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
XYZ Air (signature)
If you have the document signed by an agent of the carrier, follow these examples:
Letterhead: XYZ Air, ABC Co
Signature box ABC company as agents of the above named
as agent for carrier
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
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