UCP600

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.