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Understanding UCP600 Article 23: Detailed Explanation and Examples of Air Transport Documents

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UCP600 Article 23 outlines the requirements for an air transport document in documentary credits. Here’s a breakdown and explanation of each clause with examples for clarity:

Clause (a)

a. An air transport document, however named, must appear to:

i. indicate the name of the carrier and be signed by:

  • the carrier, or
  • a named agent for or on behalf of the carrier.
  • Any signature by the carrier or agent must be identified as that of the carrier or agent.
  • Any signature by an agent must indicate that the agent has signed for or on behalf of the carrier.

Explanation: This clause ensures that the document clearly identifies the carrier responsible for transporting the goods and verifies its authenticity through a proper signature. The document can be signed directly by the carrier or by an agent on behalf of the carrier. If an agent signs, it must be clear that they are doing so on behalf of the carrier.

Example: If ABC Airlines is the carrier, the air transport document should either be signed by ABC Airlines directly or by an agent (e.g., XYZ Logistics) on behalf of ABC Airlines. The signature should look like:

  • ABC Airlines (signed by the carrier directly)
  • XYZ Logistics (signed as agent for ABC Airlines)

ii. indicate that the goods have been accepted for carriage.

Explanation: The document must state that the goods have been accepted for transport. This is typically indicated by terms like “Received for Carriage” or “Accepted for Carriage.”

Example: An air waybill might have a stamp or notation stating “Received for Carriage” along with the date and signature.

iii. indicate the date of issuance. This date will be deemed to be the date of shipment unless the air transport document contains a specific notation of the actual date of shipment, in which case the date stated in the notation will be deemed to be the date of shipment. Any other information appearing on the air transport document relative to the flight number and date will not be considered in determining the date of shipment.

Explanation: The date on which the document is issued is considered the shipment date unless a different actual shipment date is specifically mentioned on the document.

Example: If the air waybill is issued on July 15, 2024, that date is considered the shipment date unless it states, “Actual Date of Shipment: July 17, 2024.” In that case, July 17, 2024, is the shipment date.

iv. indicate the airport of departure and the airport of destination stated in the credit.

Explanation: The document must clearly mention both the airport where the goods are departing from and the destination airport, as specified in the letter of credit.

Example: If the letter of credit specifies departure from JFK Airport (New York) and arrival at LHR Airport (London), the air transport document must state these locations accurately.

v. be the original for consignor or shipper, even if the credit stipulates a full set of originals.

Explanation: The document should be the original intended for the consignor or shipper, even if multiple originals are required by the letter of credit.

Example: If three originals are required, the document presented should be one of these originals and clearly marked as such.

vi. contain terms and conditions of carriage or make reference to another source containing the terms and conditions of carriage. Contents of terms and conditions of carriage will not be examined.

Explanation: The air transport document must include or reference the terms and conditions governing the carriage. However, these terms and conditions are not subject to examination under UCP600.

Example: The air waybill may state, “Terms and conditions available at www.abcarriers.com/terms.”

Clause (b)

b. For the purpose of this article, transhipment means unloading from one aircraft and reloading to another aircraft during the carriage from the airport of departure to the airport of destination stated in the credit.

Explanation: Transhipment refers to the transfer of goods from one aircraft to another during the journey from the departure airport to the destination airport as per the letter of credit.

Example: Goods might be unloaded from Flight 101 at Frankfurt Airport and reloaded onto Flight 202 heading to the final destination in Paris.

Clause (c)

c.

i. An air transport document may indicate that the goods will or may be transhipped, provided that the entire carriage is covered by one and the same air transport document.

Explanation: The document can state that transhipment will or might happen as long as the entire journey is covered by a single document.

Example: An air waybill stating, “Goods may be transhipped at Frankfurt,” is acceptable if it covers the entire route from origin to final destination.

ii. An air transport document indicating that transhipment will or may take place is acceptable, even if the credit prohibits transhipment.

Explanation: Even if the letter of credit explicitly prohibits transhipment, a document indicating possible transhipment is still acceptable under UCP600.

