Amer from Ajman (United Arab Emirates (UAE)) asks this question. I would like to thank him once again for this great question.
Question: I have an L/C as follows:
43P: Partial Shipment: Allowed
43T: Transshipment: is not Allowed.
I shipped the goods in 5 container as below. Which means that I had submit 2 B/L s for the same L/C. Please keep in mind that all other details will be the same.
Can I know is it allowed to submit 2 B/L for my L/C.
Thanking you.
2 container in one vessel on 11/02/2014
3 container in another trip on 18.02/2014
Answer: First of all, we need to determine that the shipment, which is effected as indicated above, could be accepted as a partial shipment or not.
UCP 600 article 31 states that a presentation consisting of one or more sets of transport documents evidencing shipment on more than one means of conveyance within the same mode of transport will be regarded as covering a partial shipment, even if the means of conveyance leave on the same day for the same destination.
As indicated in UCP 600 if more than one means of conveyance has been affected under one letter of credit presentation this will be regarded as a partial shipment.
We understand from Amer’s explanations that he has been used two means of conveyance on his shipments. He has loaded two containers to vessel A on 11.February.2014 and remaining 3 containers to Vessel B on 18.February.2014.
After determining that partial shipment has been effected on this presentation, we need to look at the letter of credit text in order to understand, whether partial shipment was allowed or not.
Again, we can see from Amer’s information that partial shipment is allowed under respected documentary credit.
Conclusion: Partial shipment has been effected on these shipments and letter of credit allows partial shipments. As a result, beneficiary can submit two sets of bills of lading under the same presentation without any problem.
Partial shipments, partial drawings and partial payments are very closely related terms in letters of credit transactions.
A beneficiary can make partial shipments, if the letter of credit allows partial shipments explicitly; or else it is silent in regards to the partial shipments.
If a letter of credit disallows partial shipments, this means that the beneficiary can not make any partial shipments under that letter of credit.
After reading this article, you should understand the connection between partial shipments, partial drawings and partial payments under letters of credit.
Example:
A letter of credit has been issued in SWIFT format, subject to UCP latest version, with the following details:
Field 45-A: Description of Goods: 3 Pcs of Olive Oil Processing Machinery
Field 46A: Documents Required:
• 1 original signed commercial invoice and 1 copy.
• 1 original packing list and 1 copy.
• Full set of original bill of lading clean on board marked freight collect made out to the order of Issuing Bank, notify applicant.
Analysis:
The beneficiary has to ship 3 olive oil processing machinery under this sample letter of credit.
Shipping only 1 olive oil processing machinery is a partial shipment.
After shipping 1 olive oil processing machinery, the beneficiary collects the shipping documents and makes the presentation to the issuing bank.
The beneficiary demands 100.000,00 USD from the issuing bank. This is the partial drawing as the beneficiary demands not the full credit amount.
The issuing bank checks the documents, and if the documents are complying then the issuing bank pays 100.000,00 USD to the beneficiary, which is the partial payment.
Conclusion:
It is possible to get partial payments under the letters of credit, when partial shipments have been effected. Actually it is why partial shipments exist at the first place.
Partial shipment and partial drawing terms are usually used with the same meaning in export and import transactions.
But this is not necessarily the case especially in standby letters of credit and bank guarantees.
On this post you can find the definitions of both partial drawings and partial shipments, as well as the differences between partial shipments and partial drawing via examples.
Definition of a Partial Drawing: A presentation which is made for less than the full amount available will be defined as a partial drawing.
Definition of a Partial Shipment: If a beneficiary under a letter of credit ships the credit amount in a single lot, which is corresponding to the whole credit amount, loaded with a single means of conveyance; then this can be defined as a complete shipment.
All other shipments, which are not complete and/or loaded with more than one means of conveyance, can be defined as partial shipments.
Example:
A letter of credit has been issued in SWIFT format, subject to UCP latest version, with the following details:
Important Note: The letter of credit is silent about the partial shipments and transhipments.
