Shipping Schedule under a Transferable lc

[GeraldineDaly]

Transferable Letter or Credit received from issuing bank with a general description of goods.

The first beneficiary needs to add a shipping schedule to the transfer letter of credit to keep control of quantities shipped.

Are the transferring bank permitted under UCP 500 to add this shipping schedule?

[T.O.Lee]

UCP 500 SUB ARTICLE 48 (H)

Theoretically, parties are allowed to change the terms and conditions of a transferable DC only for those areas highlighted in UCP 500 sub Article 48 (h).

WORKING OUTSIDE UCP 500 DOMAIN

Having said that, in practice, parties may change other areas too, for example the DC currency, but then they are working outside the UCP 500 domain. Similarly, adding a shipping schedule in a transferred DC to control the shipments from the second beneficiary is a necessity in some trades but parties must be aware that they are again operating outside the UCP 500 domain. To avoid risks, this is at least the job of a CDCS, if not a DC expert or consultant.

ACTUAL WORDINGS NEEDED TO AVOID "GIGO" TYPE OF ANSWER

Without looking at the actual DC wordings and the shipping schedule, it is not possible to say anything more here, in order not to mislead members. Different wording in the DC and in the shipping schedule may give different answers to the same query, for example, how about if the DC does not allow partial shipments? Or presentation must be made within 5 days after shipment?

THE APPLICANT IS EITHER A NOVICE OR AN EXPERT

Members may think a normal transferable DC should not have such “incompatible” terms. Yet, anything is possible from our consultancy experience. Sometimes the applicant may not be an idiot. He wishes to place a trap in the DC so that he may dishonour if the price of the goods (we have seen them in transferable DC calling for computer hardware) down on arrival.

So the more you know, the more you don’t know!

www.tolee.com

[edited 9/12/02 5:41:09 PM]

[larryBacon]

The safest means of doing this is by amendment. However, this may be difficult if there is more than one 2nd beneficiary and the 1st beneficiary wants the shipping schedule to remain mutually exclusive.

Laurence

[JudithAutié]

Article 48h states that " the credit can be transferred only on the terms and conditions specified in the original credit, with the exception of:
...amount...
...unit price...
...expiry date
...latest date for presentation...
-the period for shipment,
any or all of which may be reduced or curtailed"

By specifying a shipment programme, and provided that it is within the original credit's latest date of shipment, I would consider that the period of shipment has been curtailed, and consequently complies with the stipulations of the quoted article, as long as partial shipments were not forbidden.

[NigelHolt]

Unfortunately, the amount of detail in the original query is -to me- very limited. It does not seem clear if the ‘goods description’ includes a ‘quantity’, whether in the form of a number of units or a weight. Also, it does not seem clear whether the ‘shipping schedule’ is to contain additional information regarding the goods over and above the description in the credit.

Assuming the ‘goods description’ includes a quantity, e.g. ‘1,000mt of iron’ or ‘1,000 hairdryers’, and the intention is simply to stipulate by when sub-totals must be shipped -e.g. 500mt/units by ‘X’ date, 500 mt/units by ‘Y’ date- then I agree with the view this falls within sub-Article 48h. However, if the intention is to supplement, in the transfer, the credit goods description -e.g. 500 ‘Model X’ hairdryers by ‘X’ date, 500 ‘Model Y’ hairdryers by ‘Y’ date- then I agree with the view this falls outside sub-Article 48h.

[vobrien]

First,

I assume from the query originally posted that the transferring bank is the nominated bank where the Credit is available and accordingly the Nominated Bank has been authorised to effect payment or acceptance at time of issuance of the Credit.

With this assumption the next question is whether the shipping schedule is a documentary requirement or a condition to be inserted in the credit curtailing the period of shipment.

If it is a condition of the transferred credit, then this is acceptable under article 48 as clearly pointed out by Judith. Of course, partial shipments should be allowed.

If ‘shipping schedule’ is an additional document requested under the transferred Credit then the transferring bank in requesting this document is stepping outside the provisions of UCP.

Can it be done? Would I do it?

Personally I have stepped outside the provision of Article 48 on many occasions but in the knowledge that this is a commercial decision with some level of associated risk! I have not had any problems in this regard – so far; but maybe that is the luck of the Irish.

What are my key considerations before adding an additional documentary requirement as an exception to the credit as issued when transferring the Credit.

First, I check that I am clearly the nominated bank ‘authorised by the issuing bank ….with a definite undertaking of Issuing Bank…. provided that the stipulated documents are presented to the Nominated Bank..’

Second, I examine the implications of this additional documentary requirement in the Credit as transferred. By implications, I mean the implications or any possible effect that this requirement may have on the presentation of complying stipulated documents under the Credit as originally issued..’

When I have not seen any implications on the presentation of complying documents under the transferable Credit as originally issued then on some occasions I have decided to include this additional documentary requirement bearing in mind that this is not provided for in Article 48.

Of course one needs to know what one is doing and have day to day experience in dealing with these issues for a bank.

Hope this is of some assistance.

Vincent

[PavelA]

I agree with Judith and Vobrien that the curtailing of period for shipment would be acceptable under stated circumstances. Stepping outside UCP, when transfering L/C, in specific situations, utilizing expertise and after good deal of thought, is a “commercial decision“ choice. Considerations given by Vobrien are good guidance for these who face this decision.

Pavel Amdrle

[larryBacon]

If the transferring bank takes on the risk of inserting additional conditions, such as a shipping schedule, it assumes that this will be acceptable to the issuing bank. This may not be the case, and if documentary reference is made to such additional conditions, may be entitled to reject on this basis.

Article 48 h permits curtailment of shipment of the overall consignment, ("- the period for shipment") but does not address curtailment in the detail suggested by a shipping schedule. This would require a redrafting of Article 48 h to state "the period/s for shipment".

Laurence

[T.O.Lee]

We support the opinions of Laurence that curtailment of the shipping "period" as allowed by Sub Article 48 (h) of UCP 500 does not mean ALSO a freedom to make a new shipping "schedule" that may contain more than one shipping date.

Parties have to read the UCP 500 Articles carefully and precisely in such determination.

www.tolee.com

[edited 10/8/02 1:32:23 PM]

[NigelHolt]

I do not accept Laurence’s apparent contention that the use of the singular, in ‘the period for shipment’, means only one latest shipment date may be stipulated in the transfer.