Letter of Credit Forum

Hello Eval

Sorry to read you are having difficulties. I do not know how or if the discounting of the credit is material: perhaps one of the bankers on here could answer this.

The value of 200% is a ‘recommended’ value – a shipping line may impose its own figure or even decline to accept your guarantee. There is a strong suggestion that the line accepting the guarantee is in breach of contract.

However, when a guarantee is accepted, (which it is more likely to happen if the bill is straight consigned to an individual rather than ‘to order’) the idea is that if you are not the real owner of the bills but another party is, and that this second party applies for release, the shipping line have secured twice the cargo’s value to satisfy the true owner, should they come after the line for mis-release.

In many countries, this will not actually protect the shipping line from a greater claim.

The bank will most likely want security if they are to enter into the guarantee, but that is between the bank and the applicant.
There are many alternatives to the bill of lading. Credits will work with liner waybills or even freight forwarder’s transport documents which ‘evidence the taking in charge’ of cargo, rather than being the shipment of and ’title’ to the goods.

At its heart, however, the credit was built for c.i.f. seafreight transactions using a bill of lading, and much trade happens still in this manner. Using the bill of lading will always involve a risk – and you are experiencing the downside of that risk.

In short – never link payment to a transport document. But, if you must, then never link payment to a bill of lading. But, if you must, never link payment to a bill of lading when the other party pays the freight. But if you must, never allow someone to send all of the ‘original’ (i.e. identical) documents in one envelope. But if you must: buy a prayer mat.

Cheers

phill
“...in the kingdom of the blind; what you see is what you get...”