Letter of Credit Documents

Presentation – Letter of Credit Documents

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Presentation – Letter of Credit Documents

Proforma Invoice

Proforma Invoice

  • In international trade transactions, a proforma invoice is a trade document which states a commitment from the seller (exporter) to sell goods to the buyer (importer) at specified conditions.
  • A proforma invoice is not a valid invoice in terms of accounting.
  • Proforma invoices are widely used in today’s international trade transactions in substitution of sales contracts.
  • For detailed information please visit our proforma invoice page.

Commercial Invoice

Commercial Invoice

  • Commercial invoice is a type trade document which is used mostly in international trade transactions.
  • It is a compulsory document that is requested by customs to determine true value of the imported goods, for assessment of duties and taxes.
  • The description of the goods, services or performance in the invoice must correspond with the description in the letter of credit.
  • For detailed information please visit our commercial invoice page.

International Sales Contract

International Sales Contract

  • Contract of sale is defined as “formal contract by which a seller agrees to sell and a
    buyer agrees to buy, under certain terms and conditions spelled out in writing in the
    document signed by both parties.
  • Also called agreement of sale, contract for sale, sale agreement, or sale contract.
  • A sales contract can cover any kind of sales action such as sales of intellectual
    property rights, sales of real estate etc… We will be focusing only on international
    contracts for sale of goods.
  • For detailed information please visit our international sales contract page.

Packing List

Packing List

  • Packing list, is an international trade document, used to identify details of the shipment
    in terms of packaging.
  • Packing list normally should not disclose any financial information regarding the shipment such as the total amount of the cargo, unit price of the items or payment terms.
  • By adding details of the weight you can use a packing list as a weight list or weight certificate without any problem.
  • For detailed information please visit our packing list page.

Bill of Exchange / Draft

Bill of Exchange / Draft

  • Bill of exchange and draft have the same meaning and it is a financial document.
  • Bill of exchange defined as an unconditional order in writing, addressed by one person to
    another, signed by the person giving it, requiring the person to whom it is addressed 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 specified person, person, or to bearer.
  • There are two main international law exist that govern the bill of exchange as a financial
    instrument in international trade transactions. Bills of Exchange Act (1882) and Geneva
    Conventions (1930).
  • For detailed information please visit our bill of exchange page.

Insurance Documents

Cargo Insurance Documents

  • Cargo insurance is defined as an insurance policy taken up to protect insurance
    holder against loss of or damage to the goods during the transportation.
  • There are 3 main cargo insurance types available for sea and road shipments.
    • Institute Cargo Clauses (A) => widest protection coverage
    • Institute Cargo Clauses (B)
    • Institute Cargo Clauses (C) => minimum insurance coverage
  • Institute Cargo Clauses (Air) used in air shipments.
  • For detailed information please visit our cargo insurance documents page.

Inspection Certificate

Inspection Certificate

  • Pre-shipment inspection, PSI, is a part of supply chain management and an important and reliable quality control method for checking goods’ quality while clients buy from the suppliers.
  • Main objective objective of the inspection certificate is to satisfy the importer or the
    government body that the goods are in conformity with the indicated specifications
    on the sales contract or proforma invoice.
  • Inspections are important tools to reduce trade risks and avoid fraud.
  • For detailed information please visit our Inspection Certificate page.

Multimodal Bill of Lading

Multimodal Bill of Lading

  • Both multimodal bills of lading are transport documents covering transportation completed by more than one mode of transport.
  • Multimodal bills of lading are mostly printed on standard forms supplied by International Federation of Freight Forwarders Associations (FIATA) .
  • Multimodal Bills of Lading and Combined Transport Bills of Lading has the same meaning and application in terms of letters of credit rules.
  • For detailed information please visit our Multimodal Bill of Lading page.

