Transcript CHAPTER XXXIII NEGOTIATION OF SHIPPING DOCUMENTS

CHAPTER XXXIII NEGOTIATION
OF SHIPPING DOCUMENTS
Instructions for Opening a Letter of
Credit
Examination of a Letter of Credit
Common Discrepancies
Negotiation with Discrepancies
Documents for Negotiation
Presentation of Documents
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Negotiation
 Negotiation means the purchase by the
nominated (negotiating) bank of drafts and
shipping documents under a complying
presentation by advancing or agreeing to
advance funds to the beneficiary
 An exporter presents a draft (a bill of
exchange) and shipping documents
specified in the letter of credit to a nominated
bank or any bank if there is no nominated
bank, which becomes a negotiating bank, to
get paid.
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Instructions for Opening a Letter
of Credit
 Items usually included in the instructions to open an
L/C.
(1) An Irrevocable letter of credit subject to the UCP of
the latest version; UCP No. 600 (2007 Revision)
(2) Whether the L/C is to be confirmed by a U.S. bank
or not.
(3) The name and address of the beneficiary: in favor of
exporter.
(4) Whether the L/C is to be transferable or not
(5) Terms of payment such as at sight or usance
(6) Where negotiation or payment is to be effected
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Instructions for Opening a Letter
of Credit
(7) Whether the payment is to be made in U.S. dollars
or other foreign currency
(8) What trade terms are to be used: FOB, CFR or CIF?
(9) Coverage of marine insurance: Institute Cargo
Clauses (A) (Similar to All Risks), (B) (Similar to WA),
(C) (Similar to FPA), or any special coverage such as
a rejection clause
(10) Documents to be required for negotiation
Commercial invoice
Packing list
Marine insurance policy or certificate
Ocean bill of lading
Other documents specified in the L/C
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Instructions for Opening a Letter
of Credit
(11) Whether partial shipments are allowed or not
(12) Whether transshipments are allowed or prohibited
(13) Presentation period/date: A period of time for
presentation of documents after shipment
(14) Ports of loading and unloading
(15) The latest shipment date
(16) The expiry date
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Examination of a Letter of Credit
 When a letter of credit is received, exporter must:
(1)Examine the conditions and documents specified in
the L/C and determine whether he can meet them or
not.
(2) If there are any conditions he cannot meet, request
his buyer to amend the L/C asap before he starts
manufacturing export goods.
(3) If the L/C calls for a time draft, have the L/C specify
that the discount interest for the time draft shall be
for account of accountee (importer), when
agreement was a sight draft but L/C is opened with a
time draft
(4) Exporter should hold off shipping the order until he
receives an amendments to the L/C as requested.
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Common Discrepancies
 A discrepancy: any inconsistence or
difference from the terms and conditions
stipulated in the letter of credit in minute
details.
(1) Drafts
a. Draft amount is different from invoice
b. Draft tenor is different from the L/C
c. Wrong drawee
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Common Discrepancies
(2) Commercial invoices
a. Different merchandise description from the
L/C
b. Invoices is not issued by the beneficiary
c. Insufficient copies are presented
d. Incorrect accountee's name and address
are stated
e. Different prices from the L/C
f. Terms of trade such as FOB, CFR or CIF
different from the L/C
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Common Discrepancies
(2) Commercial invoices (continued)
g. Marks and numbers of packages are
different from all other documents
h. Weight is different from the L/C
i. Different currency from the L/C
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Common Discrepancies
(3) Packing list
a. Different description of merchandise from
the L/C
b. Different number of unit, net weight and
gross weight from the L/C
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Common Discrepancies
(4) Ocean Bill of Lading
a. Less than a full set of original B/L is
presented
b. The B/L not properly endorsed
c. The B/L not marked with "On Board“
notation with shipment date and actual
vessel name, if B/L contains the indication
“intended vessel”
d. The B/L not properly consigned.
e. In the case of CFR or CIF, the term "Freight
Prepaid" is not marked, that is, no
indication of freight prepaid by the exporter
f. Merchandise description is different from
the L/C
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Common Discrepancies
(4) Ocean Bill of Lading (continued)
g. Different ports of loading and/or unloading
from the L/C
h. Notations on the B/L that the merchandise
or packages are damaged
i. The B/L indicates the "On Deck" shipment
j. Stale B/L : Not presented within time limit
after shipment as stipulated in the L/C :
within ____ days after date of issuance of
bills of lading
k. Late shipment: The bill of lading date
marked later than the shipment date
specified in the L/C
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Common Discrepancies
(5) Marine Cargo Insurance Certificate or
Policy
a.
b.
c.
d.
e.
f.
Different coverage from the L/C
Insufficient coverage
Not the same currency as the L/C
Different merchandise description
The effective date later than the shipment
date
Broker's cover note presented instead of
insurance certificate or policy
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Common Discrepancies
(6) Other discrepancies
a. Not all documents required in L/C are
presented
b. Documents are presented after the
expiry date of the L/C
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Negotiation with Discrepancies


(1)
(2)
(3)
(4)
In case discrepancies are found by negotiating
bank, exporter must correct the discrepancies.
If exporter cannot correct them such as the
shipment date, then exporter should
request the issuing bank to amend the letter of
credit to cover discrepancies or authorize to pay in
spite of discrepancies
At the same time, inform the buyer of the
discrepancies and request his acceptance and
amendment to the Letter of Credit.
Release shipping documents to issuing bank after
the L/C is amended. Buyer’s acceptance of
discrepancies are not enough. The Letter of Credit
must be amended.
Do not send the shipping documents to the issuing
bank of the Letter of Credit on a collection basis.
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Documents for Negotiation
Depend on the stipulation in the letter
of credit.
 Exporter must present all documents
specified in the letter of credit for
negotiation.
 Any missing document or incorrect
document becomes a discrepancy.
 Issuing bank of the L/C has under no
circumstances an obligation to honor the
draft and shipping documents with
discrepancies.
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Documents for Negotiation
 Common documents used in the
international trade accompanying exporter’s
Draft (Bill of Exchange)
(1) Commercial Invoice
(2) Packing List
(3) Ocean Bill of Lading
(4) Marine Insurance Certificate
(5) Any other documents if required by the
L/C
• Certificate of Country of Origin
(Certificate of Origin)
• Consular Invoice
• Inspection Certificate
• Beneficiary's Statement
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Presentation of Documents
 Draft and all shipping documents must be
presented to a negotiating bank together
with the original letter of credit.
 Presentation must be made within a
specified period of time after shipment in the
L/C, but not later than 21 days after shipment
 A bank must determine whether or not
presentation is a complying presentation in 5
banking days
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Presentation of Documents
If a nominated (negotiating) bank, a
confirming bank, if any, or the issuing
bank determines that a presentation
does not comply,
 it may refuse to honor or negotiate, then
 it must give a single notice to presenter no
later than the close of the 5th banking
days.
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Presentation of Documents
The notice must state
 The bank is refusing to honor or negotiate
 Each discrepancy
 The bank’s disposal of shipping
documents:
• The bank is holding documents pending
instructions from the presenter or
• The issuing bank is holding documents until it
receives a waiver from the applicant & agrees
to accept it or
• The bank is returning documents or
• The bank is acting according to the previous
instructions from the presenter.
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Presentation of Documents
 If a bank does not follow these negotiation and
notice provisions,
• The bank cannot claim that the documents do not
constitute a complying presentation.
• The bank must honor or negotiate.
 A document presented but not required by the Credit
will be disregarded.
 If a Credit contains a condition without stipulating
the document to indicate compliance with the
condition,
• Banks will deem such condition not stated and
will disregard it.
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