Tuesday, November 29, 2016

UCP standards for the examination of transport documents[1]

Transportation of goods is the lifeline that international trade depends on. It is a key segment of the logistics that connect the seller with the buyer across the globe. It includes several diverse elements.  A whole range of rules, regulations and practices apply to the process of transportation. One also need to know, among others, about marine insurance, and the rules governing documentary credit operations that relate especially to the transportation of goods.

Transport documents and the UCP
Several articles of UCP 600 (Uniform Customs and Practice for Documentary Credits) – a publication of the International Chamber of Commerce (ICC), Paris – deal with transport documents. Articles 19 to 24 explain the various forms of transport document. Article no. 25 describes receipts (however named) evidencing the acceptance of goods for despatch to a named destination. Articles 26, 27, 31 and 32 address other issues related to the transportation of goods. The examination of transport documents is ostensibly covered under a few sub-sections of Article 14 of the UCP.

I say ‘ostensibly’ because the norms and standards for the examination of transport documents are by no means limited to the UCP. A casual perusal of ISBP 745 (International Standard Banking Practice for the Examination of Documents under UCP 600 - another ICC Publication) is sure to throw up surprises aplenty – not only for the applicant, issuing or examining banks, exporters or importers - but for many of the documentary credit practitioners. As if the provisions in the UCP were not enough of a problem for those dealing with original transport documents, anyone seeking to include copies of transport documents in documentary credit operations better read the ISBP very carefully before proceeding further. (The UCP itself does not address issues relating to copies of transport documents.)
The following is a collation of the more important provisions of the UCP and the ISBP with regard to transport documents (original and copy), and the rules for their examination under documentary credits.

Original transport documents
Article 14(c) of the UCP reads thus:
A presentation including one or more original transport documents subject to articles 19, 20, 21, 22, 23, 24 or 25 must be made by or on behalf of the beneficiary not later than 21 calendar days after the date of shipment as described in these rules, but in any event not later than the expiry date of the credit.

What remains unstated (clarified only in ISBP 745), is that the 21-days stipulation is the default option. Under the UCP, the issuing bank is free to modify this period to lesser or more number of days. (Caution: If last date is set to beyond 21 days, it may invite unintended consequences!)

Sub-article 14(f) excludes transport documents from matters relating to issuer’s name and data content. These are addressed elsewhere, under sub-article 14(l), quoted below:
A transport document may be issued by any party other than a carrier, owner, master or charterer provided that the transport document meets the requirements of articles 19, 20, 21, 22, 23, or 24 of these rules.

As stated earlier, several UCP articles – from article number 19 onwards – are devoted to transport documents. Important components like who can issue a transport document, what constitutes shipment date and so on are defined in detail.
But what about copies of transport documents? How are these to be handled or processed? What are the responsibilities and obligations, if any, of the applicant, the scrutinising banks or other related parties as far as copies of transport documents are concerned? Nothing can be found in the UCP on these issues. In fact, references to transport documents is qualified only at one place (sub-article 14.c) to state that the UCP provision applies to ‘original’ transport document. More often than not, this subtle, low key reference is likely to be overlooked by a reader. Other references to transport documents in that article do not state that the provisions apply only to originals, not to copies.

Copies of transport documents
The clarification that one seeks is to be found only when one refers to the provisions of the ISBP. Here are the relevant provisions from Article A6 of ISBP 745:
a.      When a credit requires the presentation of a copy of a transport document covered by UCP 600 articles 19-25, the relevant article is not applicable, as these articles only apply to original transport documents. A copy of a transport document is to be examined only to the extent expressly stated in the credit, otherwise according to UCP 600 sub-article 14(f).
b.      Any data shown on a copy of a transport document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit.
c.      Copies of transport documents covered by UCP 600 articles 19-25 are not subject to the default presentation period of 21 calendar days stated in UCP 600 sub- article 14(c) or any presentation period stated in the credit, unless the credit explicitly states the basis for determining such presentation period. Otherwise, a presentation may be made at any time, but in any event no later than the expiry date of the credit.

Sub-article A18.b.ii of the ISBP practically repeats what is already stated in Article A6.a above, thus:
The default presentation period of 21 calendar days stated in UCP 600 sub-article 14(c) only applies to a presentation including one or more original transport documents covered by UCP 600 articles 19-25.

I wonder why the provision quoted immediately above was not added to article 14(c) in the UCP where it really belongs. Apart from acting as a trigger, it could have been of immense help to those for whom the ISBP is yet another mountain to climb.

Reverting to the ISBP provisions quoted above:
  1. ISBP clarifies that the 21 calendar days limit stated in UCP 600 sub-article 14(c) is the default period which is applicable only to original transport documents.
  2. In a credit the presentation period is usually stipulated using the date of shipment as the point of reference, thus: ‘Documents should be presented within X days from the date of shipment, but no later than etc….’. This stipulation of the presentation period in the credit does not apply if the transport document does not include an original but is only a copy.
  3. The concept of ‘data-conflict’ (sub-article 14.d of UCP 600) applies to all transport documents, not only to originals but also to copies.
  4. Documents which are not defined by the UCP as ‘transport documents’ are to be examined only under sub-article 14(f) of the UCP.
These are NOT transport documents
Certain documents commonly used in relation to the transportation of goods should not be confused with what the UCP defines as ‘transport document’. Those are not ‘transport documents’ as defined in UCP 600 articles 19-25. Such documents include (but are not limited to) delivery note, delivery order, cargo receipt, mate’s receipt, forwarder’s certificate of receipt, forwarder’s certificate of shipment, forwarder’s certificate of transport, forwarder’s cargo receipt (ref.: sub-section A18 of the ISBP). Therefore:
a.      The default provision of 21-calendar days (as laid down in sub-article 14.c of UCP 600), or limiting the presentation period using the date of shipment as the basis for its calculation, does not apply to the documents such as mate’s receipt etc. referred above.
b.      Hence, these documents are to be examined only to the extent expressly stated in the credit, otherwise according to UCP 600 sub-article 14(f).

