WHEN BANK IS CONSIGNEE IN THE LETTER OF CREDIT AND COLLECTION

One Benche member asked the question:

"If I as an exporter ship my goods by air or truck under an LC or documentary collection, and the buyers bank is ok with to be the consignee of the goods, what security does that give me as an exporter? If the buyers bank is ok with being the consignee, what happens thereafter? Does the forwarder or carrier contact the buyer's bank and say: "I have goods for you but you are a bank and thereby logically not normally a recepient of traded goods. What shall I do with the goods?" How is the issue with the goods solved between the buyers bank and the forwarder/carriers?

Another question: Even if the buyers bank is ok with being the consignee, would it not be a risk if my buyer is stated in the "Notify party" field of the AWB or CMR? Can't he find out where the goods is delivered and simply go and get it?"

The answers from the members explained different perspectives on this issue:

The AWB is not a document of title, is not a negotiable document and delivery is always to the named consignee without having to surrender of the document. Since It is not a negotiable documents, when the AWB's is consigned to the Bank, whether or not the bank was entitled to release the goods to the buyer is a different issue. If goods were consigned to the bank technically the goods could only be released with the permission of the bank and I believe this might give you some comfort. However it may also be a problem to you due to delay by whatever reasons that the bank as consignee is not willing endorse and authorise to release the goods as they have no obligation to do so.

Under normal circumstances the forwarder or carrier at the destination port will be advised whom should they contact for delivery and the party will not be the bank even the AWB is consigned to the bank. If the forwarder or carrier contact the bank for delivery, the bank will not act on it if they have not received any instruction from the buyer.

In practice the forwarder or carrier will contact the buyer for delivery and when the AWB is consigned to the bank, they will request the buyer to get the bank's authorisation to release the goods. However as mentioned earlier, the bank has no obligation to do so and it will depend the banks policy. However there are also cases when goods are delivered directly to the buyer without the banks intervention even though AWB is consigned to the bank. Under this circumstance the bank should not be held liable.

Banks do not deal of the delivery of goods and have no obligation to release the goods. What happen to your goods will fall back on the contract of carriage with the forwarder or carrier and this have nothing to do with the banks even AWB is consigned to them. Generally the air consignment should be used if you have no doubt with the buyer integrity and by consigning the AWB to the bank will only give you some comfort and not security over the goods.

The Containers - Photo by Tam Nguyen

Depending on whether your L/C is available by negotiation or by payment you have different degrees of risk. In the case of a L/C available by negotiation, provided all documents presented to your bank (the negotiating bank) are strictly in accordance to the L/C, you will be paid (up to five working days normally) after you present your documents. In the case of a L/C available by payment (which many people discourage since the responsibility of payment rests with a foreign entity, with foreign laws, albeit that the L/C is subject to ICC600) the issuing bank is responsible for paying you (again provided the documents presented are strictly in accordance to the L/C terms.

 Source:
http://www.thebenche.com/blogs/awalker/292-exporter-risks-when-bank-consignee-letter-credit.html