What are the Consequences of not Allowing Partial Shipments?

Although the letter of credit rules allow partial shipments, importers may prohibit them by giving clear instructions to the issuing bank to this effect when opening the letter of credit. On this post I will analyse the consequences of not allowing partial shipments.

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Normally the letter of credit rules allow partial shipments.

UCP 600 Article 31 states that partial drawings or shipments are allowed.

If an applicant does not want to permit partial shipments, he must give clear instructions to the issuing bank to this effect, when opening the letter of credit.

Why Would Applicants Prohibit Partial Shipments?

Applicants would like to prohibit partial shipments for technical and commercial reasons:

  • Technical Reasons to Disallow Partial Shipments: Shipping of goods in partial may not be meaningful.

For example, if an exporter should be dispatching one piece of Offset Printing Machine under a letter of credit, shipping the machine dismantled via partial shipments would be meaningless.

As a result, an importer needs to disallow partial shipment under such a scenario.

  • Commercial Reasons to Disallow Partial Shipments: Under some circumstances, commercial conditions may make partial shipments unsuitable for the importers.

Generally, importers are not the end buyers in international trade transactions. They are big wholesalers.

They import the goods in to their countries and then they will distribute them to smaller distributors or end customers.

If importers need specific amount of goods within a specific periods of time, they may forced to prohibit partial shipments under the letter of credit transactions.

What are the Consequences of Prohibiting Partial Shipments?

If partial shipments are not allowed under a letter of credit, issuing bank, confirming bank and nominated bank should check the presented documents very carefully in order to make sure that documents do not evidence a partial shipment.

Not allowing partial shipments under letters of credit would result below consequences:

  • Exporters could not make short shipments, except allowed tolerance limits, if any, under letters of credit where partial shipments are prohibited.
  • Exporters could not make partial drawings and could not get partial payments from the banks.
  • Exporters who act on the contrary may face discrepancies and non-payment risks.