Article

By Kim Christensen

During the last few months, one issue has popped up many times, both in real cases and in discussions throughout the documentary credit community. That is the issue of the word "shipment" when used in documentary credit transactions.

The purpose of this article is to analyze the concept of shipment. My sources will be based on UCP 600 and ISBP (2007 version), though it is my impression that practice has not changed in the transition from UCP 500 to UCP 600.

Purpose of shipment

"Shipment" is an important concept in documentary credit transactions. It is being used in a number of situations:

- Documentary credits often include a "latest date of shipment". In this case, the "date of shipment" is used to determine if this requirement has been complied with.

- Documentary credits often include a "period for presentation". Presentation of documents under a documentary credit that includes an original transport document must be made no later than a fixed period (the default is 21 calendar days1) after the date of shipment (but, of course, not later than the expiry date of the credit).

- Documentary credits may be payable at sight (now) or at a later date. Often this "later date" is calculated based on shipment of the goods, e.g., "This documentary credit is available by deferred payment, 60 days after shipment."

- When a documentary credit calls for an insurance document, the documentary credit banker must ascertain that "The date of the insurance document [is] no later than the date of shipment, unless it appears from the insurance document that the cover is effective from a date not later than the date of shipment."2

Clearly, it is important to be able to identify the "date of shipment". It must be a unique date, established by objective criteria determined by the documents presented.

Rules and practice

In the rules and practices surrounding the documentary credit instrument, there are a number statements regarding shipment. First, shipment is "defined" in the UCP 600 articles on transport documents3. An example is the following4: "The date of issuance of the transport document will be deemed to be the date of dispatch, taking in charge or shipped on board, and the date of shipment. However, if the transport document indicates, by stamp or notation, a date of dispatch, taking in charge or shipped on board, this date will be deemed to be the date of shipment" (emphasis added).

Consequently, for a multimodal transport document shipment is defined either as -

- the date the document is issued, or

- the date of a stamp or notation (if one is available).

Each of the seven articles of the transport documents contains such a "definition", depending on the nature of the document, e.g., the above example talks of "date of dispatch, taking in charge or shipped on board", while for article 20; the "bill of lading" shipment means "shipped on board a named vessel".

In addition, there are a number of rules and practices using shipment, or rather defining when shipment can and cannot be used. One example is UCP 600 sub-article 14(c), which reads: "A presentation including one or more original transport documents subject to articles 19, 20, 21, 22, 23, 24 or 25 must be made by or on behalf of the beneficiary not later than 21 calendar days after the date of shipment as described in these rules, but in any event not later than the expiry date of the credit."

This is the default rule for the so-called "period for presentation". This article narrows the scope to say that this period is only applicable when one or more "original transport documents as described in the rules" is included in the presentation. This would therefore exclude the following:

- when the documentary calls for a "copy of bill of lading", as this is not an "original". This principle is also outlined in ISBP paragraph 20: "Copies of transport documents are not transport documents for the purpose of UCP 600 articles 19-25 and sub-article 14(c) ..."

- when the documentary credit calls for "Forwarders certificate of receipt (FCR)", as this is not one of the documents described in UCP 600 articles 19-25. This principle is also contained in ISBP paragraph 19: "... Delivery Order, Forwarder's Certificate of Receipt, Forwarder's Certificate of Shipment, Forwarder's Certificate of Transport, Forwarder's Cargo Receipt and Mate's Receipt do not reflect a contract of carriage and are not transport documents as defined in UCP 600 articles 19-25. As such, UCP 600 sub-article 14(c) would not apply to these documents ..."

Abstract nature of shipment

One definition of shipment says that it is "property made available for transportation by a shipper to a carrier"5. If one asks people in general what constitutes shipment, they would most likely reply that shipment occurs when goods are handed over to the carrier or actually shipped. In any case, they would probably connect it to an actual event directly related to the goods in question. In documentary credit transactions, this may be the case in some situations, but surely not in all. I have entitled this section "the abstract nature of shipment".