Field 45A-Description of Goods: Quantity: 2,000 M/Ts Material: Hot Rolled Steel Plates -Size: -20.00MM x 2000 MM x 1000 MM – 500 M/Ts 25.00MM x 2000 MM x 1100 MM – 1500 M/Ts
Field 46A: Documents Required:
1 original signed commercial invoice and 1 copy.
1 original packing list and 1 copy.
1 original forwarder’s certificate of receipt issued to the name of the issuing bank bearing a clause that goods have been assumed control by the named forwarder with irrevocable instructions to be forwarded to the consignee and marked freight payable at destination.
Analysis:
The letter of credit is silent in regards to the partial shipments and partial drawings.
In these kinds of situations, where the L/Cs are silent about the partial shipments and partial drawings, we need to look at the latest letter of credit rules.
UCP 600, which is the latest set of letter of credit rules, tells us that the partial shipments and partial drawings are allowed if the letter of credit is silent in this regard.
According to the letter of credit rules, FCR is not a transport document. It is not possible to make partial shipments under the letters of credit, which do not demand a transport document.
However, it is possible for the beneficiaries to demand partial drawings from the issuing banks.
Conclusion:
Partial shipment is related to the transport documents. If the letter of credit do not request a transport document, then technically you can not make a shipment.
Which means that it is not possible to make a partial shipment under the letter of credit, that do not request a transport document.
However, it is possible to demand less than the full letter of credit amount from the issuing banks under such circumstances. Which is called the partial drawings.
Most of the stand-by letters of credit and bank guarantees do not require presentation of an original copy of the transport document.
Normally the letter of credit rules allow partial shipments.
UCP 600 Article 31 states that partial drawings or shipments are allowed.
If an applicant does not want to permit partial shipments, he must give clear instructions to the issuing bank to this effect, when opening the letter of credit.
Why Would Applicants Prohibit Partial Shipments?
Applicants would like to prohibit partial shipments for technical and commercial reasons:
Technical Reasons to Disallow Partial Shipments: Shipping of goods in partial may not be meaningful.
For example, if an exporter should be dispatching one piece of Offset Printing Machine under a letter of credit, shipping the machine dismantled via partial shipments would be meaningless.
As a result, an importer needs to disallow partial shipment under such a scenario.
Commercial Reasons to Disallow Partial Shipments:Under some circumstances, commercial conditions may make partial shipments unsuitable for the importers.
Generally, importers are not the end buyers in international trade transactions. They are big wholesalers.
They import the goods in to their countries and then they will distribute them to smaller distributors or end customers.
If importers need specific amount of goods within a specific periods of time, they may forced to prohibit partial shipments under the letter of credit transactions.
What are the Consequences of Prohibiting Partial Shipments?
If partial shipments are not allowed under a letter of credit, issuing bank, confirming bank and nominated bank should check the presented documents very carefully in order to make sure that documents do not evidence a partial shipment.
Not allowing partial shipments under letters of credit would result below consequences:
Exporters could not make short shipments, except allowed tolerance limits, if any, under letters of credit where partial shipments are prohibited.
Exporters could not make partial drawings and could not get partial payments from the banks.
Exporters who act on the contrary may face discrepancies and non-payment risks.
Definition of Transshipment: Transhipment means unloading from one means of conveyance and reloading to another means of conveyance during the carriage as enrouted in the letter of credit.
Definition of Partial Shipment: If a beneficiary under a letter of credit ships the credit amount in a single lot, which is corresponding to the whole credit amount, loaded with a single means of conveyance; then this can be defined as a complete shipment.
All other shipments, which are not complete and/or loaded with more than one means of conveyance, can be defined as partial shipments.
What are the Important Points of Transshipment?
Transshipment is not regulated under cash in advance payment, open account or documentary collections rules.
Letter of credit rules have special articles covering transshipments.
Air transportation mostly requires couple of transshipments before the cargo arrives to the airport of destination. Prohibiting transshipment in air transportation may result undesired consequences.
