Letter of credit rules allow transport documents to show costs additional to freight.
However, some banks especially in certain countries, prohibit costs additional to freight to be mentioned on the transport documents, by cancelling the related article of UCP 600.
If a letter of credit indicates that costs additional to freight is not acceptable, then the transport document presented must not indicate that costs additional to the freight have been or will be incurred.
How Could Costs Additional to Freight Discrepancy Occur?
Tere are the three requirements of a costs additional to freight discrepancy.
- A letter of credit, that expressly prohibits cost additional to freight and cancels related article of UCP 600.
- A transport document, that is presented with a cost additional to freight expression such as FIFO, FILO, FIO etc…
- A discrepancy raised by the issuing bank due to the transport document shows charges additional to freight contrary to l/c terms.
Costs Additional to Freight Discrepancy Example:
A letter of credit has been issued in SWIFT format, subject to UCP latest version, with the following details:
Letter of Credit Conditions
46A: Documents Required
- Full set of at least 3/3 long form original (clean on board) bill of lading on the printed forms of carrier plus one non-negotiable copy issued or endorsed to the order of Expo Arab Bank Plc, notify applicant showing freight prepaid and showing full name and address of the shipping company agent or his representative in Bahrain.
- Bill of lading showing charges additional to the freight mentioned in article 26 (c) of the UCP, 2007 revision, publication no. 600 are not acceptable except where such additional charges are demurrage fees for containers.
- Short form or blank back bill of lading are not acceptable.
The beneficiary presented a bill of lading, that contains a clause stating that “Carriage Term: Free In & Liner Out”
Bill of Lading
The documents refused by the issuing bank due to the discrepancy indicated on the following advice of refusal.
Swift OUTPUT FIN 734 Advice of Refusal
EXPO ARAB BANK PLC
TURKIYE IHRACAT BANKASI T.A.S
20: Sender’s TRN
21: Presenting Bank’s Reference
32A: Date and Amount of Utilization
Date: 28 December 2012
Currency: USD (US DOLLAR)
33A: Total Amount Claimed
Date: 07 January 2013
Currency: USD (US DOLLAR)
Amount: #285. 600,00#
72: Sender to Receiver Information
Documents refused by us due to discrepancies stated below. We notified the applicant, we shall revert upon hearing from them.
- B/L shows additional charges to the freight not authorized under L/C.
77B: Disposal of Documents
/ HOLD /