Bill of Lading Sample

What Does Air Waybill Mean in Export and Import Businesses?

An air waybill (AWB) is a transport document, which is used in air shipments, issued and signed by an airline cargo carrier or its agent, generally on a pre-printed air waybill format, evidences the terms and conditions of the carriage of goods over routes of the airline carrier(s).

What are the Main Features of an Air Waybill (AWB)?

  • An air waybill, contrary to bill of lading, is not a document of title, as a result it is not a negotiable document. The carrier’s agent delivers goods by approving the identity of the consignee without requesting surrender of the original air waybill.
  • An air Waybill is not a negotiable document as a result it cannot be issued “to order and black endorsed” or “to order of an issuing bank”. An air waybill can only be consigned to a “named company”.
  • An air waybill can be issued and signed by a carrier or an agent on behalf of the carrier.
  • Alternatively it can be issued and signed by a freight forwarder. But carrier air waybill and forwarder air waybill have some differences. For more information please read my article “What is the difference between MAWB (Master Air Waybill) and HAWB (House Air Waybill)?“
  • An air waybill generally issued subject to Warsaw Convention, Hague amendment, Montreal Convention, etc.
  • An air waybill should be used in airport-to-airport shipments, as a result it cannot be used in conjunction with the incoterms available only sea shipments such as FAS, FOB, CFR and CIF. For further information please look at “What happens if a letter of credit calls for a wrong Incoterms?“.

Figure 2 : Air Waybill Sample

Figure 1 : Master Air Waybill Sample

What are the Differences Between Air Waybill and Bill of Lading?

Air WaybillBill of Lading
Air Waybill:
Air waybill should be used in air shipments.		Bill of Lading:
Bill of lading should be used in port-to-port sea shipments.
Air Waybill:
Air waybill is not a document of title.		Bill of Lading:
Negotiable bill of lading is a document of title. At least one original bill of lading must be surrender to collect the goods from the carrier.
Air Waybill:
Air Waybill cannot be issued "to order and black endorsed" or "to order of an issuing bank".		Bill of Lading:
Bill of lading can be issued "to order and black endorsed" or "to order of an issuing bank".
Air Waybill:
Air waybill generally issued subject to Warsaw Convention, Hague amendment, Montreal Convention, etc.		Bill of Lading:
Bill of lading generally issued subject to Hague Rules, The Hague-Visby Rules and US COGSA (US Carriage of Goods by Sea Act 1936. ) etc.
Air Waybill:
Air waybill cannot be used in conjunction with the incoterms available only sea shipments such as FAS, FOB, CFR and CIF.		Bill of Lading:
Bill of lading can be used in conjunction with all of the incoterms available.

What is the Difference Between MAWB (Master Air Waybill) and HAWB (House Air Waybill)?

Ozgur Eker (CDCS) Air Waybill, Logistics , ,
What is the Difference Between MAWB (Master Air Waybill) and HAWB (House Air Waybill)?

What Does Master Air Waybill Mean in Export and Import Businesses?

Master air waybill (MAWB) is a transport document, which is used in air shipments, issued and signed by the air cargo carrier or its agent, generally on a pre-printed carrier’s air waybill format, evidences the terms and conditions of the carriage of goods over routes of the carrier(s).

Master waybills can also be identified as an airline air waybills, with pre-printed issuing carrier identification.

What Are the Main Features of a Master Air Waybill (MAWB)?

  • Master air waybill generally issued on a pre-printed air waybill form of an issuer carrier.
  • Master air waybill issued and signed by the carrier or an agent on behalf of the carrier.
  • A master air waybill (MAWB) is subject to IATA Rules and one of the the international air conventions (Warsaw Convention, Hague amendment, Montreal Convention, etc.)
  • Master air waybill is signed by the actual carrier and states the terms and conditions of the carriage, as a result consignee may have protection in case the goods are damaged or lost in transit.

