Letter of Credit Discrepancies

Consignee Different Than Letter of Credit Discrepancy

Ozgur Eker (CDCS) Letter of Credit Discrepancies, Multimodal Bill of Lading Discrepancies , , ,
Consignee Different than Letter of Credit Discrepancy

Consignee field on the multimodal bill of lading must be completed according to the instructions stated in the letter of credit.

In a contract of carriage, the consignee is the person to whom the shipment is to be delivered whether by land, sea or air.

The consignee field can be seen on the following transport documents : Bill of lading, multimodal bill of lading, charter party bill of lading, sea waybill, air transport document (air waybill), road transport document (CMR) and rail transport document etc.

A transport document covering at least two different modes of transport is regarded as a multimodal bill of lading according to the letter of credit rules.

The consignee field on the multimodal bill of lading can be completed mainly in 5 different ways.

  1. Multimodal bill of lading consigned to the order of the issuing bank
  2. Multimodal bill of lading consigned to the issuing bank
  3. Multimodal bill of lading consigned to the order of the applicant
  4. Multimodal bill of lading consigned to the applicant
  5. Multimodal bill of lading consigned to order and blank endorsed.

If the issuing bank finds out that the consignee field of a multimodal bill of lading has not been completed as per letter of credit terms, then the issuing bank will issue a discrepancy, which is known as consignee different than letter of credit.

Letter of Credit Discrepancy Example: Consignee Different Than The Letter of Credit on a Multimodal Bill of Lading

A letter of credit has been issued in SWIFT format, subject to UCP 600, with the following details:

Letter of Credit Conditions

Field 46A: Documents Required: Full set of multimodal bill of lading issued by a shipping company marked freight prepaid made out to COMMERZBANK marked notify applicant indicating that the goods have been dispatched, taken in charge or loaded on board.

The beneficiary presented a multimodal bill of lading with the following data:

Multimodal Bill of Lading

Consignee: To the order of Commerzbank

Notify: Applicant Company

multimodal bill of lading consignee discrepancy

Discrepancy: Multimodal bill of lading shows a consignee which is different than what is indicated in the letter of credit.

Reason for Discrepancy: If a credit requires a multimodal or combined transport document to show that the goods are consigned to a named party, such as “consigned to the issuing bank” (a straight consignment), rather than “to order” or “to order of the issuing bank”, the multimodal or combined transport document must not contain words such as “to order” or “to order of” that precede the name of that named party, whether typed or pre-printed.

Multimodal Bill of Lading Late Shipment Discrepancy

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Multimodal Bill of Lading Late Shipment Discrepancy

Most commercial letters of credit rely on shipment of goods to perform its role.

Under a typical commercial letter of credit, the exporter ships the goods, collects the documents including a transport document and makes the presentation to the issuing bank.

If the letter of credit requires presentation of a transport document, as most credits demand so, the shipment must be completed before the latest date of shipment indicated in the credit.

Consequently, the transport document must not be dated after the latest date of shipment.

If the exporter fails to complete the shipment before the latest date of shipment indicated in the credit, which requires presentation of a multimodal bill of lading as the transport document, then the issuing bank raises a discrepancy, which is known as late shipment discrepancy.

Sample Late Shipment Discrepancy on a Multimodal Bill of Lading Under a 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 44C: Latest Date of Shipment: 140631

Field 44E: Port of Loading/Airport of Departure: Port of Genoa, Italy

Field 44F: Port of Discharge/Airport of Destination: Port of Cape Town, South Africa

Field 44B: Place of Final Destination/For Transportation to …/Place of Delivery: 7460, Epping, Cape Town, South Africa

Field 46A: Documents Required: Full set of multimodal transport document issued by a shipping company marked freight collect made out to order of The Standard Bank of South Africa Limited marked notify applicant indicating that the goods have been dispatched, taken in charge or loaded on board.

