Shipping Documents

What does shipping documents mean in a letter of credit transaction? Understanding shipping documents term in a letter of credit transaction.

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Shipping documents, when used as a term in a letter of credit, could create problems between the issuing bank and the beneficiary due to its obscure meaning.

It is not possible to find a “shipping documents” term under the documentary credit rules, as a result ICC Banking Commission discourages banks to use it.

But issuing banks still choose to implement this term in their credits one way or another..

You can find two examples below how shipping documents term is used in the letters of credit by the issuing banks.

Example 1:

Field 47-A Additional Conditions: Shipment date and shipping documents including bill of lading dated prior to letter of credit opening date is not acceptable.

Analysis: Using the shipping documents term in a way, as specified on above example, may create disputes between the issuing bank and the beneficiary.

According to the ISBP 745, which is the latest International Standard Banking Practices published by ICC, “shipping documents” term defined as follows: “all documents required by the credit, except drafts, tele‐transmission reports and courier receipts, postal receipts or certificates of posting evidencing the sending of documents.

Conclusion: Under normal circumstances, it is expected that even if the drafts, tele‐transmission reports and courier receipts, postal receipts or certificates of posting have been dated prior to the issuance date of the credit, the issuing bank would accept such presentation.

These having been said, in order to be on the safe side, the beneficiary may choose to present all documents under this letter of credit will be dated after the issuance date of the documentary credit to prevent any problem with the issuing bank, because of the fact that the issuing bank’s intention, by using the term of shipping documents, may be referring all the documents that have been requested by the credit, but not just the ones as being described under the ISBP 745.

Example 2:

46-A Documents Required:

  • Full set of clean on board bills of lading issued or endorsed to the order of Issuing Bank, notify applicant showing freight prepaid.

Field 47-A Additional Conditions: Shipping documents should be prepared in the name of: Applicant Company.

Analysis: Using the “shipping documents” term in a way as exhibited in example 2 would be the most risky situation for the beneficiaries.

Let me try to explain the reason.

On this example, the issuing bank defines how the bills of lading should be completed under the field 46-A: Documents Required.

But the issuing bank puts another indication under the field 47-A Additional Conditions stating that “Shipping documents should be prepared in the name of: Applicant Company.”

The beneficiary may confuse at the document preparation stage as these statements contradict each other.

Under such a circumstances the best advice that can be given to the beneficiary is that applying to the applicant for an amendment to delete the so called phrase which has been inserted in field 47-A by the issuing bank.