Figure 1 : Master Air Waybill Sample

Figure 1 : Master Air Waybill Sample

What Does House Air Waybill Mean in Export and Import Businesses?

House air waybill (HAWB) is a transport document, which is used in air shipments, issued and signed by a freight forwarder, generally on a natural air waybill format, evidences the terms and conditions of the carriage of goods as specified by the freight forwarder.

Neutral air waybills, without pre-printed identification of the issuing carrier can be used to issuance of house air waybills.

What Are the Main Features of a House Air Waybill (HAWB)?

  • House air waybill generally issued on a natural air waybill format.
  • House air waybill issued and signed by a forwarder without indicating any signing authority either carrier or as agent of the carrier.
  • A house air waybill (HAWB) may or may not be subject to IATA Rules and one of the the international air conventions (Warsaw Convention, Hague amendment, Montreal Convention, etc.)
  • House air waybill is signed by the forwarder and states the terms and conditions of carriage for the forwarder company’s perspective. House air waybill does not contain actual carrier’s carriage contract, as a result shipper stated on the house air waybill is not the direct participant of the carriage contract indicated on the master air waybill.

Figure 2 : House Air Waybill Sample

Figure 2 : House Air Waybill Sample

Differences Between Master Air Waybill and House Air Waybill

Master Air WaybillHouse Air Waybill
Master Air Waybill:
Issued by the actual carrier, such as Korean Airlines, Emirates Airlines etc.		House Air Waybill:
Issued by the forwarder company, such as XYZ Forwarding Ltd, etc.
Master Air Waybill:
Signed either by the carrier or an agent of the carrier.		House Air Waybill:
Signed by the forwarding company without any agency indication of the carrier.
Master Air Waybill:
Issued on a pre-printed form of an actual carrier's air waybill.		House Air Waybill:
Issued on a naturel form of an air waybill.
Master Air Waybill:
Always subject to IATA Rules and one of the the international air conventions (Warsaw Convention, Hague amendment, Montreal Convention, etc.)		House Air Waybill:
May or may not be subject to IATA Rules and one of the the international air conventions (Warsaw Convention, Hague amendment, Montreal Convention, etc.)
Master Air Waybill:
States the terms and conditions of the carriage, as a result consignee may have protection in case the goods are damaged or lost in transit.		House Air Waybill:
States the terms and conditions of the forwarding company, as a result consignee will not be having a legal protection in case the goods are damaged or lost in transit.
Master Air Waybill:
States only MAWB number.		House Air Waybill:
States both MAWB and HAWB number.

Which is the Best Cargo Insurance Type That Should be Selected Against Non-Delivery Risks?

Ozgur Eker (CDCS) How to Work With a Letter of Credit, Incoterms, Inspection Certificate, Insurance Policy, Letter of Credit Basics, Letter of Credit Documents, Logistics , , ,
Which is the best insurance type that should be selected against non-delivery risks?

Institute Cargo Clause A (All risks), Institute Cargo Clause B and Institute Cargo Clause C are the main types of cargo insurance types used in international trade

But which cargo clause is the most suitable one for letter of credit transactions?

How to eliminate non-delivery risks, war and strike risks in international trade?

Question Comes from Lus Miguel, Porto, Portugal:

Dear sirs,

First of all, congratulations for your website, it has been a great help. I’d like to ask you some questions regarding insurance versus letters of credit.

Knowing that if the credit is under the UCP 600 the insurance terms is agreed between exporter and importer (INCOTERMS) the banks sometimes ask for a Clause A plus extra coverage.

I think (and this is my doubt) that the banks at the bottom line can ask a minimum clause insurance (110%) if they trust their client financial capability to support a cargo loss/accident.

It is always a commercial decision.

Am I right at my conclusion?

The reason for my question is that nowadays we usually approve with clause A but if the commercials ask we lower the type of coverage to B or C.

I was looking for case studies, but I believe the risk when the cargo does not arrive to destiny is always on the side of importers/exporters (INCOTERMS chosen) and the bank is always defended since if the documents are good we have to pay them to the exporter.

