ICC Digital Library Forum

sometimes shipment is effected by sea and followed by truck , but the L/c is opened as CFR or CIF although the final destination is not the port of discharge and the bill of lading shows freight prepaid .
the question:
Is that notification(freight prepaid ) covers the truck freight and what will be the situation if not?
Thank you

If the transport document covers the entire carriage, sea and land, and it is marked freight prepaid, it should cover freight charges for the whole carriage.
[edited 3/7/01 3:32:28 PM]
[edited 3/7/01 3:47:06 PM]

BANKERS NEED TO UPDATE ON TRANSPORT PRACTICES

Bankers and document examiners should try to update themselves with the ever changing practices in other trades or services, such as marine and multimodal transport services.

In the good old days, when goods were packed in wooden boxes or crates, a BL covered the sea leg only, from a port of loading to a port of discharge. And many document checkers' knowledge may stop at this point.

EVOLUTION BY CONTAINERISATION

With the evolution brought by containerisation, a BL no more just covers the sea leg only. It may cover the land portion as well. Sometimes it is in the form of multimodal BL and sometimes in ocean/marine or port-to-port (p-t-p) BL form. The most popular form is BL for multimodal transport and port-to-port BL, that can be used for these two different modes of transport.

For example in a marine or p-t-p BL, from Hong Kong to New York, the vessel may go across the Pacific Ocean and pass through the Panama Canal to reach the Atlantic Ocean and then discharge at New York.

This however takes more time and is more expensive, because more bunker (fuel) is to be consumed for longer sea voyage. The passage through the Panama Canal is very expensive and there may be "trafic jams" at the Panama Canal too.

If the shipowner has a dispute with a charterer, then he would not dare to send his vessel through the Panama Canal because once this is known by the charterer, he would apply for "arrest of ship" when the vessel is passing through the Canal.

We must also realize that the world is having surplus tonnage, and the shipowners must try to survive by charging less. Then he has to think of a better way to make profit. The solution is to sail his vessel from Hong Kong across the Pacific Ocean and discharges the cargo at the West Coast of USA, such as Los Angeles or San Francisco and transport the containers by rail or road haulage to New York. This saves both time and money.

Please answer my question: "If you wish to travel inexpensively, would you take a cruise ship or take a passenger train?"

Unless the train is Oriental Express or the Blue Train in Africa, the answer should be obvious to you.

THE LAND BRIDGE CONCEPT

This sea plus land mode is known as "land bridge" in the shipping industry. A land bridge can be included in a marine/ocean p-t-p BL. So it is more difficult to differentiate between a p-t-p BL and a multimodoal transport BL. This would take a full 2-day workshop to achieve best results.

So after understanding this new practice of shipowners for survival in a highly competitive market, document examiners should take another look at the p-t-p BL and not to rely solely on the UCP 500 that has to be updated to reflect such changing practices in the marine transport industries.

QUCIK FIX BY THE UCP 500

So, since revision of the UCP 500 is a very big job and it will take years to accomplish, and for the time being, ICC has a "qucik fix" solution to this problem. That is relying on "however named", as reflected in so many ICC official opinions. A document checker should not put too much weight on the title of the marine transport documents, such as whether marine/ocean p-t-p or multimodal BL. He should look at the contents. If the contents meet the LC requirements, then it is compliant, however named. and never mind the funny title. This is a quick fix, and better than without. That explains why a marine/ocean p-t-p BL with land bridge operation is acceptable.

LIABILITY OF SUB CARRIERS

However if one goes deeper into the problem he would ask: "What about the liability of the issuer of such BL in the land portion which may not be covered by the Hague Rules?" That is another story. If you look at the back of the BL for the carrier's disclaimers, you would hesitate to put your cargo on board a ship.