The beneficiary presented a combined bill of lading with the following data:

Multimodal Bill of Lading

Port of Loading: Port of Genoa, Italy

Port of Discharge: Port of Cape Town, South Africa

Place of Final Destination: 7460, Epping, Cape Town, South Africa

The multimodal bill of lading is dated 31.June.2014.

In addition to issuance date of the multimodal bill of lading contains an on-board notation with the following wording: “SHIPPED ON BOARD AT PORT OF GENOA, ITALY ON VESSEL FAST IDAHO ON 02.JULY.2014“.

Discrepancy: Multimodal bill of lading shows a late shipment.

Although multimodal bill of lading date does not indicate a late shipment, the ship on board notation date shows a date which falls outside the allowed shipment period.

Reason for Discrepancy: If a letter of credit requires presentation of a transport document indicated in the UCP, the date of shipment stated on the transport document must not be showing a later date than the latest date of shipment stated in the letter of credit.

Transport Route Not As Per Letter of Credit Discrepancy

Ozgur Eker (CDCS) Letter of Credit Discrepancies, Multimodal Bill of Lading Discrepancies , ,
multimodal bill of lading shipment route discrepancy

According to the letter of credit rules, each shipment needs to be verified by a corresponding transport document and must follow the route, that is stated in the letter of credit.

A transport document covering at least two different modes of transport is regarded as a multimodal transport document or combined transport document as per letter of credit rules.

Letter of credit rules accept following documents as transport documents in addition to multimodal transport document:

  • Bill of lading,
  • Non-negotiable sea waybill,
  • Charter party bill of lading,
  • Air transport document,
  • Railway transport document,
  • Road transport document,
  • Inland waterway transport document
  • Courier receipt and post receipt (only if used to transport actual good.) (not sending documents etc…)

If the issuing bank finds out that the shipment has been effected with a different route, other than what is identified in the letter of credit, then the issuing bank will issue a discrepancy, which is known as transport route is not as per letter of credit.

Discrepancy Example: Transport Route Discrepancy under a Letter of Credit

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

Letter of Credit Conditions

Field 44A: Place of Taking in Charge/Dispatch from …/Place of Receipt:
HANNOVER, GERMANY

Field 44E: Port of Loading/Airport of Departure:
HAMBURG, GERMANY

Field 44F: Port of Discharge/Airport of Destination:
ANY PORT IN CHINA

Field 46A: Documents Required: Full set of multimodal transport document issued by a shipping company marked freight (prepaid) made out to order of Agricultural Bank of China marked notify applicant indicating that the goods have been dispatched, taken in charge or loaded on board.

The beneficiary presented a multimodal transport bill of lading with the following shipment route:

Place of Receipt: WOLFSBURG, GERMANY
Port of Loading: HAMBURG PORT, GERMANY
Port of Discharge: PORT OF GUANGZHOU, CHINA

Multimodal Bill of Lading

shipment-route-multimodal-billoflading

Discrepancy: Multimodal bill of lading shows a transport route different than what is stated in the letter of credit. Place of receipt should have been Hannover, Germany but it was stated as Wolfsburg, Germany which is not as per letter of credit conditions.

Reason for Discrepancy: A multimodal transport document is to indicate the place of receipt, dispatch, taking in charge, port of loading or airport of departure stated in the credit.

Insurance Document Discrepancies

Ozgur Eker (CDCS) Insurance Policy Discrepancies, Letter of Credit Discrepancies , ,
insurance document discrepancies

It is a common practice in the commercial world to insure goods in transit. Briefly, the following reasons compel traders to contract transport insurance:

  • Protection against financial losses resulting from damage, pilferage, theft and non-receipt of entire or part of a consignment; and
  • Protection against financial claims that can be made against the owner of goods on board a vessel in case of a “declared general average” (the goods themselves being undamaged). (1)

According to the Incoterms rules, if the parties agreed on CIF or CIP trade terms, the exporter must provide an insurance policy or an insurance certificate to the importer at his own expense.