Bill of Lading

Bill of Lading

  • Bill of lading is a transport documents used in sea shipments.
  • A bill of lading is an instrument in writing, signed by a carrier or his agent, describing the freight so as to identify it, stating the name of the consignor. The terms of the contract for carriage, and agreeing or directing that the freight be delivered to the order or assigns of a specified person at a specified place.
  • Bills of lading fulfill three basic functions :
    • bills of lading are receipts for the goods;
    • bills of lading evidence the terms of the contract of carriage
    • they are said to be “negotiable documents of title”
  • For detailed information please visit our Bill of Lading page.

Non-Negotiable Sea Waybill

Non-Negotiable Sea Waybill

  • Non-negotiable sea waybill or Non-Negotiable Bill of Lading is a transport document used in sea shipments.
  • A sea waybill is non-negotiable, which means that the consignee cannot endorse the sea waybill and transfer it to another person to take delivery delivery of the cargo.
  • Non-negotiable sea waybill is covered under article 21 of the UCP 600.
  • To comply with UCP 600 article 21, a non-negotiable sea waybill must appear to cover a port-to-port shipment but need not be titled “Non-negotiable Sea Waybill” or similar.
  • For detailed information please visit our Non-Negotiable Sea Waybill page

Charter Party Bill of Lading

Charter Party Bill of Lading

  • Container transportation may not be suitable for some occasions such as bulk commodity trades and heavy lift/out of gauge movements. On these occasions, in which liner services could not be utilized, shippers may choose to hire a vessel as an alternative.
  • Hiring a vessel is called “Charter Party” in maritime terminology.
  • Transport document issued by the hiring party of the vessel, or charterer as we call them, is called “Charter Party Bill of Lading“.
  • Charter party bill of lading is covered under article 22 of the UCP 600.
  • For detailed information please visit our Charter Party Bill of Lading page

Air Transport Document

Air Transport Document

  • Air transport document or air waybill (AWB) is a transport document used in air shipments.
  • Air waybill is “the shipping document used for the transportation of air freight. It includes conditions, limitations of liability, shipping instructions, description of commodity, and applicable transportation charges.
  • Air transport document is not a document title of goods, which means that air waybill is a non-negotiable transport document.
  • If a letter of credit requires presentation of an air transport document covering an airport-to airport shipment, UCP 600 article 23 is applicable.
  • For detailed information please visit our Air Transport Document page.

Road Transport Document

Road Transport Document

  • Road transport document or road consignment note is a transport document used in land shipments.
  • Road transport document is “the shipping document used for the transportation of land
    freight. Road transport document that confirms that the carrier (ie the road haulage company) has received the goods and that a contract of carriage exists between the trader and the carrier.
  • Road transport document is not a document title of goods, which means that road transport document is a non-negotiable transport document.
  • “CMR International Consignment Note” is the transport document created in standard forms according to CMR convention. CMR Convention is signed by most of the EUROPEAN countries.
  • For detailed information please visit our Road Transport Document page.

Rail Transport Document

Rail Transport Document

  • Rail transport document or rail consignment note is a transport document used in
    rail shipments. Rail consignment note confirms that the rail carrier has received the
    goods and that a contract of carriage exists between trader and carrier.
  • Rail transport document is not a document title of goods, which means that rail
    transport document is a non-negotiable transport document.
  • “CIM Rail Consignment Note” is the transport document created in standard forms
    according to CIM convention rules. CIM Convention is signed by around 50
    countries.
  • For detailed information please visit our Rail Transport Document page.

What are the Differences Between MBL (Master Bill of Lading) and HBL (House Bill of Lading)?

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Differences Between MBL (Master Bill of Lading) and HBL (House Bill of Lading)

Understanding the differences between a master bill of lading and a house bill of lading in export and import transactions.

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

A master bill of lading (MBL) is a transport document, which is used in sea shipments, issued and signed by a sea cargo 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 to port of discharge.

What Are the Main Features of a Master Bill of Lading (MBL)?

