Under pressure from customers, Chinese banks are using document discrepancies on letters of credit (L/Cs) to enable buyers to benefit from falling commodity prices.

Some buyers are reportedly using the L/C document discrepancies to effectively cancel deals.

Renegotiations

Buyers are using document discrepancies to delay taking shipments while others are using the errors to renegotiate pricing or other terms.

Some bankers say that these practices are burdening trade finance operations because compliance checkers are under pressure to identify errors in, for example, packing lists, inspection certificates or insurance documents.

Commodity prices

The checkers are also looking for instances where documents do not comply with the L/C terms.

The IHS Materials Price Index, which tracks commodity prices, is down around 55 per cent since July 2014.

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