Multimodal transportation must require at least one transhipment. Prohibiting transhipment in multimodal transportation should be avoided.
What are the Important Points of Partial Shipments?
Partial shipment is not regulated under cash in advance payment, open account or documentary collections rules.
Letter of credit rules have special articles covering partial shipments.
Disallowing partial shipments may huge impact on exporter’s shipment flexibility, as a result it must be used very carefully.
If letter of credit amount can not be shipped in a single truck and requires more than one truck usage, partial shipment should not be prohibited when road transportation will be used.
Why Transhipment is not Allowed by Banks?
Transhipment is getting more important for the importers and banks when they are dealing with sanctions, embargoes and trade restrictions. Importers and banks may want to prevent the cargo entering any unwanted country, seaport, airport etc by prohibiting the transshipment.
Other than that the importers may try to prohibit transshipments for their own commercial interests.
Why Partial Shipment is not Allowed by Banks?
Partial shipment will be prohibited by banks mainly on commercial basis. Most of the times the importers request from the issuing banks not to allow partial shipments.
Conclusion:
Both partial shipments and transshipments are important concepts in their own way of effecting the process of letters of credit transactions.
Importers should refrain prohibiting both partial shipments and transshipments as long as legal or commercial conditions dictates so.
On this post, I would like to explain partial shipments in letters of credit.
You can find detailed explanations regarding the definition and conditions of the partial shipments.
Definition: If a beneficiary under a letter of credit ships the credit amount in a single lot, corresponding to the whole credit amount, loaded with a single means of conveyance, then this can be defined as a complete shipment.
All other shipments, which are not complete and/or loaded with more than one means of conveyance, can be defined as partial shipments.
Partial Shipments and Partial Drawings:
If a partial shipment is effected under a letter of credit, then the drawing amount must match the shipped goods.
Partial shipment must correspond to the partial drawing.
Let us assume that a beneficiary makes two partial shipments under a commercial letter of credit. 1st shipment is for the amount of 200.000 USD and 2nd shipment is for the amount of 300.000 USD.
The beneficiary demands 200.000 USD from the issuing bank for the 1st shipment and 300.000 USD for the 2nd shipment.
This mechanism is called partial drawings. Both drawings are independent from each other. For example, 1st drawing may be clean without any discrepancies, but 2nd drawing may be rejected based on a discrepant presentation.
Letter of Credit Example: Partial Shipments and Partial Drawings
What are the Conditions of a Partial Shipment?
In certain situations it would be a very tricky job determining whether a partial shipment has been effected or not.
Things are getting complicated especially if more than one set of transport documents have been presented under the same presentation.
For this reason it would be better to explain partial shipment definitions under two conditions:
Determining partial shipments when only one set of original transport documents have been presented:
It is comparatively straight forward determination of the partial shipment if only one set of original transport documents have been presented and they are evidencing shipment on one means of conveyance within the same mode of transport.
Checking the shipment quantity and drawings would be enough.
If the letter of credit amount has not been drawn in full and documents are showing that the goods have not been loaded completely, you can reach to the conclusion that partial shipment has been effected.
Important Note: Please kindly keep in mind that the letter of credit rules allow some tolerances even when partial shipments are prohibited.
How to determine partial shipment when presentation consisting of one set of transport documents?
Example 1:A letter of credit has been issued in SWIFT format, subject to UCP latest version, with the following details:
Letter of Credit Conditions
Field 43P: Partial Shipments: Not Allowed
Field 43T: Transhipment: Allowed
Field 45A: Description of Goods and or Services: Frozen Seabass and Seabream. Frozen Seabass Price: 6 USD/KGS Frozen Seabream Price: 7USD/KGS Quantity: 5000 KGS seabass and 5000 KGS seabream 10.000 KGS in total. Delivery Terms: CIF Rotterdam Seaport Netherlands Incoterms 2010.