  • A master bill of lading generally issued on a pre-printed bill of lading form of an issuer carrier.
  • A master bill of lading issued and signed by a carrier or an agent on behalf of the carrier.
  • A master bill of lading (MBL) is issued subject to Hague Rules, The Hague-Visby Rules and US COGSA (US Carriage of Goods by Sea Act 1936. ) etc.
  • A master bill of lading is signed by the actual carrier and states the terms and conditions of the carriage, as a result consignee may have a better protection in case the goods are damaged or lost in transit.

Figure 1: Master Bill of Lading Sample (Carrier: Maersk Line) Figure 1 : Master Bill of Lading Sample (Carrier : Maersk Line)

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

A house bill of lading (HBL) is a transport document, which is used in sea shipments, issued and signed by a freight forwarder, generally on a freight forwarder’s bill of lading format, evidences the terms and conditions of the carriage of goods as specified by the freight forwarder.

What Are the Main Features of a House Bill of Lading (HBL)?

  • A house bill of lading generally issued on a freight forwarder’s bill of lading format.
  • A house bill of lading issued and signed by a forwarder without indicating any signing authority either carrier or as agent of the carrier. In some occasions forwarder companies sign HBLs “as carrier”, especially when their clients require a bill of lading compliant to the letter of credit conditions.
  • A house bill of lading (HBL) may or may not be subject to Hague Rules, The Hague-Visby Rules and US COGSA (US Carriage of Goods by Sea Act 1936. ) etc.
  • House bill of lading is signed by the forwarder, and it states the terms and conditions of carriage for the forwarder company’s perspective. A house bill of lading does not contain actual carrier’s carriage contract, as a result the shipper stated on the house bill of lading is not identified in the actual carrier’s contract.

Figure 2: House Bill of Lading Sample

Figure 2 : House Bill of Lading Sample

What are the Differences Between MBL (Master Bill of Lading) and HBL (House Bill of Lading)?

Master Bill of LadingHouse Bill of Lading
Master Bill of Lading:
Issued by the actual carrier, such as MSC, Maersk, Yang Ming Lines, etc.		House Bill of Lading:
Issued by the forwarder company, such as XYZ Forwarding Ltd, etc.
Master Bill of Lading:
Signed either by the carrier or an agent of the carrier.		House Bill of Lading:
Signed by the forwarding company without any agency indication of the carrier.
Master Bill of Lading:
Issued on a pre-printed form of an actual carrier's bill of lading.		House Bill of Lading:
Issued on a pre-printed form of a forwarder company's bill of lading.
Master Bill of Lading:
Always subject to Hague Rules, The Hague-Visby Rules and US COGSA (US Carriage of Goods by Sea Act 1936. ) etc.		House Bill of Lading:
May or may not be subject to Hague Rules, The Hague-Visby Rules and US COGSA (US Carriage of Goods by Sea Act 1936. ) etc.
Master Bill of Lading:
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 Bill of Lading:
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 Bill of Lading:
States actual carrier's bill of lading number.		House Bill of Lading:
States forwarder company's bill of lading number.

What Does Duplicate, Triplicate Mean in a Letter of Credit?

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What does duplicate, triplicate, quadruplicate, quintuplicate etc. mean?

Letters of credit have a special jargon.

If you are not familiar with the L/C language, you may not be able to understand what letter of credit is telling to you.

Issuing banks frequently state quantities of required document not explicitly, but with a special letter of credit jargon.

On this port you can find the meaning of one of the most frequently used L/C terms in regards to multiple documents.

Sample Texts:

  • Packing list in triplicate
  • Beneficiary’s signed commercial invoice{s) in triplicate, original of which must be certified by the chamber of commerce.
  • Certificate of origin in duplicate evidencing country of goods origin.
  • Beneficiary’s manually signed commercial invoice in quintuplicate certified by the chamber of commerce and/or industry or equivalent authority of the exporting / beneficiary country.
  • Signed and stamped with company’s seal commercial invoice in quadruplicate mentioning: a. name and address of the manufacturers/producers, b. relevant harmonized commodity code number(s) applicable to the products shipped under this credit, and certifying that: c. country of origin, d. all cartons and each items are marked with the words made in e. country of origin is printed/stitched on each item.

