Negotiation Of Shipping Documents

• 1. CHAPTER XXXIIINEGOTIATION OF SHIPPING DOCUMENTS
  • Instructions for Opening a Letter of Credit

• Examination of a Letter of Credit

• Common Discrepancies

• Negotiation with Discrepancies

• Documents for Negotiation

• Presentation of Documents

2. Negotiation

• Negotiation meansthe purchase by the nominated (negotiating) bank of drafts and shipping documentsunder a complying presentation by advancing or agreeing to advance funds to the beneficiary

• An exporter presents a draft(a bill of exchange) and shipping documents specified in the letter of credit to a nominated bank or any bank if there is no nominated bank, which becomes a negotiating bank, to get paid.

3. Instructions for Opening a Letter of Credit

• Items usually included in the instructions to open an L/C.

• (1) An Irrevocable letter of credit subject to the UCP of the latest version; UCP No. 600 (2007 Revision)

• (2) Whether the L/C is to be confirmed by a U.S. bank or not.

• (3) The name and address of the beneficiary: in favor of exporter.

• (4) Whether the L/C is to be transferable or not

• (5) Terms of payment such as at sight or usance

• (6) Where negotiation or payment is to be effected

4. Instructions for Opening a Letter of Credit

• (7) Whether the payment is to be made in U.S.dollars or other foreign currency

• (8) What trade terms are to be used: FOB, CFR or CIF?

• (9) Coverage of marine insurance: All Risks, WA, FPA, War Risks , Warehouse to warehouse or any special coverage such as a rejection clause

• (10) Documents to be required for negotiation

• Commercial invoice

• Packing list

• Marine insurance certificate

• Ocean bill of lading

• Other documents requested by the buyer and accepted bythe seller

5. Instructions for Opening a Letter of Credit

• ( 11) Whether partial shipments are allowed or not

• (12) Whether trans shipments are allowed or prohibited

• (13) Presentation period/date: A period of time for presentation of documents after shipment

• (14) Ports of loading and unloading

• (15) The latest shipping date

• (16) The expiry date

6. Examination of a Letter of Credit

• When a letter of credit is received, exporter must:

• (1) Examine the conditions and documents specified in the L/C and determine whether he can meet them or not.

• (2) If there are any conditions he cannot meet, request his buyer to amend the L/C asap before he starts manufacturing export goods.

• (3) If the L/C calls for a time draft, have the L/C specify that the discount interest for the time draft shall be for account of accountee (importer), when agreement was a sight draft but L/C is opened with a time draft

• (4) Hold off shipping the order until he receives an amendment s to the L/C as requested.

7. Common Discrepancies

• Adiscrepancy :any inconsistence or differencefrom the terms and conditions stipulated in the letter of credit in minute details.

• (1) Drafts

• Draft amount is different from invoice

• Draft tenor is different from the L/C

• Wrong drawee

8. Common Discrepancies

• (2) Commercial invoices

• Different merchandise description from the L/C

• Invoices is not issued by the beneficiary

• Insufficient copies are presented

• Incorrect accountee's name and address are stated

• Different prices from the L/C

• Terms of trade such as FOB, CFR or CIF different from the L/C

9. Common Discrepancies

• (2)Commercial invoices(continued)

• Marks and numbers of packages are different from all other documents

• Weight is different from the L/C

• A statement required in the L/C is not presented

• Different currency from the L/C

10. Common Discrepancies

• (3)Packing list

• Different description of merchandise from the L/C

• Different number of unit, net weight and gross weight from the L/C

11. Common Discrepancies

• (4) Ocean Bill of Lading

• Less than a full set of original B/L is presented

• The B/L not properly endorsed

• The B/L not marked with "On Board notation, ifB/L contains the indication intended vessel or "Received for shipment"

• The B/L not properly consigned.

• In the case of CFR or CIF, the term "Freight Prepaid" is not marked, that is, no indication of freight prepaid by the exporter

• Merchandise description is different from the L/C

12. Common Discrepancies

• (4) Ocean Bill of Lading(continued)

• Different ports of loading and/or unloading from the L/C

• Notations on the B/L that the merchandise or packages are damaged

• The B/L indicates the"On Deck" shipment

• Stale B/L : Not presented within time limit after shipment as stipulated in the L/C : within ____ days after date of issuance of bills of lading

• Late shipment: The bill of lading date marked later than the shipping date specified in the L/C

13. Common Discrepancies

• (5) Marine Insurance Certificate

• Different coverage from the L/C

• Insufficient coverage

• Not the same currency as the L/C

• Different merchandise description

• The effective date later than the shipping date

• Broker's cover note presented instead of insurance certificate or policy

14. Common Discrepancies

• (6 ) Other discrepancies

• Not all documents required in L/C presented

• Documents presented after the expiry date of the L/C

15. Negotiation with Discrepancies

• In case discrepancies are found by negotiating bank, exporter must correct the discrepancies.

• If exporter cannot correct them such as the shipping date, then exporter should

• request the issuing bank to amend the letter of credit to cover discrepancies or authorize to pay in lieu of discrepancies

• At the same time, inform the buyer of the discrepancies and request his acceptance and amendment to the Letter of Credit.

• Release shipping documents to issuing bank after the L/C is amended. Buyers acceptance of discrepancies are not enough. The Letter of Credit must be amended.

• Do not send the shipping documents to the issuing bank for an approval or on a collection basis.

16. Documents for Negotiation

• Depend on the stipulation in the letter of credit .

• Exporter must presentall documentsspecified in the letter of credit for negotiation.

• Any missing document or incorrect document becomes a discrepancy.

• Issuing bank of the L/C has under no circumstances an obligation to honor the draft and shipping documents with discrepancies .

17. Documents for Negotiation

• Common documents used in the international trade accompanying exportersDraft (Bill of Exchange)

• (1)Commercial Invoice

• (2)Packing List

• (3)Ocean Bill of Lading

• (4)Marine Insurance Certificate

• (5)Any other documents if required by the L/C

• • • Certificate of Country Origin

• • • Consular Invoice

• • • Inspection Certificate

• • • Beneficiary's statement

18. Presentation of Documents

• Draft and all shipping documents must be presented to a negotiating bank together with the original letter of credit.

• Presentation must be made within a specified period of time after shipment in the L/C, but not later than 21 days after shipment

• A bank must determine whether or not presentation is a complying presentation in 5 banking days

19. Presentation of Documents

• If a nominated (negotiating) bank, a confirming bank, if any, or the issuing bank determines that a presentation does not comply,

• • it may refuse to honor or negotiate, then

• • it must give a single notice to presenter no later than the close of the 5 thbanking days.

20. Presentation of Documents

• The notice must state

• • The bank is refusing to honor or negotiate

• • Each discrepancy

• • The banks disposal of shipping documents:

• • • The bank is holding documents pending instructions from the presenter

• • • The issuing bank is hold documents until it receives a waiver from the applicant & agrees to accept it

• • • The bank is returning documents

• • • The bank is acting according to the previous instructions from the presenter

21. Presentation of Documents

• If a bank does not follow these negotiation and notice provisions,

• • The bank cannot claim that the documents do not constitute a complying presentation

• • The bank must honor or negotiate

• A document presented but not required by the Credit will be disregarded

• If a Credit contains a condition without stipulating the document to indicate compliance with the condition,

• • Banks will deem such condition not stated and will disregard it