Field 46A: Documents Required:
3 original signed commercial invoices and 3 copies.
Certificate of Origin issued and certified by the Chamber of Commerce in Beneficiary’s country indicating South African origin of the goods.
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.
Full set of original bill of lading shipped on board established to the order of Bank Nederlandse Gemeenten notify applicant company marked freight prepaid.
The beneficiary presented one set of original bills of lading among other documents with the following data:
Bill of Lading and Conclusion:
Determining partial shipments when more than one sets of original transport documents have been presented:
If more than one sets of original transport documents have been presented under the same letter of credit presentation, you can not determine whether partial shipment has been effected by simply comparing the actual shipment quantity and amount with the letter of credit quantity and amount.
You have to check couple of additional variables in order to reach the correct conclusion.
How to determine whether partial shipment has been effected when the presentation consisting of more than one sets of transport documents:
Step 1 : Checking the total quantity and amount shipped: If total quantity and amount less than what letter of credit states you can say that partial shipment has been effected.
If actual shipment amount and quality equals to the letter of credit requirements, then you further need to check the transport documents.
Step 2 : Checking the transport documents: If the transport documents evidencing shipment commencing on the same means of conveyance and for the same journey, provided they indicate the same destination, will not be regarded as covering a partial shipment, even if they indicate different dates of shipment or different ports of loading, places of taking in charge or dispatch.
If the transport documents evidencing shipment on more than one means of conveyance within the same mode of transport, this will be regarded as covering a partial shipment, even if the means of conveyance leaves on the same day for the same destination.
Example 2: A letter of credit has been issued in SWIFT format, subject to UCP latest version, with the following details:
Letter of Credit Conditions
Field 43P: Partial Shipments: Not Allowed
Field 43T: Transhipment: Allowed
Field 45A: Description of Goods and or Services: Frozen Sliced Red Peppers and Frozen Sliced Potatoes. Frozen Sliced Red Peppers Price: 2 USD/KGS Frozen Sliced Potatoes Price: 1,5 USD/kgs Quantity: 10000 kgs peppers and 10000 kgs potatoes 20.000 KGS in total. Delivery Terms: CIF Dammam Seaport Kingdom of Saudi Arabia Incoterms 2010.
Field 46A: Documents Required:
3 original signed commercial invoices and 3 copies.
Certificate of Origin issued and certified by the Chamber of Commerce in Beneficiary’s country indicating South African origin of the goods.
Insurance certificate or policy in assignable form and endorsed in blank for 110% CIF commercial invoice value covering all risks showing claims payable in Kingdom of Saudi Arabia in commercial invoice currency.
Full set of original bill of lading shipped on board established to the order of AlAhli Bank notify applicant company marked freight prepaid.
The beneficiary presented two sets of original bills of lading among other documents with the following data:
Conclusion of the Example 2: Letter of credit amount shipped in full. 10000 kgs frozen sliced red peppers and 10000 KGS frozen sliced potatoes have been loaded which makes 20.000kgs in total as the same as letter of credit requested, but presentation consisting of more than one set of bills of lading, which means that we have to look at the bills of lading in order to determine whether partial shipment effected or not.
First bill of lading shows the vessel name “Sea Voyager” voyage number “IV”. Second bill of lading shows the vessel name ” Blue Bird” voyage number “1337 “. There are two means of conveyances (two different vessels) have been utilized on this shipment, as a result partial shipment has been effected.
Modes of Transport is a term used to distinguish substantially different ways to perform transport.
The most frequently used modes of transport in international trade are air transportation, land transportation, rail transportation, sea transportation and multimodal transportation.
Means of Conveyance is a term describing something that serves as a means of transportation, such as a vessel, truck, aircraft etc.
On this page, I will try to explain two important logistics terms: modes of transport and means of conveyance and their applications under the letter of credit rules.
Modes of Transport in Letters of Credit:
Modes of transport term used in connection with the determination of the multimodal transport documents under the letter of credit transactions.