Do you have knowledge of other situations that banks got “burned” regarding insurance problems when docs were okay?

Sincerely,

Here is the Answer:

Thanks for your question.

Analyses:

Insurance Coverage Under the Incoterms: According to the Incoterms 2010, seller has to make the insurance agreement with an insurance company and has to supply an insurance policy or certificate by paying the insurance premium under two trade terms:

Both CIF and CIP incoterms outlines a minimum insurance coverage, which is Institute Marine Cargo Clauses, C.

Exporters and importers are free to determine a more detailed insurance coverage such as Institute Marine Cargo Clauses, A (all risks).

Furthermore they can choose to include additional clauses to an all risk policy such as

  • WSRCC (War, strikes, riots and civil commotion) Clause,
  • Theft, Pilferage and Non-Delivery clause etc.

All of these extra insurance coverage must be paid by the buyer, unless otherwise determined on the sales contract.

Delivery Place Under CIF incoterms: Most of the international trader think that under CIF incoterms, the seller delivers the goods to the buyer at the port of discharge but this is not correct.

The seller delivers the goods to the buyer at the port of loading once the goods are shipped on board a named vessel under the CIF incoterms.

As a result, non delivery risks of the goods is not different between FOB and CIF incoterms from the point of the issuing bank under a letter of credit transaction.

The exporter delivers the good under both incoterms at the port of loading, and if the issuing bank receives a complying presentation, then it has to honor whether or not the goods arrive to the port of discharge. (Fraudulent shipments are the exemptions)

Insurance Coverage Under the Letter of Credit rules: The letter of credit rules, UCP 600, does not give directions either banks or their customers that what type of insurance cover must be selected.

Just on the contrary, the letter of credit rules tell that a credit should state the type of insurance required and, if any, the additional risks to be covered.

Conclusion:

Non-delivery Risk of Goods: As an issuing bank, the non-delivery risks remains unchanged under certain incoterms such as FOB and CIF.

The issuing bank has to honor complying presentations whether or not goods arrive port of discharge.

In practice, in most of the cases, the issuing banks have to decide accepting or rejecting the presentations while goods are still in transit, long before they have completed their journey.

Establishing Internal Standards: Each bank should establish an internal standards against non-delivery of goods risks.

This can be done by requesting all risks insurance policy covering additional clauses such as war, strikes, riots and civil commotion and theft, pilferage and non-delivery under CIF and CIP incoterms.

For the remaining incoterms you may indicate on the letter of credit application form that your bank will be arranging an insurance policy on behalf of your customer in order to secure delivery of goods.

Alternatively you can indemnify yourself against such risks by holding your customer fully responsible against non-delivery of goods under complying presentations.

Implementation: In order to establish a well-structured internal guidelines, an issuing bank could get in touch with local ICC Banking committee.

In our case it is ICC Portugal.

ICC Portugal
Rua das Portas de Santo Antão, 89
1169-022 Lisboa
T: +351 21 346 3304
E-mail: [email protected] Web: www.icc-portugal.com

L/C Demands a B/L Stating That All Original B/Ls Must be Surrendered

Ozgur Eker (CDCS) Bill of Lading, How to Work With a Letter of Credit, Letter of Credit Basics, Letter of Credit Documents ,
Bill of Lading Stating That All Originals Must be Surrendered

A negotiable bill of lading is a bill of lading where the consignee’s name is preceded by the words “to order,” thus allowing the consignee to endorse the bill of lading to another party, thereby transferring title of the relative goods to another party. (1)

The importer has to present at least one original copy of the negotiable bill of lading to the carrier’s agent at the port of discharge in order to receive goods from the carrier.

What happens if letter of credit requests presentation of all original bills of lading to the carrier as follows?

  • Bill of lading to clearly indicate that the goods can only be delivered at destination port only on submission of all 3 sets of original bills of lading.

