Q
2011/01 – ‘Can you tolerate this?’

Our company is in the business of trading and exporting lumber
or non processed wood, mostly but not necessarily hardwoods.On
occasions we also trade in lumber handling or wood processing
equipment. Many of our transactions are secured by Confirmed
Letters of Credit and we regularly encounter problems when we
present invoices which evidence values or quantities slightly
different to what is stated in the goods description in the LC.

vincent_o_Brien

The treatment of this situation by different banks

is often inconsistent and causes
frustration. Here
are some
specific cases. When a lot of money is
involved the consequences can be serious
especially
in the current
turbulent trading environment.

 

 

Case
I.

 

LC
was for an amount of USD330,000.00 allowing a
tolerance in amount of ‘+/- 5%’ We
effected a part
shipment
of lumber and invoiced for the value of
USD310,000.00. The bank claimed this
presented
invoice was
discrepant as the invoice amount was
below the tolerance of 5% allowed in
the LC.
The LC was
silent regarding part shipments being
allowed or not. Do you agree with
this claimed
discrepancy?

Case 2.

LC
was for an amount of USD1.5m but was silent concerning
tolerances in respect of the value or the quantity of
the goods and inthis LC part
shipment was ‘not allowed’. The goods description in the LC
describe the goods in
terms
of ‘tonnes of lumber . We made one shipment and presentation of
documents within the validity
of the Credit. The invoice presented showed a weight
of 98%of the quantity of the goods stated in the LC and the
dollar amount was on a pro-rata
basis in the amount of USD1,470,000.00.This was also considered
a discrepancy
by a
different bank under a separate LC. As far as our company is
concerned, we effected a full shipment within
the tolerances allowable in UCP for
the quantity of goods. Is the invoiced shipment for 98% of the
quantity and
value of
goods specified in the LC a valid discrepancy when part shipment
is not allowed and the LC is silent
in respect of any tolerances?We await your reply.

 


Answer

You should not tolerate these
claimed discrepancies and I will tell you why!

Case 1.

I
disagree with the bank. The Credit allowed for a

tolerance

of 5% in the amount available under the Credit and was silent in
respect of part shipment allowed or not allowed. Remember, under
UCP 600, sub-article 31 (a), ‘partial drawings or shipments are
allowed’

case1

You
effected a first partial shipment valued at
USD310,000.00.
There is no discrepancy.
Even
if the part shipment was only valued at
USD31,000.00 it would have been
acceptable and you could make further part shipments within the
validity and up to the maximum amount available under the Credit
(USD330,000.00 x 105% = USD346,500.00.) If the bank wanted to
receive a presentation for goods shipped only within the
restricted tolerance of 5% more or less of the amount of the
Credit then the Credit should
have stated ‘USD330,000.00 allowing tolerance of ‘+/- 5%’
with part shipment not allowed

 

 

Case 2.
Even
though part shipment is not allowed in this second case,
theinvoice which evidences shipment of 98% of the quantity of
the goods and in turn 98% of the value of the goods is
acceptable.

case2

Please
note that a tolerance of 5% more or 5% less is permissiblein
respect of the quantity of the goods under UCP 600,
sub-article30 (b) ‘A tolerance not to exceed 5% more or 5% less
than thequantity of the goods is allowed’.However, from a
practical perspective please remember that this
tolerance is applicable when goods are
described in the Credit in terms of volume or weight or
measurement as in this particular case. Should you be making a
shipment in the future of individual items of equipment or
packed machinery you should also remember that UCP 600, sub-
article 30 (b) has a proviso in respect of this tolerance
‘provided the credit does not state the quantity in terms of a
stipulated number of packing units or individual items and the
total amount of the drawings does not exceed the amount of the
credit’ Dealing with these invalid discrepancies must be
‘intolerable’ but
then
again as you are in the lumber business, you are probablyquite
accustomed to dealing with ‘dead-wood’ on a daily basis!
Case 1.
I disagree with the bank. The Credit allowed for a
tolerance of 5% in the amount available under the Credit
and was silent in respect of part shipment allowed or not
allowed. Remember, under UCP 600, sub-article 31 (a),
‘partial drawings or shipments are allowed’.

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