Consequently, if letter of credit has been chosen as a payment method with an underlining sales contract that had been established either with CIF or CIP incoterms, then the issuing bank adds an insurance document to the required documents list.

On this page you can find most common letter of credit discrepancies related to insurance documents, such as insurance policies or insurance certificates.

Insurance Policy Discrepancies

Important Definitions Regarding the Insurance Documents under Latest Letter of Credit Rules:

  • An insurance policy, insurance certificate or declaration under an open cover will be examined by banks as per UCP 600 article 28.
  • An insurance policy, an insurance certificate or a declaration under an open cover, must appear to be issued by an insurance company, an underwriter or their agents or their proxies.
  • An insurance policy, an insurance certificate or a declaration under an open cover, must appear to be signed by an insurance company, an underwriter or their agents or their proxies.
  • Presentation of cover notes will not be accepted instead of presentation of insurance policies, insurance certificates or declarations under an open cover.
  • An insurance policy is acceptable in lieu of an insurance certificate or a declaration under an open cover.
  • The date of the insurance document must be no later than the date of shipment, unless it appears from the insurance document that the cover is effective from a date not later than the date of shipment.
  • The insurance document must indicate the amount of insurance coverage and be in the same currency as the credit.
  • The insurance document must indicate that risks are covered at least between the place of taking in charge or shipment and the place of discharge or final destination as stated in the credit.

References:

  1. Shipping and Incoterms, Practice Guide, UNDP Practice Series, Page:18

Insurance Coverage is Insufficient Discrepancy

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Insurance Coverage is Insufficient Discrepancy Example

Marine insurance, contract whereby, for a consideration stipulated to be paid by one interested in a ship or cargo that is subject to the risks of marine navigation, another undertakes to indemnify him against some or all of those risks during a certain period or voyage.(1)

In a letter of credit transaction where an insurance policy or certificate is required, the amount of coverage must be determined in accordance with the letter of credit conditions and current L/C rules.

There are two possibilities exist for the insurance coverage amount under letters of credit:

  1. First possibility is that when the credit indicates a fix amount to be insured. In this case the insurance policy coverage must match the indicated amount in the credit.
  2. Second possibility is that when the credit is silent about the insurance coverage amount or percentage. In that case the insurance document is to be issued in the currency of and, as a minimum, for the amount indicated under UCP 600 sub‐article 28 (f) (ii). (The letter of credit rules define minimum insurance coverage amount as at least 110% of the CIF or CIP value of the goods.)

It is worth mentioning that there is no maximum percentage of insurance coverage identified under the letter of credit rules.

But, insufficient insurance coverage will cause problems.

If the issuing bank finds out that the insurance coverage is less than what is required under the letter of credit, then the issuing bank raises a discrepancy, which is known as insurance coverage is insufficient.

Discrepancy Example: Insurance Coverage is Insufficient:

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

Letter of Credit Conditions

Field 32 B: Currency Code, Amount
Currency: USD (US DOLLAR)
Amount: #150.000,00#

Field 39 B: Maximum Credit Amount: Not Exceeding

Field 43P: Partial Shipments: Not Allowed

Field 43T: Transhipment: Not Allowed

Field 45A: Description of Goods and or Services: 100 pcs of 200mm Concrete Drainage Pipes. Delivery Terms: CIF Port of Apapa, Lagos Incoterms 2010.

Field 46A: Documents Required:

  1. A signed invoice in duplicate indicating the details of the descriptions of goods as per the L/C.
  2. Certificate of Origin issued and certified by any Chamber of Commerce in India indicating that goods are of Indian origin.
  3. Insurance policy/certificate endorsed in blank for covering Institute Cargo Clause (A), Institute Strikes Clause (cargo), Institute War Clauses (Cargo) with claims payable in Nigeria.
  4. Full set of clean on board bill(s) of lading issued or endorsed to the order of issuing bank, notify applicant showing “freight prepaid” and showing full name and address of the shipping company agent or his representative in Nigeria.

