letterofcredit


  

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This site does not want to sell you anything. I hope this is a pleasant surprise. I enjoy writing and teaching and international finance is one of my hobbies. Sounds boring ??? NO way, read the article and see how exciting it can be when you try to figure out whether you are going to get the million dollar check or not.

Letters of credit and Air Transport

Most letter of credit transactions required marine shipments for which shipping documents have been issued for thousands of years. Dealing with air transport documents is special and this speciality can cost you. If the bank finds discrepancies between the document you show it and the document as is stipulated under the letter of credit that is supposed to get you your money, then the bank will flat out refuse to pay you and your carefully hedged export business will fail, with a crash.

Under an LC the seller gets paid when he or she presents the documents prescribed by the letter of credit to his or her bank. As mentioned above, when the bank finds a discrepancy it will not pay. That is a reason to look carefully how air transport documents need to be issued.

The good news is that it is irrelevant whether the document is named airway bill of lading, consignment note or House Air Waybill. However, it is important that the issuer promises to get your shipment from the airport of departure to the airport of destination. Getting your shipment from A to B does not mean the issuer acts as a freight forwarder. A carrier promises to carry your shipment from A to B either him or herself or with the help of subcontractors. A freigth forwarder promises to organize your shipment to be carried by third parties who are responsible for the shipment. Documents issued by freight forwarders are not acceptable.
Freight forwarders call themselves freight forwarders even if they act as carriers, so the first step is to find out whethter the freight forwarder acted as carrier or as a freight fowarder.

Hence a shipping document needs to show who the carrier is. Here an example how to do it properly:
     Option A   Option B
Box: “Air Waybill issued by” XYZ Air   XYZ, Air, carrier

Box “Signature of Issuing   XYZ Air, carrier  XYZ Air, carrier
Carrier as its Agent”   signature   signature
          or
         XYZ Air (signature)


If you have the document signed by an agent of the carrier, follow these examples:
Letterhead:     XYZ Air,   ABC Co
     carrier    carrier

 

Signature box    ABC company  as agents of the above named
     as agent for    carrier
     XYZ Air
     signature   signature

If a shipping company does not mention in its letterhead that it is the carrier, an agent needs to sign as follows:

Letterhead: ABC Co

Signature Box: as agent for the
carrier ABC
signature


The above made examples seem contrived and overly technical, however, they are of utmost importance. If you want to find out more about shipping documents and letters of credit, you might want to ask your questions at the letter of credit forum

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