Wednesday 27 February 2013

Are Your Transport Documents Late Again?



The failure rate of first presentations of documents by exporters under Letters of Credits continues to be high, with banks quoting these rates at between 60% and 80%.

The reasons for these high levels are varied but will include the failure of the beneficiary to initially check the terms of the Letter of Credit to ensure workability and that the terms mirror those in the commercial contract/agreement. A general lack of adequate Letter of Credit training and understanding will also contribute to exporters struggling to present a compliant set of documents under a Letter of Credit.

So it is a challenge, especially for the more inexperienced exporters to make sense of, and then collate and present a clean set of documents, and to further exacerbate this issue, there have been a number of instances where the late delivery the original transport document/s, to exporters, has resulted in their inability to meet the time constraints as laid down in the Letter of Credit.

Recent examples have involved exporters who have used “FCA seller’s premises”, Incoterms® 2010, where quite appropriately the seller has loaded their goods on a means of conveyance provided by the buyer. Once legal delivery has occurred, it is of course, the buyer's responsibility to have arranged for the main contract of carriage, which in the cases seen, has involved transport by vessel, and the procurement of a full set of Bills of Lading. Unfortunately, this is where the delays appear to have occurred, where the buyer's agent has been in slow in obtaining the Bills of Lading, and failing to make these available to the exporter for presentation under the Letter of Credit in a timely fashion.

Possible solutions/actions;
  • The exporter could consider one of the Incoterm rules which affords them the responsibility (and control of) of arranging the main contract of carriage to an agreed place of destination in the buyer's country. So CPT....an agreed place of destination, may be an option. However this would involve a fundamental change to the existing delivery terms with the buyers, but having arranged the main transport of the goods, the seller should be able to obtain the requisite Bills of Lading in a more timely manner and therefore be able to accelerate the presentation procedure. 
  • Change the requirement in the Letter of Credit from a full set of Bills of Lading to a receipt of goods issued by the buyer's agent on taking delivery of the goods at the seller's premises. This is a possible solution, but in increasing instances, the Issuing bank of the Letter of Credit will want to call for a full set of Bills of Lading, with that bank named in the consignee box on the Bills. This is often the case with Indian Letters of Credit, as this will provide the Issuing bank with the security that if the buyer (in a worst case scenario) is unable to pay when a compliant set of documents is received, then the bank will arrange to take delivery of the goods and potentially sell these to realise some value to help meet the bank's obligations under the Letter of Credit. 
  • The exporter could, initially ask for additional presentation days when they are negotiating with the buyer prior to the issuance of the Letter of Credit. Article 14 of UCP 600 indicates that the required transport document must be made by the beneficiary of the Letter of Credit not later than 21 calendar days after the date of shipment, but in any event not later than the expiry date of the credit. It is quite unusual to see more than 21 days permitted under the terms, but a longer period could be agreed upon, if this did not cause issues regarding the goods arriving at the port of destination before the original documents, resulting in demurrage costs etc.
It is a fact that timing issues are a major factor in the presentation of discrepant documents and it is unfortunate to hear of these particular examples where the tardiness of an overseas buyers agent has resulted in problems for the UK exporter. Some of the potential solutions as stated would help to resolve this problem, and enable the exporter to present a compliant set of documents and get paid in a timely manner.