12/3/13 www.bonmarine.com/en/shipping/useful-information/l-c-terms

www.bonmarine.com/en/shipping/useful-information/l-c-terms 1/3

About us Services News E-bon Marine Careers Feedback Contacts Partners Useful Information GALLERY

ENGLISHHome | Login | Registration

Incoterms

L/C Terms

Charts of the Ports/ Channels

Types of containers

IMO Cargo classification

Bon Marine Shipping Agency Useful Information L/C Terms

L/C Terms

General Information about the Letter of Credit TermsThe documentary credit - letter of credit, documentary letter of credit, or commercial letter of credit - is anarrangement whereby the applicant (the importer) requests and instructs the issuing bank (the importer's bank) or the issuing bankacting on its own behalf,pays the beneficiary (the exporter) or accepts and pays the draft (bill of exchange) drawn by the beneficiary, orauthorizes the advising bank or the nominated bank to pay the beneficiary or to accept and pay the draft drawn by the beneficiary,orauthorizes the advising bank or the nominated bank to negotiate,against stipulated document(s), provided that the terms and conditions of the documentary credit are fully complied with.For purpose of maintaining uniformity in the text, the words "letter of credit", "credit" and "L/C" are used on this website to referto the documentary credit.Irrevocable versus Revocable Letters of CreditAletter of credit (L/C) can be irrevocable or revocable. The L/C usually indicates whether it is an irrevocable or revocable letter ofcredit. In the absence of such indication, the L/C is deemed to be irrevocable.Irrevocable Letter of Credit An irrevocable letter of credit cannot be amended or canceled without the consent of the issuing bank, the confirming bank, if any,and the beneficiary. The payment is guaranteed by the bank if the credit terms and conditions are fully met by the beneficiary. Thewords "irrevocable documentary credit" or "irrevocable credit" may be indicated in the L/C.In some cases, an irrevocable L/C received by the beneficiary may become invalid without the amendment or cancellation of such L/C,for example, when the trade between importing and exporting countries is suspended such as in a trade sanction, or when theissuing bank has ceased operation.Irrevocable and Without Recourse Letter of CreditThe irrevocable letter of credit received from an advising bank may be indicated as "irrevocable and without recourse documentarycredit". The words "without recourse" mean that the advising bank will not be able to recover the money paid to the beneficiary incase the issuing bank does not pay the advising bank.Revocable Letter of Credit A revocable letter of credit can be amended or canceled by the issuing bank at any time without the consent of the beneficiary,often at the request and on the instructions of the applicant. There is no security of payment in a revocable letter of credit (L/C). Thewords "this credit is subject to cancellation without notice", "revocable documentary credit" or "revocable credit"usually are indicated in the L/C.The revocable L/C was not uncommon in the 1970's and earlier when dealing with less developed countries. It is rarely seen thesedays in international trade.Confirmed Irrevocable versus Unconfirmed Irrevocable Letters of CreditConfirmed Irrevocable Letter of CreditAn irrevocable letter of credit (L/C) opened by an issuing bank whose authenticity has been confirmed by the advising bank andwhere the advising bank has added its confirmation to the credit is known as confirmed irrevocable letter of credit. The words "weconfirm the credit and hereby undertake ..." or "we add our confirmation to this credit and hereby undertake ..."normally are included in the L/C.An exporter whose method of payment is a confirmed irrevocable L/C is assured of payment even if the importer or the issuing bankdefaults. The confirmed irrevocable L/C is particularly important from buyers in a country which is economically or politically unstable.In a confirmed letter of credit, the exporter or the importer pays an extra charge called the confirmation fee, which may vary frombank to bank within a country. The fee usually is added to the exporter's account. The exporter may indicate in the sales contractthat the confirmation fee and other charges outside the seller's country are on the buyer's account.Unconfirmed Irrevocable Letter of Credit An irrevocable letter of credit (L/C) opened by an issuing bank in which the advising bank does not add its confirmation to the credit isknown as an unconfirmed irrevocable letter of credit. The promise to pay comes from the issuing bank only, unlike in aconfirmed irrevocable L/C where both the issuing bank and the advising bank promise to pay the beneficiary.Restricted Negotiable versus Freely Negotiable Letters of CreditRestricted Negotiable Letter of Credit In a restricted negotiable letter of credit, the authorization from the issuing bank to pay the beneficiary is restricted to aspecific nominated bank.Freely Negotiable Letter of Credit In a freely negotiable letter of credit, the authorization from the issuing bank to pay the beneficiary is not restricted to aspecific bank, any bank can be a nominated bank as long as the bank is willing to pay, to accept draft(s), to incur a deferred paymentundertaking, or to negotiate the L/C. The words "this credit is not restricted to any bank for negotiation" or "this credit