I am from www.tolee.com

[edited 7/2/01 10:12:52 PM]
[edited 10/26/01 3:47:56 AM]

AbdulkaderB is correct in stating that freight prepaid on a B/L covers the entire journey on a B/L, but what is required to comply with the L/C ? If an L/C is opened as CFR or CIF, this is insufficient information to determine the final destination. If a port of destination is quoted alongside these terms, it is more specific, but does not invoke the relevant Incoterm unless so quoted.
In the case alluded to here, if an inland destination is added to CFR or CIF, Incoterms cannot apply as this would be contradictory. Therefore we are left with an undefined term of shipment. If this leads to litigation, the outcome will largely depend on the pertinent laws of that jurisdiction. Unfortunately it is not uncommon for such terms to be quoted in L/Cs.
What is the cure ?
Better training for banks, applicants and beneficiaries from international experts in this field such as Export Edge Training - www.export-edge.com .

Laurence A. J. Bacon
laurence_aj@hotmail.com

I think Mr. T.O. Lee has dot the "i"s and crossed the "t"s. Many bankers are far away from the ongoing development in shipping industry. Recently while delivering a training course on incoterms 2000 one banker requested me to shed more light on how best we can "convince customers to use the correcte incoterms; CPT in lieu of CFR" when the CFR is not applicable. My answer was simple, you cannot do it. simply because the bank form for opening L/C contains incorrect incoterms like C&F, and in many other cases we invariably prefer to use CIF, CFR or FOB for any contract since they are the most common terms. if bankers are ready to revise their L/C applications then they will be able to convince others to follow them.

hatem shehab, institute of banking, KSA
hatem@iobf.org

RESPONSE TO MR HATEM SHEHAB

To respond with thanks to the comments on our opinions from our friend Mr. Hatem Shehab above, as a Chinese Canadian or a Canadian Chinese (would anyone care to tell us which is the right term?), we would rather like to dot the eyes of a lion in a Chinese lion dance where a VIP is to be given the honour of "giving life" (same as waking up?) to the sleeping lion so that it can dance and bring prosperity to all of us.

BANKER AS AN ADJUDICATOR OF DISCREPANCIES

Many recent court decisions (please search the DC PRO for them) tell us that the strict compliance rule applies EQUAlLY to the beneficiary as well as the bank that has the duty to examine documents.

If a banker is to use the strict compliance rule by counting the dots in the "i"s, and the crosses on the "t"s, then, as an adjudicator, he or she must keep himself/herself at all times updated with the changing practices of say the shipping industry in order to perform his/her adjudicator role well. Otherwise, being out-dated with the latest shipping practices, he or she is not qualified to examine the bill of lading, and particularly not fit to apply the strict compliacne rule that also applies to himself.

In the same way, as a consultant, we think that there is no such thing as a 80% competent consultant.

OBSOLETE LC APPLICATION FORM

One banker who came to our LC workshops frequently told us that he was aware of those wrong or out-dated Incoterms being used in the LC application form of his bank. But he did not wish to correct them for many reasons which he frankly admitted to us as follows:

(1) It was not his mistake. It was the work of his predecessor who was more senior to him. He did not dare to change the wordings of his senior, particularly when this senior manager had not yet retired.

(2) The LC application form should had been reviewed and approved by the in-hosue legal counsel or the outside legal consultant of his bank. He dare not challenge the authorities. His supervisor might advise him to mind his own business.

(3) There was no prize for revising the form and there might be risk and liability for making changes without any request from the senior executives of the bank.

He also told us that when a new bank was opened, certain bankers simply adopted the "mix and match" approach (which is great for the ladies in making smart purchase of their fashion gears but not necessarily good for designing banking documents) from similar documents used by other banks, which might be already obsolete.

"MIX AND MATCH" FOR SHIPPING INDUSTRY TOO

To be fair to the bankers, certain freight forwarders and carriers also admitted in our LC workshops (yes, they are concerned about the UCP 500 too) that they also used the "mix and match" approach to design their bills of lading by copying from different competitors and mixed them all together to form their own terms and conditions.
Well, this is life.

ENCOURAGING NEWS

However, some banks are quite serious about this, such as the Dah Sing Bank in Hong Kong who commissioned us to design their LC application form when the UCP 500 was effective in 1994.

We are from www.tolee.com

[edited 7/2/01 9:31:24 PM]

As I have already stated somewhere else in FOCUS, to push the banking officers to constantly update their knowledge of other related industries, say for instance shipping or insurance, could be very well understood as being given by consultants who make their living by providing this. On the other hand this cannot be taken too far, as declared many times by many courts and L/C experts. The banking expert is not supposed to be shipping expert or whatever else. We are supposed just to do our work properly in accordance with UCP 500 and standard international banking practice.

