Read the intense and open minded discussion on a number of LC issues:

• Topic1; UCP 600 article 20:
  On board notations on Bills of lading according to UCP 600
• Topic2; ISBP para 158:
  Original railway bills
• Topic3; UCP 600 article 20(a)(v):
   Terms an conditions of carriage
• Topic4; Freight forwarders and NVOCC’s
• Topic5; Changes in International standard banking practice
• Topic6; Sheilars background

Recently I have read many articles from the prestigious LC Views website, most of which, especially yours are quite helpful and valuable for my work in a bank. Frankly speaking, it’s amazing to read your words about LC.

As for UCP 600 and ISBP 681, there is something really uncertain for me, about which

Maybe you can give me some explanation.

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According to UCP 500 Art. 23, if the bill of lading indicates a place of receipt different from the port of loading, the on board notation must also include the port of loading stipulated in the Credits and the name of the vessel on which the goods have been Loaded. However, these wordings have disappeared in UCP 600 Art. 20. Does it imply that under UCP 600, on board notation without indication of port of loading or the name of vessel is O.K. even if the place of receipt is different from the port of loading?

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The first sentence in ISBP 681 paragraph 158 shows that only rail and inland Waterway transport document will be accepted as original whether or not it is marked as original. Compared with ISBP 645, this used to apply to three transport documents including road transport document. Is it a change or merely a mistake in typing?

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With reference to UCP 600 Art. 20(a)(v), contents of terms and conditions of carriage will not be examined. However, if some terms indicated on the surface of bill of lading like “Goods will only be delivered against issuing bank’s guarantee” has unfavorably affected the function of bill of lading, should the bank still disregard this?

Thanks for your e-mail and your kind words.

I can see that you surely know how to point out the soft spots :-) So let me try to provide my view of things (without any responsibility or liability):

My view is that this rule has been removed - and therefore does not apply anymore.

If you look at ISBP (2003) you will see that paragraph 82 (Hong Kong CY versus Hong Kong) has not been carried forward to ISBP (2007) - since this was linked to UCP 500, article 23(a)(ii) - paragraph 5 to me this underline the view that the rules does not apply anymore.

So as far as I am concerned the on board notation should comply with UCP 600 article 20(a)(ii).

I guess the tricky part is that there have been quite many views - and much discussion on this one - so it is still open how the "practical interpretation" of this will be. We will only find that out when e.g. someone puts a query on this one to the ICC.

Again: good question.

I think that the ISBP words you quote (based on UCP 600, article 24(b)(ii) and (iii)) are inserted to underline that it is industry practice to issue them this way. As far as I can tell this is superfluous as the originality is based on article 17 - which does not require that all originals are marked originals – but merely gives this as one way on making the a document “original”.

So my personal view is that any transport document must be originals according to article 17.

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Good one :-)

The purpose of the article that you quote is that banks are not to read all the small print on the transport document.

If there is a clear and visible clause that indicates that the bill of lading presented is not enough to obtain release of the goods - my view would be that such is not acceptable.

Also please note ISBP (2007) paragraph 114.

Best regards

Kim

Your brilliant opinion on UCP 600 helped me in my lecture training for our customers last Saturday. They have many queries on transportation documents, especially on forwarder’s bill of lading.

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As there is nothing specific in UCP and ISBP to describe the characteristics of such documents, the concept of “freight forwarder” is quite confusing. How can we know that a bill of lading is issued by a forwarder? Is it judged merely by the issuer’s name (e.g. “xxx agency” or “xx logistic”) or something else? Although ICC Publication no.632 R225 refers to such bill of lading, the relative analysis of ICC however puts focus on the circumstances

how forwarder’s bill of lading should be signed without mentioning the features of the

issuer – in this case the forwarder.

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Sheilar from China

Kim from Denmark:

Dear Sheilar,

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The above is taken from my new power point slides on freight forwarders. They are part of a seminar I am holding in September for exporters and transport companies regarding transport documents versus documentary credits. You are the first to see this - and it might be subject to changes - but I expect that the core conclusions will help you.

In any case ICC opinions TA.572 and TA.621 is important in the understanding of how the LC bankers perceive the freight forwarder.

I would also like to refer to two articles on this issue:

• DCInsight Vol. 11 No.3 July - September 2005: End the fuss about transport documents issued by forwarders
  Although acknowledging the current practice – I suggest a new one – as far as I can see much more in line with industry practice – and common sense for that matter.
   
• DC World Volume 11, Number 7 (July/August 2007): The logic of UCP logic
  Where I discuss TA.621 – and analyze the ways to argue in this specific matter.

So what I did in answering your questions - I searched for identical scenarios in the existing ICC publications. I was not able to find those - but did then rely on ISBP (2007) paragraph 114 - and applied the same principle. On this one you may in fact argue both ways - and if you are in a dispute you may present a query to the ICC - in order to establish precise on that exact issue.

Thanks very much for your kind and generous help. For me, it's not so easy to obtain material of ICC opinion. But you have offered me so much.

I am so sorry to have bothered you when you were busy with your work yesterday. I can feel your enthusiasm for this field of LC.

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I like the slides very much, which display what you want to say more easily to understand. As far as I concerned the reason why ICC emphasizes the capacity in relation to a transport document with "freight forwarder" is that this is a easily operational way for bankers to examine documents, compared with the effort to identify the nature of the issuer( e.g. to tell whether or not they are issued by forwarder.) isn't it?

I'm reading your new article the Logic of UCP Logic. I do have some idea about that. But please give me more time to read it carefully. Once I have a clear idea about it, I will let you know.

Sheilar from China

Kim from Denmark:

Thanks - glad you liked it. Any comments are highly appreciated.

