UCP600 Article 31 Explanation: Partial Drawings or Shipments

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Partial Drawings or Shipments

Clause (a): Partial drawings or shipments are allowed.

Explanation: This clause means that under a letter of credit, shipments can be made in parts. There is no requirement for the entire shipment to be made in one go. Each part of the shipment can be drawn upon separately, and the exporter can present documents for each partial shipment to claim payment.

Example: An exporter has a letter of credit for $100,000 to be shipped to a buyer. The exporter sends $40,000 worth of goods in the first shipment and $60,000 worth in the second. The exporter can present the documents for the $40,000 shipment, get paid for it, and later present the documents for the $60,000 shipment to get paid for the remaining amount.

Clause (b): A presentation consisting of more than one set of transport documents evidencing shipment commencing on the same means of conveyance and for the same journey, provided they indicate the same destination, will not be regarded as covering a partial shipment, even if they indicate different dates of shipment or different ports of loading, places of taking in charge or dispatch. If the presentation consists of more than one set of transport documents, the latest date of shipment as evidenced on any of the sets of transport documents will be regarded as the date of shipment.

Explanation: If multiple sets of transport documents are presented for shipments that start on the same means of transport and are headed to the same destination, it will not be considered as partial shipments. This holds true even if the documents indicate different shipment dates, different ports of loading, or places of taking charge. The latest shipment date on any of the transport documents will be considered as the shipment date.

Example: An exporter ships goods using the same vessel but loads goods at different ports on different dates. The vessel then proceeds to the same destination. The exporter presents multiple sets of bills of lading indicating these different loading ports and dates. Since all the goods are on the same vessel going to the same destination, it is not considered a partial shipment. The latest date on the bills of lading will be the official shipment date.

Clause (b) continued: A presentation consisting of one or more sets of transport documents evidencing shipment on more than one means of conveyance within the same mode of transport will be regarded as covering a partial shipment, even if the means of conveyance leave on the same day for the same destination.

Explanation: If the shipment is made using multiple means of transport within the same mode (e.g., multiple trucks, ships, or planes), even if they leave on the same day for the same destination, it will be considered a partial shipment.

Example: An exporter sends goods using two different ships departing on the same day to the same destination. Each ship carries part of the total consignment. Since the shipment is on different vessels, it is considered a partial shipment even though they are headed to the same place on the same day.

Clause (c): A presentation consisting of more than one courier receipt, post receipt or certificate of posting will not be regarded as a partial shipment if the courier receipts, post receipts or certificates of posting appear to have been stamped or signed by the same courier or postal service at the same place and date and for the same destination.

Explanation: Multiple courier or postal receipts indicating shipments from the same service, stamped or signed at the same place and date for the same destination, will not be considered partial shipments. This implies that the entire consignment is viewed as a single shipment, despite being sent in separate packages.

Example: An exporter sends goods in three different packages using the same courier service. All packages are stamped at the same location and on the same date, and all are addressed to the same destination. Although there are three receipts, it will not be considered a partial shipment since all receipts show the same courier service, place, date, and destination.

UCP600 Article 30 Explanation: Tolerance in Credit Amount, Quantity, and Unit Prices

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UCP600 Article 30 Explained

Clause (a)

Clause: The words “about” or “approximately” used in connection with the amount of the credit or the quantity or the unit price stated in the credit are to be construed as allowing a tolerance not to exceed 10% more or 10% less than the amount, the quantity or the unit price to which they refer.

Explanation: When a credit uses terms like “about” or “approximately” concerning the credit amount, quantity, or unit price, it permits a deviation of up to 10% above or below the stated figure to which they refer . This provides flexibility in fulfilling the credit terms, accounting for minor variations in shipment or pricing.

Example: If a letter of credit specifies “approximately USD 100,000,” the beneficiary can present documents for an amount between USD 90,000 and USD 110,000. Similarly, if it states “about 1,000 units,” shipment quantities between 900 and 1,100 units would be acceptable.

Clause (b)

Clause: A tolerance not to exceed 5% more or 5% less than the quantity of the goods is allowed, provided the credit does not state the quantity in terms of a stipulated number of packing units or individual items and the total amount of the drawings does not exceed the amount of the credit.

Explanation: A 5% tolerance in the quantity of goods is permissible as long as the credit does not specify the quantity in exact packing units or individual items. Additionally, the total drawings under the credit must not exceed the credit amount.

Example: If a credit requires the shipment of 2,000 tons of a product but does not specify packaging units, shipping between 1,900 and 2,100 tons is acceptable, provided the total amount drawn does not exceed the credit’s limit. If the credit amount is USD 500,000, the total value of shipped goods should not surpass this amount.

