Letter of Credit Forum

Letters of Credit blamed for collapse of international trade Several bloggers (see here) claim that the collapse of the Baltic Dry Index (an index of the cost of chartering bulk cargo vessels for goods like ore, cotton, grain, etc.) is the result of the collapse of trade credit based on letters of credit.

Similar to the definitions of Article 2 UCP 600, Article 3 UCP 600 concentrates all the rules for interpretation in a single article. Whether this leads to the simplification, as the ICC intended, remains to be seen. As with the definitions,  the practicioner might not always easily see to which passage to apply these interpretations.

a) new organization of the material
One of the most important structural changes of the Uniform Customs and Practices consists of the concentration of the definitions in article 2. In the UCP 500 these definitions had been mentioned for each transport document and thus the same text was repeated. The objective of the UCP 600 was to reduce this redundancy.

The UCP 600 have been upon us for a couple of months, and it seems a good time to review some of the articles in greater detail.

The signs of a recession are deepening as the new numbers for unemployment figures in the United States show.

For anyone still employed or a job-seeker this means getting prepared and I would like to encourage everyone to post their resumes in our jobs section.

Do not include too many personal details, since employers are free to register and search resumes.

We have been able to attract employers to post jobs (whereas in the past it was only me searching and posting). 

Several news outlets report that on November 3, 2008, the ICC published its  "Collected DOCDEX Decisions 2004-2008" edited by Gary Collyer and Ron Katz. The ebook comprises 40 decisions ranging from  from Uniform Customs and Practice for Documentary Credits (UCP 500 and UCP 600), to Uniform Rules on Collections (URC 522) and Demand Guarantees (URDG 458).

Exportlaw Blog reports that the Office of Antiboycott Compliance of the Bureau of Industry and Security (”BIS”) reached a settlement with an exporter who failed to report that in connection with exports of rice to the United Arab Emirates it had been requested in a letter of credit issued by a UAE bank to supply a “certificate issued by owner/master or agent stating that the ship is allowed by the Arab authorities to call at Arabian ports.”

This failure cost the exporter $ 30,000.

This blog reports that GE has flatly refused to honour an LC until the applicant provide more cash collateral. From the little facts known, it seems that GE prefers to breach its obligations and is waiting to spend money on attorneys.

This article reports that Indian banks refuse to deal with lesser known US and European banks.

Law and order news Hongkong reports that a 29 and a 37 year old HongKongese set up various shell companies. Then, the pair used forged documents, including invoices and cargo receipts, to defraud nine banks who issued 158 Letters of Credit worth a total of $360 million from June 27, 2006 to June 13, 2007.

The punishment: 40 and 48 months of jail time.

The markets switched from irrational exuberance to irrational pessimism as amply evidenced by the decline of the major stock indices. We have reported on banks not granting credits despite the applicant demonstrationg sufficient collateral. This blog reports on the Baltic index, a measure of commodities-shipping costs, plunging 82 % in the last year and, as a consequence, a Swedish shipping line filing for bankruptcy.

A friend of mine, PhD in economics from Berkeley, Master in economics from Harvard received the following email:

Dear ....,

We currently have an opening with one of our clients that we are trying to fill. I believe you might be a terrific match due to your credentials.

The previous experiences you have working within the business is exactly what my client is looking for.

Above Average Salary with growth incentives. Candidates should be self starters with a desire to grow within their field.

Everybody talks about the crisis: shares loose value fast and banks are unwilling to lend to each other and are ever more reluctant to lend at all.

 For the LC business I see two developments:

1) The costs for LCs are rising.

This website reports of rising costs and fees for letters of credit in the oil trade. These higher costs simply reflect a perceived higher credit risk.

The treatment of creditors of a bankrupt bank does not offer any surprises: The beneficiary is going to be offered the treatment as an unsecured creditor.

I do not qualify this as the good news, BUT, the United States legal system, with its sense for individual justice and (thus) unpredictability treats L/Cs issued by a bankrupt applicant sometimes in surprising ways.

New Uniform Customs and Practices for Letters of Credit, UCP 600
Attorney at Law Dr. Jens Nielsen, Hamburg, Germany
1) The never ending attempt to adapt to new technologies and the simplification of rules
On June 1, 2007 the new Uniform Customs and Practices for Documentary Credits,
published as International Chamber of Commerce publication No 600, will take effect.
The first version of the UCP was drafted at the ICC congress in Vienna in 1933
(ICC-Publication No. 82). After the first revision in 1951, the UCP were again revised