Letter of Credit Rules:

  • If a credit requires presentation of multiple documents by using terms such as “in duplicate“, “in two fold” or “in two copies“, this will be satisfied by the presentation of at least one original and the remaining number in copies, except when the document itself indicates otherwise.

definitions of multiple documents

Explanations:

  • “Packing list in triplicate” means that beneficiary could present 3 originals of packing lists or at least one original packing list and remaining with copies.
  • “Certificate of origin in duplicate evidencing country of goods origin” means that beneficiary could present 2 originals of certificates of origin or one original and one copy of certificates of origin.

Shipping Documents

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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 Does a Bill of Exchange Work?

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

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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).

Language of Letter of Credit Documents

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language of letter of credit documents

Banks decide whether a presentation is complying or not by only checking the documents under the letters of credit transactions.

Banks should be able to read the documents, which have been presented to them. Otherwise they can not check them.

As a result issuance of the documents with the correct language is the first requirement for a complying presentation.

On this post I will explain the language of the documents according to the ICC rules and regulations.

What Does the UCP 600 Tell Us About the Language of the Documents?

Surprisingly, latest letter of credit rules are silent in regards to the language of the documents.

For this reason, we have to look at the international standard banking practices to understand ICC Banking Commission’s perspective on this matter.

ISBP 2007 Regulations

ISBP 2007 has a very limited coverage about the language of the documents.

We can see related regulation only in article 23.

Article 23 of ISBP 2007 tells us that “it is expected that documents issued by the beneficiary will be in the language of the credit” and “when a credit states that documents in two or more languages are acceptable, a nominated bank may, in its advice of the credit, limit the number of acceptable languages as a condition of its engagement in the credit.”

It is understand from the practice that these statements are not enough to clarify the language of the documents subject.

As a result ICC banking Commission has made a significant change on this subject, when they were renewing the international standard banking practices.

ISBP 2013 Regulations

ISBP 2013 is the revised version of ISBP 2007. It has been effective since the beginning of June 2013.

Unlike previous versions, the new international standard banking practices has a detailed explanation about the language of the documents.

  • ISBP 2013 encourages issuing banks to specify the language of the credit with these wordings “when a credit stipulates the language of the documents to be presented, the data required by the credit or UCP 600 are to be in that language.” If the issuing bank would not specify the language of the credit, then the documents may be issued in any language.
  • Even if the issuing bank allows presentation of documents issued more than one language, the nominated bank or confirming bank may restrict the number of acceptable languages as a condition of their engagements in the credit.
  • For example issuing bank may allow presentation of documents issued either English or French, but the confirming bank can restrict the letter of credit for the documents only issued in English language. In such a case only the data written in English will be acceptable.
  • ISBP 2013 also states that banks do not examine data that have been inserted in a language that is additional to that required or allowed in the credit. As an example, let us assume that the credit calls for documents issued in English language only. If the exporter presents a commercial invoice issued in English language, but having additional Arabic information, banks do not control the Arabic written parts. They check the English parts only.

There is one more sub-article exists in ISBP 2013, which is clarifying the language of stamps, legalization and endorsements, however I would like to write about this subject in the near future with an example.

Case Study : What Does Commerzbank Think About the Language of the Documents?

Before finalizing this post, let me give you a real life example from Commerzbank:

“Thus it is essential that the participating banks are able to determine that the documents are complying.

Commerzbank does not believe it is reasonable to expect them to have documents translated before their conformity can be checked, a process that might result in deadlines for checking documents being exceeded.

It is for that reason that Commerzbank rejects documents which language cannot be checked or honors them under reserve only.”