Question Comes from Heidi, Hayward, California, USA:

Can you please take a look at the following L/C language for the required documents of the B/Ls and confirm this will be manageable with the steamship lines?

  • Full Set of clean on board bills of lading made out to the order of opening bank and marked “freight prepaid” and notify applicant.
  • Bills of Lading to show the name and address and telephone/fax numbers of shipping company/agent representing them at port of destination.
  • B/L to clearly indicate that the goods can only be delivered at destination port only on submission of all 3 sets of original bills of lading.

Please advise.

Thank you,

Answer:

Thanks for your question.

Above letter of credit condition, which can be evaluated as a standard format, used by many banks under field 46-A: Documents Required.

The only part that you should be careful is the following one:

  • Bill of lading to clearly indicate that the goods can only be delivered at destination port only on submission of all 3 sets of original bills of lading.

Apparently the issuing bank would like to say:

  • Bill of lading to clearly indicate that the goods can only be delivered at destination port only on submission of all original bills of lading.

The problem with above condition is that it contradicts surrender clauses of the most, if not all, bills of lading in circulation as can be seen on below image.

surrender clause of a bill of lading
Surrender clause of a typical negotiable bill of lading used in port to port container carriages.

Each original negotiable bills of lading is equally represents the title of goods, as a result when one them surrendered to the carrier, the remaining ones becomes void.

For this reason it is highly recommended either correction or deletion of this clause from the letter of credit.

Sources:

  1. International Trade Procedures: A guide to doing business abroad, Wells Fargo Bank, Page: 70

Shipping Documents

Ozgur Eker (CDCS) How to Work With a Letter of Credit, Letter of Credit Basics, Letter of Credit Documents ,
shipping documents

Shipping documents, when used as a term in a letter of credit, could create problems between the issuing bank and the beneficiary due to its obscure meaning.

It is not possible to find a “shipping documents” term under the documentary credit rules, as a result ICC Banking Commission discourages banks to use it.

But issuing banks still choose to implement this term in their credits one way or another..

You can find two examples below how shipping documents term is used in the letters of credit by the issuing banks.

Example 1:

Field 47-A Additional Conditions: Shipment date and shipping documents including bill of lading dated prior to letter of credit opening date is not acceptable.

Analysis: Using the shipping documents term in a way, as specified on above example, may create disputes between the issuing bank and the beneficiary.

According to the ISBP 745, which is the latest International Standard Banking Practices published by ICC, “shipping documents” term defined as follows: “all documents required by the credit, except drafts, tele‐transmission reports and courier receipts, postal receipts or certificates of posting evidencing the sending of documents.”

Conclusion: Under normal circumstances, it is expected that even if the drafts, tele‐transmission reports and courier receipts, postal receipts or certificates of posting have been dated prior to the issuance date of the credit, the issuing bank would accept such presentation.

These having been said, in order to be on the safe side, the beneficiary may choose to present all documents under this letter of credit will be dated after the issuance date of the documentary credit to prevent any problem with the issuing bank, because of the fact that the issuing bank’s intention, by using the term of shipping documents, may be referring all the documents that have been requested by the credit, but not just the ones as being described under the ISBP 745.

Example 2:

46-A Documents Required:

  • Full set of clean on board bills of lading issued or endorsed to the order of Issuing Bank, notify applicant showing freight prepaid.

Field 47-A Additional Conditions: Shipping documents should be prepared in the name of: Applicant Company.

Analysis: Using the “shipping documents” term in a way as exhibited in example 2 would be the most risky situation for the beneficiaries.

Let me try to explain the reason.

On this example, the issuing bank defines how the bills of lading should be completed under the field 46-A: Documents Required.

But the issuing bank puts another indication under the field 47-A Additional Conditions stating that “Shipping documents should be prepared in the name of: Applicant Company.”

The beneficiary may confuse at the document preparation stage as these statements contradict each other.

Under such a circumstances the best advice that can be given to the beneficiary is that applying to the applicant for an amendment to delete the so called phrase which has been inserted in field 47-A by the issuing bank.