Clause (c)

Clause: Even when partial shipments are not allowed, a tolerance not to exceed 5% less than the amount of the credit is allowed, provided that the quantity of the goods, if stated in the credit, is shipped in full and a unit price, if stated in the credit, is not reduced or that sub-article 30 (b) is not applicable. This tolerance does not apply when the credit stipulates a specific tolerance or uses the expressions referred to in sub-article 30 (a).

Explanation: If partial shipments are prohibited, a 5% tolerance less than the credit amount is allowed, provided the full quantity of goods is shipped and the unit price, if mentioned, is not reduced. This tolerance is void if the credit specifies a different tolerance or uses terms like “about” or “approximately.”

Sub-article 30 (c) addresses scenarios where terms are either CFR or CIF, and the price quotation is based on estimated or provisional insurance premiums and/or freight charges. When the documents are presented, the beneficiary invoices for the actual insurance and freight costs, which may be lower than those initially quoted in the purchase order. Consequently, a 5% tolerance is permitted in the beneficiary’s invoice, provided that the full quantity of goods specified in the credit is shipped and the unit price remains unchanged.

Example: A credit for USD 200,000 that does not permit partial shipments and requires the shipment of 500 units at USD 350 per unit (500*350 = USD 175,000. Balance 25,000 freight charges) will allow a shipment of the full 500 units at USD 350 per unit even if the total invoice amount is as low as USD 190,000 (5% less than USD 200,000). If the credit used terms like “approximately,” the 10% tolerance from clause (a) would apply instead.

UCP600 Article 29: Extensions for Expiry Dates and Presentation Days Explained

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UCP600 Article 29 Explained

Clause (a)

Clause: “If the expiry date of a credit or the last day for presentation falls on a day when the bank to which presentation is to be made is closed for reasons other than those referred to in article 36, the expiry date or the last day for presentation, as the case may be, will be extended to the first following banking day.”

Explanation: If the expiry date of a credit or the final day for document presentation coincides with a day when the bank is closed for reasons not covered under Article 36 (such as public riots, civil commotions, insurrections, wars, acts of terrorism, or by any strikes or lockouts or any other causes beyond its control), the deadline is automatically extended to the next business day when the bank is open.

Example: A letter of credit expires on 1st January. The bank where the documents are to be presented is closed on 1st January for New Year’s Day (a public holiday), which is not falling under reasons covered in Article 36 (such as public riots, civil commotions, insurrections, wars, acts of terrorism, or by any strikes or lockouts or any other causes beyond its control.) Therefore, the expiry date is extended to 2nd January, the next business day.

Clause (b)

Clause: “If presentation is made on the first following banking day, a nominated bank must provide the issuing bank or confirming bank with a statement on its covering schedule that the presentation was made within the time limits extended in accordance with sub-article 29 (a).”

Explanation: When documents are presented on the first business day following an extended deadline, the nominated bank must include a statement on its cover schedule indicating that the presentation occurred within the extended time frame as per sub-article 29(a).

Example: Documents are presented to the nominated bank on 2nd January (following the extended deadline). The nominated bank must state on its covering schedule to the issuing bank, “Documents presented within the extended time limits as per UCP600 Article 29(a).”

Clause (c)

Clause: “The latest date for shipment will not be extended as a result of sub-article 29 (a).”

Explanation: The provision to extend the expiry date or the last day for document presentation does not apply to the latest date of shipment. The shipment date remains fixed and unchangeable even if the presentation deadline is extended.

Example: A letter of credit specifies the latest shipment date as 25th December, and the presentation deadline as 1st January. If the presentation deadline is extended to 2nd January due to the bank being closed, the shipment must still occur by 25th December, without extension.

Summary

Article 29 of UCP600 addresses situations where the expiry date or the last day for document presentation falls on a non-banking day for reasons other than those mentioned in Article 36. It extends the deadline to the next banking day but does not affect the shipment date. Proper documentation and statements are required to inform all parties of the extended deadlines.

Understanding UCP600 Article 28: Insurance Document and Coverage : Detailed Explanation with Examples

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Article 28: Insurance Document and Coverage

Clause a:

Clause:
An insurance document, such as an insurance policy, an insurance certificate, or a declaration under an open cover, must appear to be issued and signed by an insurance company, an underwriter, or their agents or proxies. Any signature by an agent or proxy must indicate whether the agent or proxy has signed for or on behalf of the insurance company or underwriter.

Explanation:
This clause ensures the authenticity of the insurance document by requiring it to be issued and signed by a recognized entity (insurance company, underwriter, or their agents/proxies). If an agent or proxy signs the document, their authority to sign on behalf of the insurance company or underwriter must be clearly stated.

Example:
An insurance certificate is signed by John Doe. The certificate should indicate whether John Doe is signing as an agent of XYZ Insurance Company. It should explicitly state, “John Doe, Agent for XYZ Insurance Company.”