12/3/13 www.bonmarine.com/en/shipping/useful-information/l-c-terms

www.bonmarine.com/en/shipping/useful-information/l-c-terms 2/3

About us | Services | News | E-bon Marine | Careers | Feedback | Contacts | Partners | Useful Information | GALLERY

HOME BON MARINE HOLDING SA BON MARINE SHIPPING AGENCY BON MARINE LOGISTICS LOGISTICS - BON MARINE TERMINAL OPERATOR BON MARINE INTERNATIONAL SA

may be negotiated at any bank", or similar words, may be indicated on the L/C.Revolving Letter of CreditWhen a letter of credit (L/C) is specifically designated "revolving letter of credit", the amount involved when utilized is reinstated,that is, the amount becomes available again without issuing another L/C and usually under the same terms and conditions.The revolving L/C may be used in shipments of a wide range of goods to a buyer within a period of time (several months to one yearusually).Letter of Credit ParticularsLatest Negotiation Date The latest negotiation date is the last day of the period of time allowed by the letter of credit (L/C) for the presentation ofdocuments and/or draft(s) to the bank. The latest negotiation date is not necessarily the L/C expiry date.In case the L/C does not stipulate the latest negotiation, it is within 21 days after the date of issuance of the transport documents,but on or before the L/C expiry date.Expiry Date and Place The expiry date and place is the last day of validity of the credit and the place allowed by the letter of credit (L/C) for thepresentation of documents and/or draft(s) for payment, acceptance or negotiation.In case the validity of an L/C is stated in a period of time, for example "this credit is valid for three months" or "this credit is availablefor two months" or "this credit is good for one month", but does not specify the date from which the time is to run, its validity startsfrom the issuance date of L/C by the issuing bank. The bank normally discourages stating the L/C validity in a period of time.In case the expiry date and/or the latest negotiation date falls on a day on which the bank is closed for reasons not including the actsof God, strikes, riots, civil commotions, lockouts, insurrections, wars or any other causes beyond the bank's control, the expiry dateand/or the latest negotiation date is extended to the succeeding first day on which the bank is opened. Such extension, however,does not extend the latest date of shipment.Draft(s) Drawn OnThe draft(s) drawn on answers the question "Which bank or who is the drawee (the payer) of the draft?" The draft is most oftendrawn on the confirming bank or the issuing bank. In some cases, the draft is drawn on the applicant.Draft(s) Drawn AtThe draft(s) drawn at answers the question "The draft is drawn at what terms?" It can be a sight draft (i.e., payment on demandor on presentation) or a term draft (i.e., payment at a fixed or determinable future time).Draft(s) Drawn UnderThe draft(s) drawn under answers the question "The draft is drawn under which credit and the credit is of which bank?"Latest Shipment The latest shipment - latest date of shipment or last date for shipment - is the last day of the period of time allowed bythe letter of credit (L/C) for shipment, dispatch or taking in charge.Port or Point of Origin and Port or Point of Destination The port or point of origin is the port or place of loading, dispatch or taking in charge. The port or point of destination is theport or place of discharge or delivery. Some of the expressions that may appear in the letter of credit (L/C) indicating the origin andthe destination are:"shipment from ... to ...""dispatch from ... to ...""carriage from ... to ...""delivery from ... to ..." "forward from ... to ...""taken in charge at ... for transportation to ..."In practice, the letter of credit (L/C) often indicates an incorrect port or point of origin in the triangle trade. For example in thetriangle trade presentation, the flow chart shows that the third party ships the goods directly to the buyer. It is incorrect if the buyerstipulates in the L/C "shipment from Osaka to New York" or "shipment from Shenzhen to New York". Shenzhen is located inland.Export goods from Shenzhen usually are dispatched from Hong Kong. In such case, the correct stipulation would be "shipment fromHong Kong to New York". To avoid mistake and save the time and cost of a letter of credit amendment, it is important to indicate inthe Sales Confirmation (Pro Forma Invoice) the correct port or point of origin and port or point of destination.Other L/C Particulars Confirmed(please see Confirmed Irrevocable versus Unconfirmed Irrevocable Letters of Credit) Irrevocable(please see Irrevocable versus Revocable Letters of Credit) Transferable(please see Transferable versus Non-transferable Letters of Credit) Paying, Accepting or Negotiating BankThe nominated bank which:makes