With regard to presentations based on these documents (not defined as a transport document by the ISBP) sub-article A18.b.i states:
… a condition of a credit that presentation is to occur within a certain number of days after the date of shipment will be disregarded, and presentation may be made at any time, but in any event no later than the expiry date of the credit.

Of course, if the issuer still wishes to limit the period of presentation, sub-article A18.c of the ISBP offers a solution, thus:
For a presentation period to apply to a document referred to in paragraph A18(a), the credit should specify that presentation is to be made within a certain number of days after the issuance date of the respective document, or a date that is to be mentioned in the document (for example, when a credit requires the presentation of a document titled cargo receipt, ‘documents to be presented no later than 10 days after the date of the cargo receipt’, or, ‘documents to be presented not later than ddmmyy’).

The purpose of a courier receipt
Regarding courier receipts, postal receipts or certificate of posting certain clarifications may be in order. Article 25 of UCP 600 defines these documents as transport documents. However, credits often require the presentation of courier receipts etc. for other purposes as per the LC terms – say, for example, as proof of having despatched copies of documents A, B, C direct to the applicant within ‘x’ days of shipment. In such situations, it is obvious that these documents then are not fulfilling the function of a transport document. Article A10 of the ISBP therefore stipulates that:
When a credit requires the presentation of a document as evidence of sending documents, notices and the like to a named or described entity, in the form of a courier receipt, post receipt or certificate of posting, such document is to be examined only to the extent expressly stated in the credit, otherwise according to UCP 600 sub-article 14(f) and not under UCP 600 article 25.
Scrutinising banks and beneficiaries are advised to take note of this distinction.

Presentation of original transport documents
With regard to presentation of original transport documents, the rules (under A29 of the ISBP) are as follows:
  1. The number of originals to be presented is to be at least the number required by the credit or UCP 600.
  2. When a transport document or insurance document indicates how many originals have been issued, the number of originals stated on the document is to be presented, except as stated in paragraphs H12) and J7)(c) of the ISBP.
  3. When a credit requires presentation of less than a full set of original transport documents, (for example, “2/3 original bills of lading”), but does not provide any disposal instructions for the remaining original bill of lading, a presentation may include 3/3 original bills of lading.
Article A.30.b
When a credit requires the presentation of a copy of a transport document and indicates a disposal instruction for all originals of that document, a presentation is not to include any original of such document.
Article A37
The fact that a document has a box, field or space for a signature does not in itself mean that such box, field or space is to be completed with a signature. For example, a signature is not required in the space titled “Signature of shipper or their agent” commonly found on an air waybill or “Signature of shipper” on a road transport document. Also see paragraph A17) in respect of the requirements for data to appear in a box, field or space.

‘Transhipment prohibited’ - really?
Finally, about transhipment. Credits often prohibit transhipment (SWIFT MT700 Field 43T). While doing so, the issuing banks may, hopefully, keep in mind this gentle warning in sub-paragraph (vi) of the opening section of ISBP 745 titled ‘Preliminary considerations’:
… a credit requiring presentation of a bill of lading and containing a prohibition against transhipment will, in most cases, have to exclude UCP 600 sub-article 20(c) to make the prohibition against transhipment effective.

The UCP sub-article 20.c is quoted here for ready reference:
                     i.       A bill of lading may indicate that the goods will or may be transhipped provided that the entire carriage is covered by one and the same bill of lading.
                    ii.       A bill of lading indicating that transhipment will or may take place is acceptable, even if the credit prohibits transhipment, if the goods have been shipped in a container, trailer or LASH barge as evidenced by the bill of lading.

How to distinguish between BL and MTD
On occasions, a letter of credit or a transport document may stipulate the following:
i)       a place of receipt
ii)      a place of loading (possibly different from the place of receipt)
iii)    an indication of a means of pre-carriage
iv)    port of discharge
v)     final destination or a place of delivery of the consignment

Article D2 of ISBP 745 tells us that the transport document need not be titled ‘multimodal transport document’ (MTD/MMTD) or ‘combined transport document’ (CTD) or a bill of lading (BL) even when the credit names the required document. Our approach should, therefore, follow the principle stated in sub-article 14(f), viz., the content of the document presented should fulfil the function of required document. The critical issue, however, is how to interpret the contents of a transport document in order to arrive at the correct conclusion.
UCP articles 19 and 20 lay down the ground rules applicable to MTD and BL respectively. Extensive coverage (with examples) can be found under Section D (for MTD) and Section E (for BL) of the ISBP. The method to distinguish a MTD from a BL is embedded in several sub-articles of the UCP and ISBP where the litmus test ought to include the following issues[2] with regard to any such document:
a)     notations in respect of places of receipt and delivery
b)     notations in respect of port of loading and discharge
c)     notations in relation to vessel’s name
d)     notations in respect of shipment date
e)     notations with regard to freight (what charges are included or excluded).

Answers to the above may help us to distinguish a MTD from a bill of lading, and thereby help us in proper application of the relevant provisions of the UCP & the ISBP. For a better understanding of the applicable rules, a close study of both these ICC documents is, therefore, strongly recommended.

[1] Published in Indian Engineering Exports, Vol. 9 Issue no. 6, September 2016, and Trade Services Update, Denmark, Volume 18, Issue 3, July-September 2016.
[2] For more information refer to http://www.lcviews.com/index.php?page_id=18

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