How to Determine Date of Shipment on a Bill of Lading?

Ozgur Eker (CDCS) Bill of Lading, How to Work With a Letter of Credit, Letter of Credit Basics, Letter of Credit Documents , ,
How to determine date of shipment on a Bill of Lading

Date of shipment is one of the key definitions in a letter of credit transaction. It is used to determine

  • whether shipment made on time or not (in other words a late shipment has been effected or not)
  • whether documents presented within the presentation period or not (in other words a late presentation has been effected or not)
  • maturity date of the time draft
  • maturity date of a deferred payment letter of credit.

Date of shipment on a bill of lading can be determined in two ways.

In the first scenario, we will face a situation where a bill of lading does not contain any dated shipped on board notation.

In the second scenario, we will be having a bill of lading which contains a dated shipped on board notation.

Option 1 => There is no shipped on board notation exists on the bill of lading:

  • The date of issuance of the bill of lading will be deemed to be the date of shipment.

Option 2=> Bill of lading indicates, by stamp or notation, a shipped on board date:

  • Notation date will be deemed to be the date of shipment as specified below: Date of shipped on board notation/stamp => this date will be deemed to be the date of shipment

Example: On the below figure, you can see a shipped on board notation which is located on the bottom of a bill of lading. As there is a dated on board notation exist on the bill of lading, date of shipment will be deemed to be this shipped on board notation date which is 14.May.2018.

Date of shipment on a bill of lading

How Does a Bill of Exchange Work?

Ozgur Eker (CDCS) Bill of Exchange, How to Work With a Letter of Credit, Letter of Credit Basics, Letter of Credit Documents , ,
How Does a Bill of Exchange Work?

Bill of exchange, which is also known as draft, is a financial document commonly used in international trade transactions.

According to UK’s Bill of Exchange Act (1882), the bill of exchange defined as an “unconditional order in writing, addressed by one person to another, signed by the person giving it (drawer), requiring the person to whom it is addressed (drawee) to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person (payee), or to bearer”.

Parties to a Bill of Exchange:

  • Drawer of a Bill of Exchange / Draft: Is the party that issues a Bill of Exchange in an international trade transaction; usually the seller or exporter.
  • Drawee of a Bill of Exchange / Draft: Is the recipient of the Bill of Exchange for payment or acceptance in an international trade transaction; usually the importer or importer’s bank.
  • Payee of a Bill of Exchange / Draft: Is the party to whom the Bill is payable; usually the seller or his bank.

How Does a Bill of Exchange Work in the Documentary Collections?

Documentary Collection (D/C) is a payment method in international trade. Documentary collection is also known as Cash Against Documents (CAD).

There are two payment options available in the documentary collections: Documents Against Payment (D/P) and Documents Against Acceptance (D/A).

Under the documents against payment option, it is not advisable to use a bill of exchange. The importer should make the payment at sight against the documents.

Under the documents against acceptance (D/A) payment option, it is advisable to use a bill of exchange payable at a future date (time draft).

Bill of Exchange Workflow in the Documentary Collections:

The bill of exchange workflow under documents against acceptance (D/A) payment option is as follows:

The exporter issues a bill of exchange payable at a future date (time draft) along with other shipping documents and sends it to the importer via his bank on collection basis.

The importer applies to his bank, accepts the bill of exchange, receives the documents, clears the goods from the customs and makes the payment at the maturity date of the bill of exchange.

How Does a Bill of Exchange Work in the Letters of Credit?

There are four payment options available in the letters of credit: Sight payment, acceptance, deferred payment and negotiation.

It is not possible to use a bill of exchange in the letters of credit, which are available by deferred payment.

On the other hand, every letter of credit that is issued available by acceptance must demand presentation of a bill of exchange along with other shipping documents.

Under sight payments and negotiation, the bill of exchange may or may not be used.