Clause b:

Clause:
When the insurance document indicates that it has been issued in more than one original, all originals must be presented.

Explanation:
If the insurance document mentions multiple originals, all such originals must be presented to ensure that the document is complete and valid.

Example:
If an insurance policy states, “This policy is issued in three originals,” then all three originals must be submitted with the other shipping documents.

Clause c:

Clause:
Cover notes will not be accepted.

Explanation:
Cover notes are temporary documents issued to provide immediate insurance coverage until a formal policy is issued. This clause prohibits the use of cover notes, ensuring only formal insurance documents are accepted.

Example:
If a company presents a cover note instead of an insurance certificate, the cover note will be rejected as per this clause.

Clause d:

Clause:
An insurance policy is acceptable in lieu of an insurance certificate or a declaration under an open cover.

Explanation:
This clause allows flexibility in the type of insurance document submitted, stating that an insurance policy can replace an insurance certificate or a declaration under an open cover.

Example:
If a letter of credit requires an insurance certificate but the applicant provides an insurance policy instead, the policy is acceptable.

Clause e:

Clause:
The date of the insurance document must be no later than the date of shipment, unless it appears from the insurance document that the cover is effective from a date not later than the date of shipment.

Explanation:
The insurance document must be dated on or before the shipment date to ensure coverage from the time of shipment. If the document indicates that coverage starts from the shipment date or earlier, it is acceptable even if the document date is later.

Example:
If goods are shipped on July 1, the insurance document should be dated on or before July 1. If the document is dated July 2 but states that coverage starts from July 1, it is still acceptable.

Clause f:

Clause:
i. The insurance document must indicate the amount of insurance coverage and be in the same currency as the credit.
ii. A requirement in the credit for insurance coverage to be for a percentage of the value of the goods, of the invoice value, or similar is deemed to be the minimum amount of coverage required. If there is no indication in the credit of the insurance coverage required, the amount of insurance coverage must be at least 110% of the CIF or CIP value of the goods. When the CIF or CIP value cannot be determined from the documents, the amount of insurance coverage must be calculated on the basis of the amount for which honor or negotiation is requested or the gross value of the goods as shown on the invoice, whichever is greater.
iii. The insurance document must indicate that risks are covered at least between the place of taking in charge or shipment and the place of discharge or final destination as stated in the credit.

Explanation:

  • Clause i: The insurance document must specify the coverage amount and match the currency of the credit.
  • Clause ii: If the credit specifies a percentage coverage, it’s the minimum required. If not specified, coverage should be at least 110% of the CIF or CIP value. If CIF or CIP values are unavailable, coverage should be based on the greater of the negotiation amount or the invoice value.
  • Clause iii: The insurance must cover risks from the shipment point to the final destination as mentioned in the credit.

Example:

  • Clause i: If the credit is in USD, the insurance amount should also be in USD.
  • Clause ii: If the credit requires 120% coverage of the invoice value, the insurance must cover at least 120%. If not specified, and the CIF value is $100,000, the insurance should cover at least $110,000.
  • Clause iii: If the credit mentions shipment from New York to London, the insurance must cover this entire route.

Clause g:

Clause:
A credit should state the type of insurance required and, if any, the additional risks to be covered. An insurance document will be accepted without regard to any risks that are not covered if the credit uses imprecise terms such as “usual risks” or “customary risks”.

Explanation:
The credit should specify the type of insurance and any additional risks to be covered. If it uses vague terms like “usual risks,” the insurance document is acceptable even if it doesn’t cover unspecified risks.

Example:
If the credit specifies coverage for marine risks but vaguely mentions “usual risks,” the insurance document is acceptable even if it only covers marine risks and not other unspecified risks.

Clause h:

Clause:
When a credit requires insurance against “all risks” and an insurance document is presented containing any “all risks” notation or clause, whether or not bearing the heading “all risks,” the insurance document will be accepted without regard to any risks stated to be excluded.

Explanation:
If the credit demands “all risks” coverage and the insurance document includes an “all risks” clause, the document is accepted regardless of any exclusions mentioned.

Example:
If the credit requires “all risks” insurance and the document states “all risks covered except for war and strike,” the document is still acceptable despite the exclusions.

Clause i:

Clause:
An insurance document may contain reference to any exclusion clause.

Explanation:
This clause allows the insurance document to mention exclusion clauses. Such references do not affect the document’s acceptance.

Example:
An insurance document might state, “Coverage excludes war and nuclear risks,” and still be acceptable.

Clause j:

Clause:
An insurance document may indicate that the cover is subject to a franchise or excess (deductible).

Explanation:
The insurance document can specify that coverage is subject to a deductible or franchise (an amount below which no claims are paid). This does not impact the document’s validity.

Example:
An insurance policy stating, “Subject to a deductible of $1,000,” is still valid and acceptable under this clause.

