Negotiation Of Shipping Documents


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Negotiation Of Shipping Documents

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