payment to the sight draft(s) drawn by the beneficiary is known as paying bank,accepts the term draft(s) drawn by the beneficiary is known as accepting bank,negotiates the draft(s) and/or documents presented by the beneficiary or bona fide holder is known as negotiating bank.When the bank negotiates the draft(s) and/or documents, that is, the negotiation, it gives value to such draft(s) and/ordocuments, not just examination of the documents. Partial ShipmentThe partial shipment - part shipment - is allowed, unless otherwise stipulated in the L/C.When shipments are made on different dates and/or different ports or points of origin, but the transport documents indicate thesame destination and bear the same means of conveyance for the same journey, they are not regarded as covering partialshipments.When shipments are made by post or by courier, if the post receipts or the courier's receipts bear the same date and place ofdispatch and have been authenticated by any stamp, signature, mark, or label, they are not regarded as partial shipment. Partial ShipmentThe prefix "trans-" means over or to the other side of. Transhipment or transshipment (written with two letter 's') - transitshipment - means a shipment destined to a port or an interior point (location or depot) is best reached by connecting shipment(s)from other port(s) and/or point(s). It is the unloading and reloading of cargo from one means of conveyance to another, in the sameor different modes of transportation, during the course of carriage from the place of shipment to the place of destination stipulated inthe letter of credit (L/C).Unless otherwise stipulated in the L/C, transhipment is allowed provided that the entire carriage is covered by one and the sametransport document.Some exporters refuse to accept transhipment because of a belief that it costs more and is slower than a direct shipment. Someimporters have the same belief. Contrary to this belief, by using transhipment the cost to certain destinations can be lower and it canbe faster than a direct shipment. For instance, the frequency of sailing to a certain destination in a direct shipment is once every twoweeks, but by transhipment to the same destination the frequency of sailing can be once or twice weekly. The point in such aninstance is that the greater the supply the lower the cost and the earlier the shipment the earlier the importer may receive the goods.In other words, transhipment may save cost and time.Most ocean freight are containerized in modern shipping. Hence, intermediate reloading of cargo is eliminated in the transhipment,which reduces the cost and time.The transhipment charge usually is included in the through freight rates, but the shipper must verify with the carrier to ensure that noadditional transhipment charge will be collected from the consignee.Multilateral agreements make the transhipment possible. With worldwide trades and new trading partners on the rise, new routes fortranshipment will emerge. For example, trades between Far East and CIS (Commonwealth of Independent States of former EasternBloc), the shipment traditionally passes through the Black Sea, but the transit time is shorter by transhipment via the Middle Eastcountry (e.g. Iran).Shipments from Asia and Europe to Central and South America, and vice versa, often require transhipment at ports in North America. Freight Prepaid or Freight CollectFreight PrepaidFreight prepaid means the freight has been paid or prepaid by the shipper. The trade terms CFR (C&F), CIF, DAF, CPT, CIP,DDU, DDP, DES, and DEQ require a prepayment of the cost of main carriage.In a prepaid delivery, the letter of credit (L/C) normally requires that the words "Freight Prepaid" be marked on the bill of lading(B/L), clearly indicating payment or prepayment of freight at port (or point) of origin. The mark may appear by stamp or be indicatedby other means. The words "freight to be prepaid" or "freight prepayable" or similar wording that may appear on the B/L donot prove that the freight has been paid.In a prepaid delivery by a courier, the transport document (i.e., the courier's receipt) issued by a courier or expedited deliveryservice must show that the courier charges have been paid or prepaid by the shipper.Freight CollectFreight collect means that the freight still has to be paid by the consignee. The trade terms FOB, FAS, EXW, and FCA require acollection of the cost of the main carriage.In a collect delivery, the letter of credit (L/C) normally requires that the words "Freight Collect" be marked on the bill of lading,clearly indicating freight payable at destination. The mark may appear by stamp or be indicated by other means.A collection charge usually is included in the freight rate or is collected separately. Hence, the freight charged on a collect basis isnormally higher than on a prepaid basis.