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

Insurance Policy

insurance cover insufficient discrepancy

Discrepancy: The insurance policy indicates the amount of coverage is 150.000 USD which corresponds to 100% commercial invoice value. Letter of credit rules requires that minimum insurance cover must be at least 110% of the invoice value. Insurance cover should have been at least 165.000 USD.

Reason for Discrepancy: If there is no indication in the credit of the insurance coverage required, the amount of insurance coverage must be at least 110% of the CIF or CIP value of the goods.

All Originals of Insurance Policies Have Not Been Presented Discrepancy

Ozgur Eker (CDCS) Insurance Policy Discrepancies, Letter of Credit Discrepancies , ,
letter of credit discrepancy example insurance policy

Marine insurance is a type of commercial liability insurance that provides coverage (financial backing) against perils and losses associated with the transportation of goods.

Marine insurance is possibly the oldest type of commercial insurance in the world, dating as far back as the thirteenth or fourteenth century.(1)

According the current letter of credit rules, when the insurance document indicates that it has been issued in more than one original, all originals must be presented.

For example, if the insurance policy states on its face that ‘this policy has been issued in two originals to the same effect’, then both originals must be presented.

If the issuing bank finds out that all original insurance documents have not been presented, then the issuing bank will raise a discrepancy, which is known as all originals of insurance policies have not been presented.

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

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: 100mtons of Iron Ore. Delivery Terms: CIF Port of Rotterdam, Netherlands Incoterms 2010.

Field 46A: Documents Required:

  1. A signed invoice in duplicate indicating the details of the descriptions of goods as per the L/C
  2. Certificate of Origin issued and certified by the Chamber of Commerce in Beneficiary’s country indicating South African origin of the goods.
  3. Insurance certificate or policy in assignable form and endorsed in blank for 110% CIF commercial invoice value covering all risks showing claims payable in Netherlands in commercial invoice currency.
  4. A full set (3/3) original bills of lading issued to the order of the issuing bank marked “freight prepaid”‘ and to notify the issuing bank and the applicant.

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

Insurance Policy

marine insurance policy all originals discrepancy

Insurance Policy Discrepancy: The insurance policy indicates that it is issued in two originals. All of the original insurance policies should have been presented but only one original insurance policy presented.

Reason for Discrepancy: When a credit requires the insurance document to be issued in more than one original, or when the insurance document indicates that it has been issued in more than one original, all originals are to be presented and are to appear to have been signed.

References:

  1. Keenan, Marie. 2016. “Marine insurance.” Salem Press Encyclopedia Research Starters, EBSCO host (accessed February 24, 2018).

Insurance Policy not Issued and Signed by an Insurance Company or its Agent Discrepancy

Ozgur Eker (CDCS) Insurance Policy Discrepancies, Letter of Credit Discrepancies , ,
Insurance Policy not Issued and Signed by an Insurance Company or its Agent

Cargo insurance, also referred to as a marine cargo insurance, in general, means the insurance on goods being shipped in international trade by vessel, aircraft or overland conveyance. (1)

An insurance policy, an insurance certificate or a declaration under an open cover will be regarded as an insurance document under current letter of credit rules. (UCP 600 at article 28)

An insurance document must appear to be issued and signed by an insurance company, an underwriter or its agents or proxies, and that any signature by an agent or proxy must indicate whether the agent or proxy has signed for or on behalf of the insurance company or underwriter.

If the issuing bank finds out that an insurance document has not been signed as per UCP 600 article 28, then the issuing bank will raise a discrepancy, which is known as insurance policy not issued by an insurance company or its agent discrepancy.

Discrepancy Example: Insurance Policy Not Issued and Signed by an Insurance Company or Its Agent:

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 Pure Tunisian Dates. Delivery Terms: CIF Port of Barcelona, Spain Incoterms 2010.

