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| The Containers - Photo by Tam Nguyen |
The
Basics of Shipment Logistics
A transport document is required to
get products moved logistically from place of origin to destination in the most
direct route possible. A documentary letter of credit (LC) will require a
transport document as proof that the exporter has sent the required goods in
the manner agreed upon between the buyer and seller. The opening bank will
stipulate the consignment instructions of the transport documentand
distribution of the ‘original’ document. These instructions reflect the risk
the bank is willing to take and the standard import procedures at destination.
Banks will also consider the time required to present negotiable documents to
the advising and opening banks and the transportation cycle of the goods.
Documents
Prepared for Consignment
There are two types of transport
documents, namely negotiable and non-negotiable. Non-negotiable documents frequently
used are: the airway bill, forwarders’ cargo receipt, and truck bill of lading.
The ocean bill of lading is the most common negotiable document, but is only
negotiable when the consignment area of the bill of lading is preceded with the
words “To order.” Express bills of lading consigned directly to the buyer or
other party, are not negotiable documents.
The difference between a
non-negotiable document and a negotiable document is that a negotiable document
actually transfers title of the goods once one ‘original’ of the document is
endorsed and surrendered to the buyer. Though the original bills of lading
traditionally come in a set of three originals, the endorsement of only one of
the originals is sufficient to pass title. This is evidenced by the statement
on the bill of lading: “Bill of lading issued in three (3) originals, one being
accomplished the others to stand void.”
Ocean
Bills of Lading
When shipping overseas, most letters
of credit will require a full set of ocean bills of lading (OBL) to be prepared
in negotiable form for presentation to the bank. This is strictly a condition
decided by the opening bank based on credit worthiness of the buyer and common
customs practices at destination. The process of securing a clean ‘on board’
ocean bill of lading can take from days to weeks depending on the complexity of
the shipment and the logistics. The bill of lading generally will go through
several proofing processes before it is released to assure the accuracy of
compliance with not only the piece count, weights and measures, but for LC
language and statement compliance. Once the OBL is secured, more time will be
required for preparation of documents and courier delivery to the negotiating
bank. It is clear that this process can be very lengthy and may take a better
part of the default negotiation period of 21 days. On the other hand, some
destinations and trade routes can be a very short time span, requiring about a
week, more or less, for the cargo to reach its intended destination. The cargo
is in port and needs to be claimed by the buyer but the opening bank has not
yet notified the buyer of the arrival of documents. It is easy to see how this
could lead to a series of frantic communications between the buyer and seller
as to the fate of the impending shipment. The buyer may face demurrage or
storage charges if the document situation is not resolved quickly.
This potential dilemma can be
avoided. Copies of documents in advance of the arrival of the shipment will
allow the buyer to put the clearance process of securing the goods in motion.
In this type of situation, the bank may elect to have one original bill of
lading sent directly to the buyer in advance of the bank documents for
clearance purposes. Another possible solution is to straight consign the bill
of lading making it non-negotiable. All of these options are a possibility but
the risk and the design of this ‘fix’ is exclusively in the hands of the
opening bank. The bank will decide what risks, if any, are appropriate based on
the buyers’ history. This type of scenario can be addressed with the bank in
advance of the shipment allowing a smooth transition and harmonized
coordination of the goods and the documents. A shipment not under a LC is the
decision of the seller. If a seller wishes to transfer title, they need only
state “to order”, in the consignee field. A shipment that has been paid in
advance or under open account arrangements can be treated as a non-negotiable
transport document. Airway Bills CPT, CIP, DAT, DAP, and DDP Incoterms®
rules for air shipments will most often require an air waybill. The scenario of
goods arriving before documents is not quite as dire as ocean cargo and
definitely more common. In fact, it is the nature of air cargo for this situation
to occur. The consignment of air waybills however can play an important role in
securing the goods and processing their release through customs at the
destination airport. The banks are not as concerned with the air consignment
instructions in an LC since it is a non-negotiable document, after all. Copies
of documents can be sent in advance to the buyer to start the customs
clearance process in motion just as in the case of ocean shipments. The
buyer can even have the goods released and delivered against copies of
documents long before the banks documents arrive. So why is this situation so
different and what about the payment to the seller? Is the exporter flirting
with a potential risk hazard of non-payment? The answer is no. There are
procedures for air cargo shipments that have been in place for many years. The
commercial invoice becomes the negotiable document in an air transaction. When
it comes to the consignment of an air waybill, it is best NOT to consign the
goods to a bank. Before going into hyperventilation, relax and consider the
operations of an airline import desk and the destination customs desk that are
nearby. Goods arrive consigned directly to an importer or buyer. Document
pouches generally consisting of an air waybill,invoice and packing list, are
sent to the import desk for notification to the potential importers of the
arrival of their shipment. Frequent importers will likely have an appointed
customs broker to intercede in the process on their behalf. The desk staff will
put each document set in the appropriate bin for the customs broker, importer,
and ‘other.’ The last of these bins is best avoided. The customs broker may be
the consignee or notify party. The bank could also be a notify party. Envision
each party being notified as instructed on the air waybill. We come to a bank
to be notified. Is an airline employee going to even attempt to get
in touch with a bank that may or may not have a telephone numbershown? Ok, in
our example, the phone number is shown and the LC department on the other end
of the line gives a less thanenthused ‘ok’ and hangs up. What was accomplished by
putting the bank on the air waybill as the consignee or notify party? It isn’t
likely the bank will be sending a truck over to pick up the goods.
In the case of the commercial
invoice becoming the negotiable document it is important to remember that only copies
of documents should move with goods having payment restrictions. The bank will
hold the original and will exchange it for money from the buyer. There is a
‘free time’ allowed for the exchange of money and documents to take place
Source:
http://www.tradetechnologies.com