Example: If the letter of credit states “No transhipment allowed,” but the air waybill notes, “Transhipment may occur,” the document is still considered compliant under UCP600.

This comprehensive explanation should help clarify each clause of UCP600 Article 23 with relevant examples.

Understanding Green Clause Letter of Credit and Red Clause Letters of Credit: Key Differences, Usage, and Examples

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Green Clause Letter of Credit

Definition: A Green Clause Letter of Credit is a special type of letter of credit that includes a provision allowing the seller to receive an advance payment before the shipment of goods. This advance is typically made against the presentation of documents such as a warehouse receipt, which confirms that the goods are stored and ready for shipment. The term “green” comes from the historical practice of typing this clause in green ink to distinguish it from other terms.

Usage: Green Clause LCs are especially useful when the seller needs funds to cover pre-shipment storage costs. For instance, if goods must be stored in a warehouse before they are shipped, this type of LC can provide the necessary funds to the seller during this period.

Example: Imagine a spice exporter in India who has received an order from a buyer in the USA. The spices need to be stored in a warehouse before they can be shipped. With a Green Clause LC, the exporter can obtain an advance payment by presenting a warehouse receipt, ensuring they have the funds to cover storage costs until the spices are shipped.

Red Clause Letter of Credit

Definition: A Red Clause Letter of Credit is another type of LC that allows the seller to receive an advance payment before the shipment of goods. Unlike the Green Clause LC, the advance under a Red Clause LC is typically made against a simple receipt or draft. The name “red” originates from the practice of writing this clause in red ink.

Usage: Red Clause LCs are often used when the seller needs funds to purchase raw materials or cover production costs. It provides the seller with the necessary working capital to fulfill the order.

Example: Consider a textile manufacturer in Bangladesh who has received an order from a retailer in Europe. The manufacturer needs to purchase raw materials such as fabric and threads. With a Red Clause LC, the manufacturer can get an advance payment by presenting a simple receipt, which helps finance the production of the textiles.

Why Named Green and Red?

The names “green” and “red” come from the old practice of typing these specific clauses in green and red ink, respectively, to make them stand out in the letter of credit document. The red ink indicated more immediate, unsecured advance payments, while green ink was used for advances against more secure documents like warehouse receipts.

Differences Between Green Clause and Red Clause LCs

AspectGreen Clause LCRed Clause LC
Advance PaymentProvided against warehouse receipts or storage documentsProvided against simple receipts or drafts
SecurityMore secure due to storage documentsLess secure, typically unsecured
UsageCovers storage costs and pre-shipment expensesCovers production or procurement costs
DocumentationRequires proof of storage (e.g., warehouse receipt)Requires minimal documentation (simple receipt)
Risk LevelComparatively lower risk due to secured advanceHigher risk due to unsecured advance

When They Are Used

  • Green Clause LC:
    • Used when the goods require storage before shipment.
    • Commonly used for commodities or goods that are stored in warehouses.
    • Suitable for exporters who need funds to cover storage costs.
  • Red Clause LC:
    • Used when the seller needs working capital to produce or procure goods.
    • Suitable for exporters who need advance funds for production or raw material purchase.
    • Common in industries where immediate cash flow is required to fulfill orders.

Example Scenario Illustrating Both Types

Scenario: An electronics manufacturer in China receives an order from a retailer in Australia.

  1. Red Clause LC:
    • The manufacturer needs funds to purchase electronic components.
    • The retailer in Australia issues a Red Clause LC allowing the manufacturer to receive an advance payment upon presenting a simple receipt.
    • The manufacturer uses the advance funds to buy the necessary components and starts production.
  2. Green Clause LC:
    • After production, the electronics need to be stored in a warehouse before shipment.
    • The manufacturer requests another advance to cover the storage costs.
    • The retailer issues a Green Clause LC allowing the manufacturer to receive funds upon presenting a warehouse receipt.
    • The manufacturer uses the advance to pay for the storage, and the goods are shipped once ready.

By using both Red Clause and Green Clause LCs, the manufacturer can manage the cash flow required for both production and storage before shipping the goods to the buyer.