The reason is:

1. Although shipment is defined in documentary credit transactions, there is not one single definition; there are seven, depending of which transport document is called for by the documentary credit. Shipment may mean "accepted for carriage" and be based on the issuance of the air waybill6, or it may mean "shipped on board a named vessel" and be based on a "pre-printed wording" on the charter party bill of lading7.

2. The definitions of shipment found in the relevant "original transport document" may either be based on an actual event related to the goods (for example, when they are "shipped on board"), but may also be based on the issuance date of the transport document, merely indicating when the document has been issued. For the latter, it goes without saying that this date may not be related to any specific activity concerning the goods in question.

Under UCP 500, one even finds cases in which an air waybill mentions an "actual flight date", but the date of shipment is nevertheless deemed to be the date of issuance of the air waybill8. Of course, this is not logical. Fortunately, this would not be the case under UCP 6009. It does, however, clearly illustrate the abstract nature of shipment.

The problem of shipment

Shipment is often discussed as if it were a tangible concept based on a common understanding when, in fact, it is the date on which specific activities are being carried out in relation to the goods. Because of this, one will more often than not see documentary credits calling either for copies of transport documents (e.g,. copy of bill of lading), or for documents not part of the transport documents described in the UCP 600 (e.g., FCR or FCT). These credits will also contain shipment-related requirements, such as:

- latest date of shipment: 1 July 2007, or

- period for presentation 15 days.

In both examples above, one will need to know what shipment entails to determine whether there has been compliance with those requirements. In this respect, some bankers will determine shipment based on the "copy of B/L", the "FCR" or, for that matter, the "invoice". Although this seems logical, it makes little sense in documentary credit transactions. The reason, as I mentioned, is the abstract nature of shipment when used in L/Cs. The result is that to determine what constitutes shipment one will need to have -

1. the definition of what constitutes shipment in a specific case. For this, one has to refer to one of the UCP 600 articles 19-25, and

2. the documentary credit calling for one of the documents.

How, then, can one determine shipment on an FCR document? Will it be the date of issuance? Will it be the date that goods are "received" (after all, it is called a "forwarder's certificate of receipt"). Following the logic in the UCP 600 articles and ISBP paragraphs mentioned above, it is simply impossible to determine shipment when the documentary credit does not call for one or more original transport documents.

Therefore, when a documentary credit calls for a non-transport document and has shipment requirements (e.g., latest date of shipment), I contend that such requirements are ambiguous and should simply be disregarded. They would not, in any case, be a valid reason to refuse documents.

Way forward

In light of the above, I would make the following recommendations:

- When receiving/advising a documentary credit calling for a "non-transport document" (e.g., copy of a B/L or FCR) and stipulating requirements regarding shipment (e.g., latest date of shipment or period of presentation), the issuing bank should be contacted for clarification as to how to determine shipment based on the documents required in the specific credit.

- When issuing a documentary credit calling for a "non-transport document" (e.g., copy of a B/L or FCR) and stipulating requirements regarding shipment, the L/C should describe how this should be determined from the documents, e.g., "Documents to be presented no later than 15 calendar days after date of issuance of the FCR, however no later than date of expiry of this credit".

So my conclusion may seem obvious. Documentary credits should be clear and precise. If they are not, this can cause problems. This benefits no one, least of all the buyers and sellers who are users of this important instrument of trade.

Kim Christensen is TF Business & Product Specialist at Nordea in Denmark and a member of the ICC Banking Commission. His email is kim.christensen@nordea.com

1. UCP 600 sub-article 14(c).

2. UCP 600 sub-article 28(e).

3. UCP 600 articles 19-25.

4. From UCP 600 sub-article 19(a)(ii) "Transport Document Covering at Least Two Different Modes of Transport".

5. http://www.aarnold.net/terminology.htm.

6. UCP 600 sub-articles 23(a)(ii) and (iii).

7. UCP 600 sub article 22(a)(i).

8. UCP 500 sub-article 27(a)(iii).

9. UCP 600 sub-article 23(a)(iii).