by T.O. Lee

From my involvement in dispute cases arising from bills of lading subject to the UCP, I have observed that many outdated concepts are still misunderstood by the average document checker. These issues need to be addressed. Here are two that create a barrier to the use of the letter of credit as a reliable payment undertaking by a bank.

On deck shipment

The use of "on deck shipment" was introduced even before the birth of the first UCP. In fact, on deck shipment first appeared in the Joint Regulations Governing the Handling of Documentary Credits, Opened with the Principal Copenhagen Banks - 1928, which states: "If no instructions to the contrary be given in the credit, we will accept the following:

(c) Bills of Lading showing that the goods, or part of same, have been loaded on deck; in such cases, however, we will require delivery of a policy covering deck cargo ... ".

This provision was later adopted in UCP 82's article 21, which states: "Banks have the right to accept Bills of Lading mentioning the stowage on deck of goods of a special nature, on condition that the insurance covers the risk arising therefrom."

UCP 151, which dates from 1951, has similar wording in article 21. This meant that on deck carriage was not a discrepancy if the insurance policy had such coverage and implied that the document checker at that time was required to check the terms and conditions of the policy to determine compliance, contrary to the new provisions in UCP 600 where such examination is not required and not allowed.

Terminals and barges

At the time these early rules were adopted, there were no container terminals (CY and CFS) similar to those that exist today. In the so-called "mid-stream operations", goods packed in wooden cases or crates were first placed on a barge that had no means of propulsion of its own. The barge was pulled along by a hired tugboat from the shoreline to the cargo ship anchored in the middle of the harbor within the designated "commercial area". The wooden cases were lifted up from the barge alongside the ship either with the ship's loading gears, such as derricks or cranes from the barge, and were moved across the ship's rails and placed on board the deck of the dry cargo ship.

The cargoes that could not stand the heat of the scorching sun (such as medicine, photo film) and those that could be damaged by rain, humidity and salty sea breeze (such as cotton packed in bales) were stowed under the deck for better protection. Cargoes that had no such problems (such as galvanized sheets, cast iron soil pipes and logs) were placed on the deck. Some odd cargoes - such as heavy machinery and pleasure yachts, for example - that were too large to go in the "hold" (the ship's storage compartments under the deck) were also placed on deck, protected with tarpaulin if necessary. Such carriage is known as "break bulk" carriage.

At that time, on deck stowage was of great concern to traders; hence, even before UCP 82, it was already prohibited in transactions under letter of credit unless the policy had such coverage.


Now we are in the containerization era. A secured and robust container offers an extra outer protection to the goods packed in paper cartons stowed inside. Carriers also provide special purpose containers such as the "reefers" that supply refrigeration to perishables (such as vegetables, fruits and meats) and sealed containers that are impermeable to light and water. If goods are stowed in these containers, there is no harm in carrying them on deck. In fact, with the gigantic container ships used by the major liners today, such as COSCO, P&O/Nedlloyd and Maersk, there are six or more layers of containers all stacked up over and above the deck. This means that on deck shipment is no longer a concern for an average shipper. Some goods may be actually carried on deck, even though the bill of lading has no such indication.

UCP provisions

The initial on deck provision found in UCP 82 was drastically changed after UCP 222, which came into effect in 1962. Article 20 of UCP 222 stated: "Banks will refuse a Bill of Lading showing the stowage of goods on deck, unless specifically authorized in the credit."

In the present UCP 600, sub-article 26 (a) is also problematic. It stipulates that if the bill of lading shows that on deck shipment is only a possibility (by using the words "may be"), not a fact (by using the words "are or will be"), this is acceptable. But if on deck shipment is not acceptable, then the document checker should not allow this to happen under any circumstances, whether it is a fact or a possibility, because a possibility can later become a fact.

To reduce the number of unnecessary disputes and discrepancies in bills of lading or sea waybills, and to reflect the current developments in marine transport after containerization, in my view sub-article 26 (a) of UCP 600 should be excluded, as it is no longer a real issue in containerized transport, which represents around 80 per cent of global carriage today.

Shipped on board notation

According to Regulations Affecting Export Commercial Credits, adopted by the New York Bankers Commercial Credit Conference of 1920, the customary procedure necessitated by American port conditions at that time was to issue bills of lading once goods were received by the shipowners or their agents. Shipment was allowed to be made prior to or subsequent to the advertised sailing date of the intended vessel. Hence, to ease the worries of shippers, shipowners agreed to add an "on board notation" (OBN) to the "received for shipment" bill of lading once the goods had been loaded on board any vessel, whether this was originally intended or not. This was the origin of the OBN practice.

This practice was carried forward to UCP 82 and all subsequent versions of UCP, including UCP 600. According to current shipping practice, shipowners are not allowed to issue any shipped on board bill of lading or to add an OBN in the received for shipment bill of lading before the goods have actually been loaded on board. Otherwise, the insurance institutes will not entertain any claims arising therefrom. Shipowners will also be penalized by a substantial increase in their following year's premium. As a result, the big liner executives authorized to sign bills of lading are strictly prohibited by the shipowner from issuing any bill of lading bearing an OBN before the goods are actually loaded on board. A local port agent acting on behalf of the carrier is also subject to the same restriction.

Having said this, I understand that some freight forwarders, at the request of their good customers, may issue house bills of lading showing an OBN even if the goods have not yet been loaded on board. Since they are not providing the ship to carry the goods (as an actual carrier) and are merely a contracting carrier (as a carrier on contract only), they may consider that they need not worry about restrictions or sanctions from the insurance institutes. The reasoning is that as long as the issuer is the liner carrier or actual carrier or its port agent, any bill of lading automatically fulfils the OBN requirement.

To address the worries of banks and the applicant about an OBN, it may be that the credit should add a protection clause such as "House bill of lading issued by a freight forwarder as a contracting carrier is not acceptable."

In conclusion, I believe the OBN provisions in UCP 600 no longer reflect current shipping practice. In fact, they are a cause of disputes and make the letter of credit less reliable for the beneficiary as a definite payment mechanism.

T.O. Lee, FAE MCIArb MITD, was a member of UCP 600 Consulting Group and is a Fellow of the Academy of Experts, Gray's Inn, London and member of UN International Multimodal Transport Association, Geneva. His website is and his e-mail is