UCP600 Article 27 Explained: Clean Transport Documents in International Trade

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UCP600 Article 27: Clean Transport Documents

Article 27 of the UCP600 deals with the requirement for a clean transport document in the context of documentary credits. Here’s a breakdown of each clause along with examples for clarity:

Clause 1: Clean Transport Document Requirement

Text: “A bank will only accept a clean transport document.”

Explanation: This clause specifies that for a bank to honor a documentary credit, the transport document presented must be clean. A clean transport document is one that does not contain any clauses or notations that declare the goods or their packaging as defective.

Example: If a seller ships goods and the bill of lading (a type of transport document) states, “Goods are in damaged condition,” this would not be considered a clean transport document. The bank would refuse to accept this bill of lading under a documentary credit.

Clause 2: Definition of a Clean Transport Document

Text: “A clean transport document is one bearing no clause or notation expressly declaring a defective condition of the goods or their packaging.”

Explanation: This clause further clarifies what constitutes a clean transport document. It must be free from any remarks that explicitly state that the goods or their packaging are in a defective state.

Example: If the bill of lading states, “Packages are torn,” this notation indicates a defective condition of the packaging. Therefore, this bill of lading would not be considered clean and would not be accepted by the bank.

Clause 3: Absence of the Word “Clean”

Text: “The word ‘clean’ need not appear on a transport document, even if a credit has a requirement for that transport document to be ‘clean on board’.”

Explanation: This clause indicates that the transport document does not need to explicitly include the word “clean.” As long as there are no clauses or notations indicating a defective condition, the document is considered clean. This holds true even if the letter of credit specifies that the document must be “clean on board.”

Example: A bill of lading that does not contain the word “clean” but also does not include any negative remarks about the condition of the goods or their packaging would still be accepted. For instance, a bill of lading that states “Goods loaded on board” without any additional comments about defects is considered a clean transport document.

Summary

Understanding UCP600 Article 27 is crucial for exporters, importers, and banks involved in international trade. It ensures that the transport documents presented under a letter of credit accurately reflect the condition of the shipped goods, thus providing confidence and security to all parties involved. By requiring clean transport documents, banks help maintain the integrity of the trade finance process.

Additional Notes:

  • On Deck: Refers to the transportation of goods on the deck of a vessel. Transport documents should specify if goods are stowed on deck as it can affect the condition and risk associated with the goods.
  • Example: A bill of lading marked “on deck” indicates that goods are exposed to the elements, which might not be acceptable for certain types of shipments.
  • Shipper’s Load and Count: Indicates that the shipper is responsible for loading and counting the cargo. The carrier does not take responsibility for the quantity or condition of the goods loaded.
  • Example: A bill of lading with the notation “Shipper’s Load and Count” implies that any discrepancies in the number or condition of the goods are the shipper’s responsibility, not the carrier’s.

UCP600 Article 26: On Deck, Shipper’s Load and Count, and Additional Charge

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Article 26: “On Deck”, “Shipper’s Load and Count”, “Said by Shipper to Contain” and Charges Additional to Freight

Clause (a): On Deck

Explanation: A transport document must not indicate that the goods are or will be loaded on deck. However, a clause stating that the goods may be loaded on deck is acceptable. This distinction is important because it affects the security and condition of the cargo during transit. Goods loaded on deck are exposed to weather conditions and have a higher risk of damage.

Example:

  1. Not Acceptable: A Bill of Lading (B/L) with the clause “Goods are loaded on deck” will be rejected under UCP600 because it clearly states that the goods are placed on deck.
  2. Acceptable: A B/L with the clause “Goods may be loaded on deck” is acceptable. This implies a possibility without confirmation, thus complying with UCP600 requirements.

Clause (b): Shipper’s Load and Count / Said by Shipper to Contain

Explanation: A transport document bearing clauses such as “shipper’s load and count” and “said by shipper to contain” is acceptable. These phrases indicate that the details regarding the cargo’s quantity and contents are provided by the shipper and have not been verified by the carrier.

Example:

  1. Shipper’s Load and Count: A B/L states, “Goods loaded and counted by shipper.” This means the carrier has not verified the number of packages or their condition; this responsibility lies with the shipper.
  2. Said by Shipper to Contain: A B/L with the clause “Said by shipper to contain 100 cartons of electronics” indicates that the carrier relies on the shipper’s declaration regarding the contents of the shipment.

Clause (c): Charges Additional to Freight

Explanation: A transport document may bear a reference, by stamp or otherwise, to charges additional to the freight. This clause means that the document can mention extra costs that are not included in the freight charges, such as handling fees, customs duties, or insurance.

Example: A B/L includes a stamped note, “Additional charges: $200 for customs clearance and $150 for insurance.” This indicates that these costs are separate from the freight charges and must be borne by the shipper or consignee as specified.