Shipment Advice

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shipment advice

A shipment advice is a commercial document , which is issued by the exporter, who is the beneficiary of the letter of credit, in order to give shipment details to the importer, who is the applicant of the letter of credit.

Who should issue shipment advice?

The shipment advice should be issued by the exporters.

When should the shipment advice be created and dispatched?

The shipment advice should be created as soon as the shipping details are available. In a letter of credit transaction, the shipment advice should be created and dispatched within 3 or 5 days after the date of shipment.

What is the function of a shipment advice or shipping advice in international trade transactions?

The main function of the shipment advice is to allow importers to arrange transport insurance in a timely manner.

Especially, this document is vital importance in situations where importers have to arrange the transport insurance, such as FCA, FOB, CFR, FAS, CPT and EXW deliveries.

A shipment advice informs the details of the shipments to the importer. By having the details of the shipment in advance,

  1. The importer could arrange the transport insurance. For example, if shipment has been made via sea shipment, the importer could arrange a marine insurance policy with the information he received from the shipment advice.
  2. The importer could track the shipment by using the necessary information that have been collected from the shipping advice. For example, the importer could track the container, if he knows either the container number or bill of lading number. Both of these two information could be gathered from the shipment advice.
  3. The importer could initiate import custom operations, if the exporter has supplied copy of shipment documents along with the shipment advice. In any case, the importer have to present original shipment documents to the custom authorities upon arrival of the goods.

What Sort of Information a Shipment Advice Should Contain?

A shipment advice should cover all the details of the shipment, so that the importer will be able to make the insurance coverage with the information provided by the advice of shipment only.

Below you can find the contents of the shipment advice along with explanations.

  • Introduction: At the beginning of the shipment advice, a brief introduction paragraph should be placed. On the introduction paragraph, it would be advisable to mention the information as required by the letter of credit.

shipment advice introduction paragraph

  • Description of Goods: Description of goods should be mentioned on the shipment advice in accordance with the description of goods stated on the commercial inoice.
  • Invoice Value of Goods: Total amount as shown on the commercial invoice should be mentioned on the shipment advice as well. This is an important part of the document, because this information is required for marine insurance coverage.
  • Letter of Credit Number: If payment term is L/C, then letter of credit number should be stated on the shipping advice along with L/C Date of issue.
  • Name of the Carrier: Irrespective of mode of transport, carrier’s name should be mentioned on the certificate of shipment.
  • Name of Vessel and Voyage Number: In case of sea shipment name of vessel and voyage number should be indicated. In case of air shipment flight number and in case of land shipment plate number should be added to the certificate of shipment.
  • Consignee and Notify Party: Consignee and notify party should be mentioned on the shipment advice as indicated on the transport document. (Bill of Lading, Air Waybill, CMR Transport Document etc.)
  • Bill of Lading No: Together with the container number, bill of lading no lets importer to track the consignment. (in case of air shipments air waybill no, in case of land shipments CMR no can be written)
  • Container Number: Together with the bill of lading no, container number lets importer to track the consignment.
  • Shipped on Board Date: Shipped on board date evidences shipment date, which is a vital information for the insurance companies. (sea shipments)
  • Seal Number: Seal number of the container. (sea shipments)
  • Gross Weight: Gross weight of the consignment.
  • Net Weight: Net weight of the consignment.
  • Packages: Total number of packages as seen on the transport document.
  • Shipper: Shipper company name as seen on the transport document.

Shipment Advice Example:

shipment advice sample

Pre-Export Verification of Conformity (PVoC) Certificate

Ozgur Eker (CDCS) Conformity Certificate, Letter of Credit Documents ,
Pre-Export Verification of Conformity (PVoC) Programme

PVoC is a conformity assessment programme lunched by some African states with the aim of controlling the quality of imported goods in order to minimize the risk of unsafe and substandard goods entering into their markets.