Bill of Exchange Workflow in the Letters of Credit:

The bill of exchange workflow in the letters of credit available by sight payment, acceptance or negotiation is as follows:

Sight Payment:

After making the shipment, the exporter collects all the shipping documents and issues an at sight bill of exchange to make the presentation to the issuing bank or confirming bank or nominated bank, as applicable.

If the bank determines that the presentation is complying, then pays the credit amount to the beneficiary.

Acceptance:

After making the shipment, the exporter collects all the shipping documents and issues a time draft (bill of exchange payable at a future date) to make the presentation to the issuing bank or confirming bank or nominated bank, as applicable.

If the bank determines that the presentation is complying, then accepts the time draft and pays the credit amount to the beneficiary at maturity.

Negotiation:

The letters of credit available by negotiation can be payable at sight or usance.

If the letter of credit requires an at sight bill of exchange, the process will be the same as the sight payment.

If the letter of credit requires presentation of a time draft, the process will be the same as the acceptance.

Conclusion:

  1. Bill of exchange plays an important role in commercial and financial cycles not only as a method of payment or a way of providing credit, but also as security for payments. (1)
  2. Bill of exchange mainly used in documentary collections and letters of credit.
  3. Under the documentary collections, the bill of exchange can be used only when Documents Against Acceptance (D/A) payment option is chosen.
  4. Under the documentary collections, the bill of exchange payable at a future date (time draft) drawn on the importer. The importer accepts the bill of exchange, receives the documents, clears the goods from the customs and makes the payment at the maturity date of the bill of exchange.
  5. If the importer does not pay the bill of exchange amount at maturity, the exporter tries to use his legal rights that is stem from the bill of exchange.
  6. Under the documentary collections, the importer’s banks has no payment obligation unless the bill of exchange has been avalized by the importer’s bank.
  7. Under the letters of credit, the bill of exchange can be used with at sight, acceptance and negotiation payment options.
  8. Under the letters of credit, the bill of exchange can be issued at sight or payable at a future date (time draft).
  9. Under the letters of credit, the bill of exchange must be drawn on a bank that is specified in the credit.
  10. Under the letters of credit, the bill of exchange does not give additional payment guarantee to the beneficiary, whereas the situation will be different for the banks. Bill of exchange may change the payment obligation between the nominated bank and the issuing bank; the confirming bank and the issuing bank etc.

References:

  1. Bills of Exchange, A Guide to Legislation in European Countries, Dr. jur. Uwe Jahn, ICC Publication No 531 (E), 1996, P:3

What Does Full Set of Bills of Lading Mean?

Ozgur Eker (CDCS) Air Waybill, Bill of Lading, Charter Party Bill of Lading, How to Work With a Letter of Credit, Letter of Credit Basics, Letter of Credit Documents, Rail Transport Document, Road Transport Document, Sea Waybill ,
What does full set of bill of lading mean?

Under an ordinary letter of credit, the issuing bank demands a full set of clean shipped on board ocean bills of lading from the beneficiary.

But what is a full set of bill of lading according to the letter of credit rules? How does a beneficiary make sure that he presents a full set of bills of lading?

Most of the transport documents, that is subject to international transportation, issued in more than one originals.

For example, a CMR road consignment note is issued in 3 original copies. The first copy for the exporter, the second to accompany the goods; and the third for retention by the carrier. (1)

Understanding the Reasons Behind the Issuance of Multiple Original Transport Documents:

International transport documents can be classified under two main groups: Negotiable transport documents and non-negotiable transport documents.

 

Multiple Original Transport Documents

Negotiable transport document is a title of goods, such as an original bill of lading, which can be transferred to another party by endorsement.

At least one original negotiable transport document must be surrendered to the carrier by the consignee at the place of destination to collect the goods.

Negotiable transport documents are issued in more than one originals in order to prevent lost of documents.

