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In a February 2024 phone conference, a group of bankers discussed an actual scenario experienced in commercial letter of credit practice. The LC stated:
Additional information from the LC provided: Tolerance on LC Amount and Quantity: Nil LC Amount: USD1,041,080
The commercial invoice submitted showed: Invoice Amount: USD1,039,580 Goods: Shipment of 20 trailers. Evidences – 20 VS2RA-53’ Per Purchase Order 298
The question discussed centered on whether document examiners would pickup Short Drawing as a discrepancy since the LC does not permit tolerance in the amount and the amount drawn is less than the total value of the LC.
Some specialists expressing an opinion were swayed to not consider this a discrepancy, taking into account UCP 600 Article 30(b) which states: “A tolerance not to exceed 5% more or 5% less than the quantity of the goods is allowed, provided the credit does not state the quantity in terms of a stipulated number of packing units or individual items and the total amount of the drawings does not exceed the amount of the credit.” UCP 600 Article 30(c) then states: “Even when partial shipments are not allowed, a tolerance not to exceed 5% less than the amount of the credit is allowed, provided that the quantity of the goods, if stated in the credit, is shipped in full and a unit price, if stated in the credit, is not reduced, or that sub-article 30 (b) is not applicable. This tolerance does not apply when the credit stipulates a specific tolerance or uses the expressions referred to in sub-article 30 (a).”
After the call, Francisco Rodriguez, CDCS – GLS, reflected further on the scenario and shared his analysis: “It is easy to overlook from the LC, as I initially did, the fact that the goods were actually trailers (as shown in the commercial invoice), not any contents within, and therefore the full quantity was shipped. While UCP 600 Article 30 delves into the allowance of tolerance in the quantity and amount, let’s remember that the LC terms and conditions must be considered first, and this credit does not allow any tolerance in either the amount, or the quantity. Drawing for less than the LC amount as the credit was issued could not be justified, especially since the trade term EXW does not involve fluctuating freight charges for the account of the beneficiary. On the contrary, there could be several reasons, for instance customs, a restrictive LC transfer, observance of AML, on the part of the applicant to disallow tolerance. All things considered, in this case the short drawing is a discrepancy.”
Have a different view? Let Francisco (paquitorodriguez@msn.com) and DCW (info@iiblp.org) know.