Field 46A: Documents Required:

  1. Beneficiary’s hand-signed and dated commercial invoice in 3 originals bearing full description of goods and its quantity, net and gross weight, unit and total price.
  2. Certificate of Origin issued and certified by the Chamber of Commerce in Beneficiary’s country indicating Tunisian origin of the goods.
  3. Insurance policy in assignable form and endorsed in blank for 110% invoice value (CIF value) covering all risks showing claim payable in Spain in invoice currency.
  4. Full set original clean on board, marine bills of lading marked freight prepaid and made out to order and blank endorsed, marked notify applicant stating the name, telephone and fax numbers of carrier’s agent in port of discharge. Bill of lading should evidence shipment in 20′ closed containers.

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

Insurance Policy

marine insurance policy discrepancy example

Insurance Policy Discrepancy: Although insurance policy indicates the name of the insurance company, insurer, it is not signed by the insurance broker on behalf of the insurance company.

Reason for Discrepancy: An insurance document, such as an insurance policy, an insurance certificate or a declaration under an open cover, must appear to be issued and signed by an insurance company, an underwriter or their agents or their proxies.

Any signature by an agent or proxy must indicate whether the agent or proxy has signed for or on behalf of the insurance company or underwriter.

Packing List Discrepancies

Ozgur Eker (CDCS) Letter of Credit Discrepancies, Packing List Discrepancies , ,
packing list discrepancies

Packing list is a commercial document, in broad perspective.

It is a detailed listing of the contents of the shipment and acts as a supporting document of both commercial invoice and bill of lading.

The packing list (abbreviated as P/L) gives great deal of information regarding the incoming cargo without mentioning the value of the goods.

Gross weight, net weight, packing type, container number, seal number, number of packages, description of goods are the key points of an ordinary packing list.

It is required for customs clearance and most of the times accompanying the commercial invoice.

A packing list is expected to be issued by the exporter.

Packing list is one of the key documents in a typical commercial letter of credit. It is requested under almost all of the letters of credit.

On this page you can find most common discrepancies related to a packing list.

Packing List Discrepancies

Important Definitions Regarding the Packing List under Latest Letter of Credit Rules:

  • According to letter of credit rules the content of the document is much more important than the title of the document. As an example, a requirement for a “Packing List” will be satisfied by a document containing packing details whether it is titled “Packing List”, “Packing Note”, “Packing and Weight List”, etc., or bears even no title.
  • A packing list is to be issued by the entity stated in the credit. When a credit does not indicate the name of an issuer, any entity may issue a packing list.
  • Banks only examine total values, including, but not limited to, total quantities, total weights, total measurements or total packages, to ensure that the applicable total does not conflict with a total shown in the credit and on any other stipulated document.
  • When a credit contains a non‐documentary condition, compliance with such condition need not be evidenced on any stipulated document. However, data contained in a stipulated document are not to be in conflict with the non‐documentary condition. For example, when a credit indicates “packing in plastic cases” without indicating that such data is to appear on any stipulated document, a statement on the packing list indicating a different type of packing is considered to be a conflict of data.

Container Number not in Accordance with the Bill of Lading Discrepancy

Ozgur Eker (CDCS) Letter of Credit Discrepancies, Packing List Discrepancies , , ,
container number discepancy

Container number is a unique reference number assigned to a freight container so that the container can be traced and tracked by the government authorities, carriers, shippers and freight forwarders throughout its journey.

Determining the correct container number which belongs to a specific shipment is very important to the custom authorities and other governmental institutions.

As a result a container number will be mentioned on several documents including commercial invoice, consular invoice, bill of lading, packing list, health certificate and other shipping documents.(1)

In a commercial letter of credit transaction the container number indicated on the packing list and bill of lading must not conflict with each other.

The mention of a wrong container number on the packing list, which is inconsistent with the container number indicated on the bill of lading, is a reason for a valid discrepancy and rejection of the presentation.

According to the latest version of letter of credit rules a data in a document must not conflict with, data in that document, any other stipulated document or the credit.