Non-negotiable transport document is a not a title of property and the consignment is placed at the disposal of the stipulated consignee against a proof of identity without further need to surrendering any original transport document.(2)

Non-negotiable transport documents are issued in more than one originals mainly for operational purposes as some of the original copies of these documents are traveling with the goods.

Full Set of Ocean Bills of Lading Under a Letter of Credit

According to the letter of credit rules, a bill of lading is to indicate the number of originals that have been issued and all of the originals stated on the bill of lading have to be presented by the beneficiary to the issuing bank, unless otherwise indicated in the credit.

For example, container carriers issue bills of lading in a set of 3 original and 3 copies as an established tradition for decades.

The letter of credit rules taking into account only the original bills of lading as a transport document by disregarding the non-negotiable copies.

Example:

  • A letter of credit issued asking for a full set of clean ”shipped on board” negotiable bill of lading showing freight prepaid made out/endorsed to the issuing bank, notifying the issuing bank and the applicant with full address.
  • The bill of lading indicated that it has issued in 3 originals.
  • The beneficiary has presented all of the 3 originals as a full set of bills of lading.

Important Note: The beneficiary could have presented 3 originals and 3 copies of the bills of lading without any problem.

Letter of Credit Rules:

UCP 600 – Article 20 – Bill of Lading
iv- Be the sole original bill of lading or, if issued in more than one original, be the full set as indicated on the bill of lading.

ISBP 2007 – Full set of originals Paragraph 93
As per UCP 600 article 20 transport document must indicate the number of originals that have been issued. Transport documents marked “First Original”, “Second Original”, “Third Original”, “Original”, “Duplicate”, “Triplicate”, etc., or similar expressions are all originals. Bills of lading need not be marked “original” to be acceptable as an original bill of lading. In addition to UCP 600 article 17, the ICC Banking Commission Policy Statement, document 470/871(Rev), titled “The determination of an ‘Original’ document in the context of UCP 500 sub-Article 20(b)” is recommended for further guidance on originals and copies and remains valid under UCP 600. The content of the Policy Statement appears in the Appendix of this publication, for reference purposes. (Please keep in mind that ISBP 2007 has been updated and is not the effective version as of July 2013.)

References:

  1. The CMR Convention, The British International Freight Association (BIFA) Website, Retrieved: 21.06.2018
  2. Shipping and Incoterms, Practice Guide, UNDP Practice Series, Page:50

Clean on Board Notation on Bills of Lading

Ozgur Eker (CDCS) Bill of Lading, How to Work With a Letter of Credit, Letter of Credit Basics, Letter of Credit Documents , , , , ,
clean on board

What is clean on board?

A clean transport document or a “clean on board” clause relates to the condition of the goods and/or packaging.

If, on receipt of the goods, the carrier finds that the packaging or the goods are defective, he will make a notation on the transport document to this effect to avoid being subsequently held responsible for such defect.

Hence, the document is no longer clean, and any objections or claims for damages will have to be directed to the consignor. (1)

If the word “clean” appears on a bill of lading and subsequently it has been deleted, the bill of lading will not be deemed to be claused or unclean unless it specifically bears a clause or notation declaring that the goods or packaging are defective.

Clauses or notations on the bills of lading, which expressly declare a defective condition of the goods or packaging are not acceptable by the letter of credit rules.

Clauses or notations which do not expressly declare a defective condition of the goods or packaging (e.g., “packaging may not be sufficient for the sea journey”) do not constitute a discrepancy.

However, a statement on the transport document declaring that the packaging “is not sufficient for the sea journey” would not be acceptable.

One of my reader is asking below question from Belgium. She is director of a shipping company. She would like to know more about clean on board notations on bills of lading.

We have a persistent shipper who insists to have the word ‘clean’ added before shipped on board in their B/Ls. Have tried to explain that a B/L without clauses/remarks is a clean B/L. Can you refer to a certain part on your website where I can find official explication to convince them ?

Thanks in advance.

director of XYZ Shipping Company

Dear Director,

I can suggest you to inform below UCP 600 article to your shipper.