Pavel Andrle

I think that bankers are required to update their knowledge fairly enough on shipping matters. Of course they are not required to be experts in the field but one may decide what to eat and what not to eat, what to keep what not to keep. extra dose (NOT DOZE) of Knowledge is not bad; it gives greater confidence to the person.

If one of us reads Mr. Lee’s response particularly on title of property, we may not be able to ascertain whether this is relevant or irrelevant? We may thing that this is out of context? However if we update our knowledge beyond the literal text of the incoterms we realize that incoterms does not cover the title of property, and this title of property is not an easy issue to decide. We need to know whether the goods were identified or not. So only then we will be able to appreciate what the man has said otherwise we will end in "deaf conversation".

To respond to Hatem's intelligent comments made here (title is not "out of context" with Incoterms), here is a thought provoking story about title overriding Incoterms for members to consider when they rely on the Incoterms to resolve their porblems. Please don't think this is "only an exceptional case". There are too many of them. We will tell more when such issues are brought into the picture. Now it is better to confine ourselves to the issue here.

INCOTERMS V. TITLE

Let us share with members how title would have affected Incoterms.

Our client, a buyer, purchased goods on CIF Hong Kong Incoterms and the goods sustained damages during the sea voyage. According to Incoterms, the risk should have shifted from the seller to the buyer once the goods had crossed the ship¡¦s rails. The buyer had to bear the risk of the damages.

If life (or deciding everything by Incoterms) were so simple, we trade disputes consultants would have no business.

However, when we looked at the invoice, we found a protective clause, probably suggested by the seller's lawyer to protect his client from non-payment: "The title of the goods will be retained by the seller unless and until the goods have been fully paid for". And Bingo! This clause would overturn everything, making our client, a buyer, from a loser in "Incoterms" to a winner in "title". This is a contractual term, a specific term to override a generalized term in the Incoterms. Also the law of contract would override the Incoterms, which, like the UCP, is not law.

We asked the seller¡¦s lawyer a simple question: "Who is the OWNER of the goods at the time of distress?' Of course it was the seller because the payment was by a deferred payment DC. At the time of distress, the issuing bank had not yet made any deferred payment undertaking, via drafts or no drafts.

Normally, if there were not such a protective clause, according the CISG Vienna Convention of the United Nations, or commercial legislations of most countries, title would normally pass with the delivery, a general situation assumed by the Incoterms based on which the risk between the seller and the buyer is determined. But with this specific protection clause being incorporated in the contract and the invoice, the rules of the game had been changed.

So our buyer, should be a loser in Incoterms, was saved by a special condition, which overrode the Incoterms. So as the Chinese saying goes: ¡§A knife has two edges. You may either kill your enemy or yourself if you don¡¦t know how to use it properly¡¨.

BANKERS NEED TO ARMOUR THEMSELVES WITH RELATED KNOWLEDGE

This story should be of good reference value for those bankers who

(1) rely too much on Incoterms.

(2) have a tendency to simplify the issues by thinking only from one angle

(3) refuse to armour themselves with additional knowledge and to update themselves with changing practices of related industries, such a shipping and insurance relying on an excuse that we are bankers and it is enough to know banking only.

(4) Wish to leave the others to consultants ¡§who want to sell us training workshops which we don¡¦t need¡¨ (as some of the bankers have already commented this in the DDC Pro).

(5) A smart banker would armoured himself with additional knowledge whilst in the bank, so that he would be a more competent consultant when he retires.

If those unarmoured bankers retire and change their profession to trade disputes consultants, may God bless them!

In this web world, everything is weaved in a net of different technologies. We are operating in an INTERACTIVE environment and it is wrong to stick oneself to one position or to confine oneself to one technology and one knowledge.

Open-minded bankers like Hatem would be able to survive better in a highly competitive e-commerce environment, which is already at our front door.

We are from http://www/tolee.com

[edited 8/30/01 7:34:24 PM]
[edited 10/26/01 3:44:43 AM]