Multimodal transportation is the movement of one unit load from origin to destination by several modes of transportation under one document without breaking up the unit load. (1)
According to the letter of credit rules, if a transport document covers at least two different modes of transport, then it is regarded as a multimodal bill of lading.
The title of the transport document is not important.
UCP 600 Article 19 – Transport Document Covering at Least Two Different Modes of Transport
a. A transport document covering at least two different modes of transport (multimodal or combined transport
document), however named,…
Example: A letter of credit asks for a full set of shipped on board multimodal ocean bills of lading marked freight payable at destination made out to the order of issuing bank marked notify applicant.
Transport Document: The bill of lading shows port to port sea shipment between a German port to Djibouti Port and a land or rail transport between Djibouti Port to Modjo Dry Port. The presented document is a multimodal bill of lading according to the letter of credit rules, regardless of the title of the transport document.
Means of Conveyance in Letters of Credit:
Means of conveyance term used in connection with the determination of the transshipment and partial shipments under the letter of credit transactions.
Transshipment:
According to the letter of credit rules transhipment means unloading from one means of conveyance and reloading to another means of conveyance (whether or not in different modes of transport) during the carriage that takes place between the route indicated in the credit.
For example, under sea shipments transhipment means unloading from one vessel and reloading to another vessel during the carriage from the port of loading to the port of discharge stated in the credit.
According to the letter of credit rules transhipment can be occurred only if,
happened during the carriage that takes place between the route indicated in the credit.
cargo is unloading from one means of conveyance and reloading to another means of conveyance (whether or not in different modes of transport).
Partial Shipments:
According to the letter of credit rules, a presentation consisting of one or more sets of transport documents evidencing shipment on more than one means of conveyance within the same mode of transport will be regarded as covering a partial shipment, even if
the means of conveyance leave on the same day for the same destination.
References:
Shipping and Incoterms, Practice Guide, UNDP Practice Series, Page: 6
The importer and exporter should determine, when signing the sales contract, to allow or prohibit partial shipments.
Partial shipment can be defined as shipping the goods not whole at once, but in more than one smaller shipments.
Partial shipments total may be less than the total contract amount.
The letter of credit rules allow partial shipments and partial drawings. But, in some occasions, issuing banks tend to restrict partial shipments.
In order to understand, whether or not partial shipments are allowed under a documentary credit, you need to look at “Field 43P: Partial Shipments” within the swift message body.
Field 43P: Partial Shipments: Allowed means that partial shipments are permitted
Field 43P: Partial Shipments: Not Allowed means that partial shipments are not permitted.
If the issuing bank finds out that partial shipments have been effected, although the letter of credit prohibits partial shipments, then the issuing bank will raise a discrepancy, which is known as partial shipments discrepancy.
Sample Partial Shipment Discrepancy on a Bill of Lading under a Letter of Credit:
A letter of credit has been issued in SWIFT format, subject to UCP 600, with the following details:
Letter of Credit Conditions
Field 43P: Partial Shipments: Not Allowed
Field 43T: Transhipment: Not Allowed
Field 45-A: Description of Goods: 24 Pcs of Food Sorting Machinery
Field 46A: Documents Required: Full set of original bill of lading laden on board marked freight collect made out to the order of HSBC Bank, USA notify applicant.
The beneficiary presented two set of documents containing two bills of lading among other documents with the following data:
Discrepancy: Partial Shipment Effected.
Reason for Discrepancy: The beneficiary presented two sets of documents within the same presentation. The issuing bank determined that partial shipment has been effected on contrary to the letter of credit terms, because goods have been dispatched with two different vessels.
How to Prevent a Partial Shipment Discrepancy?
Check the letter of credit before shipment of goods, in order to determine whether or not partial shipment is prohibited.
If partial shipment is allowed, you can make smaller shipments until you reach total letter of credit amount. Be careful with the latest date of shipment.
If partial shipment is not allowed, but your intention to do so; then you must get in touch with your customer to amend the letter.