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As time has progressed this has changed - so that the freight forwarder offers services in their own name - assuming the full responsibility (e.g. “as carrier”). So what I am trying with my articles is to make the banking community understand this - so that they will change the perception of the freight forwarder - and thereby change "practice".

The big challenge is - that there may be huge regional differences between freight forwarders. In the Nordic countries the freight forwarder is highly regulated - and there is mandatory liability insurance. In the Middle East however it is not regulated at all - and everyone can call themselves a freight forwarder - which of course makes it more risky - and which is the reason for the reluctance towards the freight forwarder in that part of the world.

Best regards

Kim

Sheilar from China:

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Is "NOVCC" a developed form of freight forwarder? Your articles do not mention that. In China, NOVCC is not a brand new term at all. There are also such documents issued by NOVCC signed “as carrier”, which seems to be practice in this industry.

However, the great concern of the public about such documents, is that it does not provide enough protection to the shipper (or applicant of credits) when he suffer loss due to the default of the actual carriage carrier. This has also been pointed out in articles by T.O. Lee. In this case, as the shipper is not the contract party in the carriage contract with the actual carrier, he can not file a claim against the actual carrier nor against the insurance company if he wanted to. The insurance company inclines to dishonor the claim of the shipper when it finds that the shipper isn't the direct contract party in the contract with the actual carrier, and consequently without the right to claim on the real carrier. The refusal of the insurance company is due to the worry that it would not have subrogation rights against the real carrier if it pays to the shipper. This seems the real problem with such documents issued by NOVCC. Such issue has also been disclosed in some Chinese articles. In this regard, is there any solution to protect the interest of shipper or applicant of credit so that such document would be accepted without any concern? I'm not sure whether this problem remains in all "carrier type" bill of lading issued by freight forwarder.

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Kim from Denmark:

Thanks for your e-mail. Very interesting and appreciated.

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I think that your concerns regarding the freight forwarder is relevant - but I think that there is one focus that you should maintain: Documents presented under an LC - are to be examined by bankers - who are not transport experts. Therefore all these arguments regarding "protection", "insurance companies" etc. may be correct - but make only little sense in the process of examining the documents. This is what I was trying to say under the "industry logic" paragraph in the article "logic of UCP logic".

I know T.O. Lee of course - and I am sure that within the LC community he is most likely the expert that knows most of e.g. transport and insurance. This is valid knowledge - but the principles for examining LC documents must be based on the fact that this process is carried out by bankers - who are not transport experts.

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NVOCC - means "non-vessel-operating-common-carrier"; i.e. a company that assumes carrier responsibility without being the actual owner of the vessel. (This is sometimes referred to as contracting carrier).

Compared to the freight forwarder you can say the following:

The freight forwarder is a company that performs a number of transport related tasks - and assumes all kinds of "responsibilities". The Nordic rules for freight forwarders make a distinction between "intermediary" and "carrier". So a NVOCC may in fact be a freight forwarder who has assumed that function - for a specific transport. A NVOCC may however also be another "type" of company.

As for how the parties are protected when a freight forwarder acts "as carrier". What you mention may be correct in some parts of the world - like in China or for that matter Saudi Arabia. It is however not true in the Nordic Countries. Here the freight forwarder is highly regulated - and subject to mandatory insurance.

You should also bear in mind that there exist huge freight forwarding companies - where it would never be questioned if they were reliable. At the same time you may have "back ally shipping lines" - that even though they sign "as carrier" - I would not place my bets on them :-)

See also various LC texts from Middle East banks - which say that bill's of lading issued by certain named shipping lines, are not acceptable. These "lists" are based on specific experience - and by no means limited to "freight forwarders".

So my conclusion is that it is simply impossible for the LC banker examining the documents to know whether or not the "company" signing the transport document "as carrier" is trustworthy or not – or for that matter how a potential case would be solved – as that would depend on applicable law.

Therefore to answer you question - as to what to do about it: Well if you suspect that this may be a problem - then be as specific as you can in the LC. For example say who exactly is to issue the transport documents; i.e. the one with whom the contract of carriage has been made.

Sheilar from China:

Thanks for your kind words. They are helpful and convincing.

My job is about import/export documents, trade finance and agency of cargo insurance as well. Though it may be trivial and tiresome to some, I like it very much. I also like to write articles for Foreign Exchange (in Chinese) and Foreign Trade and Practice (in Chinese). According to my experience, better knowledge of transportation documents, insurance and international laws will do well to my work, especially to risk assessment in trade finance and consulting service for our customers, however somewhat irrelevant to document examining. Customers expect bankers to be professional not only in international banking, but also in other relevant aspects. This is why I need something about forwarder. On the other hand, thanks for your kind advice on my role ---It reminds me not to get deeply involved with the customers business. I'm a banker after all. Maybe this is the principle I need to keep in my mind.

Kim from Denmark:

Thanks a lot for the kind words.

No need to apologize for anything.

Interesting to hear about your job. To me it sounds interesting too. Good to hear that you write articles too - one more argument to improve my Chinese...

I think it is true that the better knowledge you have of transport, insurance etc. - the better you do these kinds of jobs.

I think that the trick is to find the right balance. I hear bankers using phrases like "I am only a stupid banker" - like saying that they do not need to know anything - you will also meet bankers that argue like I try to illustrate in the "logic of UCP logic" article using core "industry arguments" on LC issues.

So to me it is a question of knowledge and balance. So no problem demonstrating to your customers that you know what goes on in e.g. the insurance industry - as long as you can also tell what is the LC practice and rules on the issue in question.

Thanks

Kim

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