Pre-Export Verification of Conformity or Conformity Assessment Programmes are put into action in accordance with the Article 5 of World Trade Organization’s Technical Barriers to Trade agreement.

Pre-Export Verification of Conformity or Conformity Assessment Programmes are administered by The Standards Body of each country on behalf of so called country’s Government.

All inspections and tests are carried out by the appointed independent verification partners on regulated goods in the country of supply.

Some well-known independent international inspection companies are Bureau Veritas, Intertek, Société Générale de Surveillance (SGS) etc.

What are the Benefits of Pre-Export Verification of Conformity Programmes:

  • Only good quality products will be imported by eliminating the unsafe ones.
  • Importation of poor quality and sub-standard products is prevented. This will lead to a more fair competition between local manufacturers and the global ones.
  • Pre-Export Verification of Conformity Programmes are usually compensated by exporters. This means that costs are not borne by the government, or importers.
  • If local standards are not existed international standards are utilized. This means that the reputable manufacturers will be able to comply with a very little effort.

Which Countries are Using Pre-Export Verification of Conformity or Conformity Assessment Programmes:

As of November 2014 below countries are found to be using Pre-Export Verification of Conformity Programmes. Please keep in mind that this list may have been changed.

  • Kingdom of Saudi Arabia
  • Nigeria
  • Kuwait
  • Tanzania
  • Uganda
  • Kenya

How Does a Pre-Export Verification of Conformity Programme Work Under Standard Circumstances?

  • Each country’s Government instructs its local National Standards Body to apply Pre-Export Verification of Conformity Programme on imports and defines the list of products which must comply.
  • National Standards Body appoints independent inspection companies to handle the testing.
  • These approved independent inspection companies provide test services to exporters, and issues certificates of conformity for products that pass the tests.
  • Certificate of Conformity is a mandatory document required by the customs of the countries stated above which apply Pre-Export Verification of Conformity Programme.

How Does a PVoC Certificate Work in Letters of Credit?

  • Letters of Credit deal with the documents only, not the actual work:

There is a very clear distinction exists between the letter of credit and other payment methods in international trade:

Letter of credit transactions are executed by banks according to internationally accepted rules. When banks handle letter of credit transactions they deal with the documents only.

As an example, banks are not interested in an actual shipment, but they check the transportation documents in order to determine whether shipment has been made according to the letter of credit terms or not.

This example is also true for PVoC programme.

Banks deal with the Certificate of Conformity, which is issued by an approved independent inspection company after carrying out necessary tests.

  • Understanding Certificate of Conformity Under PVoC Programmes:

“Certificate of Conformity” which is also known as “Type Approval” is granted to a product that meets a minimum set of regulatory, technical and safety requirements.

Generally, type approval is required before a product is allowed to be sold in a particular country. In order to get the Certificate of Conformity you should follow these steps :

  • Step 1: Make sure that Certificate of Conformity (COC) is a must on your export. You have to verify that you are exporting to one of the countries that apply PVoC programmes and your product is covered by these regulations. In simple words you have to make a country and product verification to understand whether or not you have to supply a Certificate of Conformity.
  • Step 2: Apply to one of the independent inspection companies which is authorized to carry out tests under PVoC programmes by the importer country’s National Standards Body.
  • Step 3: If your product pass the required tests, the independent inspection company will be issuing the Certificate of Conformity.
  • Understanding Letter of Credit Rules Regarding the Certificate of Conformity Under PVoC Programmes:

Certificate of Conformity is explained in ISBP 745 under the title “Analysis, Inspection, Health, Phytosanitary, Quantity Quality And Other Certificates (“Certificate”)”.

