Retrospection
An export company A signed an export contract with an importer
in India valued more than $60,000, the trade term was CFR NEW
DELHI BY AIR and payment by 100% irrevocable sight L/C. The
importer opened a letter of credit through a Indian commercial
bank, and the notifying bank and negotiating bank were both
domestic banks and the trade term was "CNF NEW DELHI"
Company A didn't concern about this at the moment and they shipped
the cargo, handed over all the documents and transacted negotiation.
However, the negotiating bank received the protest note from
the issuing bank for the reason of L/C discrepancy: the price
term in the commercial invoice was CFR NEW DELHI, while the
trade term in L/C was CNR NEW DELHI. Receiving the note, company
A contacted the importer immediately and required payment against
documents; Meanwhile they faxed the issuing bank through negotiating
bank, declared the discrepancy invalid and required payment
under UCP500. But the importer and the issuing bank ignored
it, and then company A contacted the carrier and noted that
the cargo had been picked up. Under this very passive circumstances
company A had to agree the requirement of 20% price reduction.
Analysis
The main reason for the passive condition of company A was
that they lost the property of goods before they got the payment
which is the specialty of air bill of lading.
L/C takes the advantage of bank credit guarantee, the buyer
can't pick up the cargo until he pays for it, which can be
achieved under the sea freight shipment, because ocean bill
of lading is the voucher of the goods property, the buyer
can pick up the goods only by paying against the ocean bill
of lading. However, air way bill can't not be the voucher
of the property, it's only a transporting contract between
the carrier and the shipper or the receipt of the goods issued
by the agent. The consignee can pick up the goods with the
arrival notice and identity proof. As a result, it is unsecured
for the seller to be paid by L/C.
Preventive
measures
A Combine other methods of payment together and detract risk.
For example require the shipper to pay a certain part of money
before shipment
B Review the importer's credit very carefully, including financial
situation, operation, and payment records, check his credit
limit and determine the contract amount.
C Check the credit of issuing bank strictly, and add confirmation
to the L/C when it's necessary
D Require delivery in batches if the amount of goods is too
large.
E Describe the consignee of the air waybill as TO ORDER OR
TO THE ORDER OF THE ISSUING/REIMBURSING BANK.
F Examine the documents carefully and keep all the documents
consistently, request closely cooperation of the negotiating
bank£¬when the accident occurs, contend for the initiative
with the issuing bank. Handle these affairs in accordance
with UCP500 and other relevant international practices and
protect our legitimate rights.
G Keep close contact with the carrier and the destination
agent, exporters can require returning the goods, changing
the consignee or destination when the accident occurs before
the delivery of goods.
H Insure the export credit insurance which can protect domestic
exporters from the loss of commercial or political risk of
foreign importers.
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