As a result every container number indicated on each document must be identical to one another.

If the issuing bank finds out that the container number indicated on the packing list and bill of lading do not match, then the issuing bank will raise a discrepancy, which is known as packing list and bill of lading show different container number discrepancy.

Discrepancy Example: Container Number on the Packing List is not in Accordance with the Container Number on the Bill Of Lading

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 Pure Polyester Powder Coating. Delivery Terms: CIF Port Metro Vancouver, Canada Incoterms 2010.

Field 46A: Documents Required:

  • Signed commercial invoice in triplicate issued by the beneficiary
  • Certificate of origin issued by a local chamber of commerce or any official trade organization confirming that goods are new brand and first hand and originated in China plus 3 copies.
  • Packing list in triplicate indicating quantity and gross weight, net weight, vessel name and container number.
  • Full set clean on board port-to-port marine bill of lading marked freight prepaid issued or endorsed to the issuing bank’s order in 3 originals and 3 non-negotiable copies.

The beneficiary presented a Packing List as shown on the below picture.

Packing List

packing list container number discrepancy

Discrepancy : Packing list states “Container Number: MSCU 120870-8”. On the other hand bill of lading states “Container Number: CMAC 400300-6”. Packing list and bill of lading are indicating different container numbers.

Reason for Discrepancy: The mention of wrong container number on the packing list which is inconsistent with the container number indicated on the bill of lading is a reason for discrepancy and rejection of the presentation.

Sources:

  1. What is a container number? | www.advancedontrade.com

Packing List and Certificate of Origin Show Different Net Weight or Gross Weight Discrepancy

Ozgur Eker (CDCS) Letter of Credit Discrepancies, Packing List Discrepancies , , ,
packing list discrepancy example related to gross weight

Packing list and certificate of origin are two important trade documents.

The packing list is a detailed listing of the contents of the shipment and acts as a supporting document.

The certificate of origin verifies the country in which the goods to be exported were originally manufactured.

According to the letter of credit rules, the documents that reference to net weight or gross weight must not conflict with each other.

Along with a packing list and a certificate of origin, bill of lading, commercial invoice, weight list, inspection certificate, vessel certificate and insurance policy are the documents that are expected to contain a reference to the weight of the cargo.

According to the latest version of letter of credit rules a data in a document must not conflict with, data in that document, any other stipulated document or the credit.

As a result every gross weight and net weight values indicated on each document must be identical to one another.

If the issuing bank finds out that the gross weight or net weight indicated on the packing list and certificate of origin do not match, then the issuing bank will raise a discrepancy, which is known as packing list and certificate of origin show different net weight or gross weight discrepancy.

Discrepancy Example: Packing List and Certificate of Origin Show Different Net Weight or Gross Weight 

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

Letter of Credit Conditions

Field 45A: Description of Goods and or Services: 500 pieces of Touch Screen LCD Monitors. Delivery Terms: FOB Port of Kaohsiung, Taiwan Incoterms 2010.

Field 46A: Documents Required:

  1. Signed commercial invoice in three originals and three copies indicating the L/C no. and contract no. 20140418.
  2. Certificate of origin in one original and one copy issued by chamber of commerce or any other competent authority.
  3. Packing list in three originals and three copies issued by beneficiary indicating quantity and gross and net weights.
  4. Full set 3/3 of clean on board ocean bills of lading marked “freight payable at destination” made out to order and blank endorsed notifying applicant with its full name and address.

The beneficiary presented a Packing List as shown on the below picture.

Packing List
packing list discrepancy gross weight not matching

Discrepancy: The packing list states that “Net weight: 10.000 KGS” and “Gross Weight: 12.000 KGS”. On the other hand, the certificate of origin states that “Net weight: 12.500 KGS” and “Gross Weight: 15.000 KGS”.

The packing list and the certificate of origin show both different net weight and gross weight.

Reason for Discrepancy: According to the latest version of letter of credit rules a 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.