Here are the important points of consideration;

  • According to ISBP 745 title of the document is not important. ISBP states that “…titled as called for in the credit, or bearing a similar title or untitled…”. According to ISBP 745 the important point is the function of the document as ISBP states “…that fulfills its function by certifying the outcome of the required action…”.
  • Inspection of goods must take place before shipment and this must be indicated on the certificate one of the following methods,
    • issuance date of the certificate is no later than the date of shipment
    • even if the issuance date of the certificate is after the date of shipment a statement must indicate that inspection took place before shipment or similar effect.
    • title of the certificate must be indicating the event, for example, certificate titled as “Pre-shipment Inspection Certificate”.
  • A certificate is to be issued by the entity stated in the credit.
  • When a credit does not indicate the name of an issuer, any entity including the beneficiary may issue a certificate.
  • When a credit makes reference to an issuer of a certificate in the context of its being “independent”, “official”, “qualified” or words of similar effect, a certificate may be issued by any entity except the beneficiary.
  • The consignor or exporter indicated on the certificate may be an entity other than the beneficiary of the credit or the shipper as shown on any other stipulated document.

Insurance Documents

Ozgur Eker (CDCS) Insurance Policy, Letter of Credit Documents , , ,
insurance documents

Insurance defined by merriam-webster dictionary as “a coverage by contract whereby one party undertakes to indemnify or guarantee another against loss by a specified contingency or peril.”

Insurance can cover a wide range of activities including but not limited to agricultural insurance, health insurance, life insurance, vehicle insurance etc…

On this page, the focus is on the cargo insurances.

Cargo insurance can be defined as an insurance policy taken up to protect insurance policy holder/assured against loss of or damage to the goods during the transportation.

Cargo insurance is one of the most important elements of the international trade transactions.

Details of the cargo insurance should be determined under the sales contracts.

Who is Going to Arrange and Pay for the Cargo Insurance:

Under CIF (Cost Insurance Freight) and CIP (Carriage and Insurance Paid to a named place of destination) trade terms, the cargo insurance premium must be paid for and arranged by the exporter.

Otherwise parties can freely determine the insurer party.

What Kinds of Cargo Insurance Policies are Available for Export / Import Purposes:

There are 3 main cargo insurance types available for sea and road shipments.

  • Institute Cargo Clauses (A),
  • Institute Cargo Clauses (B) and
  • Institute Cargo Clauses (C).

Institute Cargo Clauses (A), which is also known as all risk insurance, has the widest protection coverage.

Institute Cargo Clauses (C) has the minimum insurance coverage.

Institute Cargo Clauses (Air) used in air shipments.

* Institute Cargo Clauses (A) 1/1/09
* Institute Cargo Clauses (B) 1/1/09
* Institute Cargo Clauses (C) 1/1/09
* Institute Cargo Clauses (Air) (excluding sending by Post) 1/1/09

Which Additional Clauses Should be Included in to the Cargo Insurance Policy:

Under the letters of credit transactions, the issuing banks demand some additional clauses on the cargo insurance policies together with all risks coverage for more security.

Some of the most frequently used additional cargo insurance clauses are,

* Institute War Clauses (Cargo)
* Termination of Transit Clause (Terrorism) Amended
* War and Strikes Cancellation Clause (Cargo)

Starting and Ending Points of the Cargo Insurance Coverage:

Normally the cargo insurance covers the losses that is occurred between the starting and ending point of the main carriage.

For example, a cargo insurance covers the losses that is occurred between the port of loading and the port of discharge on a port-to-port sea shipment.

But sometimes issuing banks may demand an extended coverage.

The most frequently used clause for these kinds of extensions is “warehouse to warehouse” insurance coverage.

How to Use Insurance Documents in Letters of Credit Transactions:

  • An insurance document, 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.
  • An insurance policy is acceptable in lieu of an insurance certificate or a declaration under an open cover.
  • Cover notes will not be accepted.
  • 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.
  • An insurance document indicating that it covers Institute Cargo Clauses (A) satisfies a condition in a credit calling for an “all risks” clause or notation. (ISBP 2007)

Insurance Policy Sample:

cargo insurance policy sample

Insurance Certificate Sample:

sample insurance certificate