UCP 600 – Article 27

Clean Transport Document

A bank will only accept a clean transport document. A clean transport document is one bearing no clause or notation expressly declaring a defective condition of the goods or their packaging. The word “clean” need not appear on a transport document, even if a credit has a requirement for that transport document to be “clean on board”.

UCP 600 defines below documents as transport documents :

  • Transport Document Covering at Least Two Different Modes of Transport
  • Bill of Lading
  • Non-Negotiable Sea Waybill
  • Charter Party Bill of Lading
  • Air Transport Document
  • Road, Rail or Inland Waterway Transport Documents
  • Courier Receipt, Post Receipt or Certificate of Posting

References:

  1. Documentary credits in practice, Reinhard Längerich, Second edition – 2009, Published by: Nordea, Page: 146
  2. Shipping and Incoterms, Practice Guide, UNDP Practice Series, Page:12

What are the differences between received for shipment bill of lading and pre-printed shipped bill of lading?

Ozgur Eker (CDCS) Bill of Lading, How to Work With a Letter of Credit, Letter of Credit Basics, Letter of Credit Documents , ,
What are the differences between received for shipment bill of lading and pre-printed shipped bill of lading?

There are two types of bills of lading circulating around the globe in terms of pre-printed notifications:

  • Received for shipment bills of lading: Goods have been received by the carrier but not on board of a named vessel.
  • Shipped on board bills of lading: Goods have been received by the carrier and laden on board of a named vessel.

Received for Shipment Bill of Lading:

This bill of lading states that goods are received by the carrier in apparent good order.

Unless received for shipment bill of lading contains an additional “on board notation”, it does not confirms that the goods have been shipped on board to a named vessel.

Traditionally, received for shipment bills of lading does not give enough assurance to the banks in letter of credit, bank guarantee or standby letter of credit transactions.

Banks prefer to have a pre-printed shipped on board bills of lading.

Alternatively received for shipment bill of lading can be accepted with an “On Board Notation“.

Received for Shipment Bill of Lading Example:

Received for shipment bills of lading clause can be seen on the face of the bill of lading generally at the right bottom side of the page.

Without an additional on board notation, received for shipment bill of lading does not confirm that goods shipped on board a named vessel.

RECEIVED by the Carrier from the Shipper in apparent good order and condition unless otherwise indicated herein, the Goods, or package(s) said to contain the Goods, to be carried subject to all the terms and conditions herein.

Pre-Printed Shipped Bills of Lading:

Pre-printed shipped bills of lading not only confirm that goods have been received by the carrier, but also they have been shipped on board of a named vessel.

Banks accept pre-printed shipped bill of lading in trade finance transactions such as under commercial letters of credit, bank guarantee or standby letter of credit operations.

Pre-Printed Shipped Bill of Lading Example:

Pre-printed shipped bills of lading clause can be seen on the face of the bill of lading generally at the right bottom side of the page.

Pre-printed shipped bill of lading will be accepted by banks under most trade finance solutions.

Pre-printed shipped bill of lading confirms that goods shipped on board a named vessel as required by the letter of credit rules.

SHIPPED, as far as ascertained by reasonable means of checking, in apparent good order and condition unless otherwise stated herein, the total number or quantity of Containers or other packages or units indicated in the box entitled “Carrier’s Receipt” for carriage from the Port of Loading (or the Place of Receipt, if mentioned above) to the Port of Discharge (or the Place of Delivery, if mentioned above), such carriage being always subject to the terms, rights, defenses, provisions, conditions, exceptions, limitations, and liberties hereof (INCLUDING ALL THOSE TERMS AND CONDITIONS ON THE REVERSE HEREOF NUMBERED 1-26 AND THOSE TERMS AND CONDITIONS CONTAINED IN THE CARRIER’S APPLICABLE TARIFF) and the Merchant’s attention is drawn in particular to the Carrier’s liberties in respect of on deck stowage (see clause 18) and the carrying vessel (see clause 19).