Negotiation Of Shipping Documents

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CHAPTER XXXIII NEGOTIATION CHAPTER XXXIII NEGOTIATION OF SHIPPING DOCUMENTSOF 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

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NegotiationNegotiation

Negotiation means the purchase by the nominated (negotiating) bank of drafts and shipping documents under 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.

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Instructions for Opening a Instructions for Opening a Letter of CreditLetter 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

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(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 by the seller

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(11) Whether partial shipments are allowed or not

(12) Whether transshipments 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

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Examination of a Letter of Examination of a Letter of CreditCredit

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 amendments to the L/C as requested.

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Common DiscrepanciesCommon Discrepancies

A discrepancy: any inconsistence or difference from the terms and conditions stipulated in the letter of credit in minute details.

(1) Draftsa. Draft amount is different from invoice

b. Draft tenor is different from the L/C

c. Wrong drawee

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(2) Commercial invoicesa. Different merchandise description from the

L/Cb. Invoices is not issued by the beneficiaryc. Insufficient copies are presentedd. Incorrect accountee's name and address

are statede. Different prices from the L/C f. Terms of trade such as FOB, CFR or CIF

different from the L/C

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(2) Commercial invoices (continued)

g. Marks and numbers of packages are different from all other documents

h. Weight is different from the L/C

i. A statement required in the L/C is not presented

j. Different currency from the L/C

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(3) Packing lista. Different description of merchandise from

the L/C

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

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Common DiscrepanciesCommon Discrepancies(4) Ocean Bill of Ladinga. Less than a full set of original B/L is

presentedb. The B/L not properly endorsedc. The B/L not marked with "On Board“

notation, if B/L contains the indication “intended vessel” or "Received for shipment"

d. The B/L not properly consigned.e. In the case of CFR or CIF, the term "Freight

Prepaid" is not marked, that is, no indication of freight prepaid by the exporter

f. Merchandise description is different from the L/C

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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

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(5) Marine Insurance Certificatea. Different coverage from the L/C

b. Insufficient coverage

c. Not the same currency as the L/C

d. Different merchandise description

e. The effective date later than the shipping date

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

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(6) Other discrepancies

a. Not all documents required in L/C presented

b. Documents presented after the expiry date of the L/C

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Negotiation with Negotiation with DiscrepanciesDiscrepancies

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

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

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

(3) Release shipping documents to issuing bank after the L/C is amended. Buyer’s acceptance of discrepancies are not enough. The Letter of Credit must be amended.

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

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Documents for NegotiationDocuments for Negotiation

Depend on the stipulation in the letter of credit.

Exporter must present all documents specified 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.

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Documents for NegotiationDocuments for NegotiationCommon documents used in the

international trade accompanying exporter’s Draft (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

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Presentation of DocumentsPresentation 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

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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 5th banking days.

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Presentation of DocumentsPresentation of DocumentsThe notice must state

The bank is refusing to honor or negotiate Each discrepancy The bank’s 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

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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

Negotiation Of Shipping Documents

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