How to deal with LCL shipments under L/C

The ocean freight consolidators and container shipping lines offer LCL service on the following conditions:

Conditions CY/CFS – applicable when the shipper intends to pack the container with consignments for two or more consignees for the same destination. In this arrangement, the shipper shall pack the container at its premises and the carrier shall unpack the same at Destination Container Freight Station.

Conditions CFS/CFS – In this arrangement, the shipper shall deliver the LCL cargo to the  Container Freight Station for consolidation by carrier with other LCL consignments having the same destination. The carrier is responsible for packing the groupage container at Origin Container Freight Station and for unpacking the same at Destination Container Freight Station.

For LCL shipments made on the conditions CY/CFS the proof of delivery is in the form of Multimodal Transport Bill of Lading whilst for LCL shipments made on the conditions CFS/CFS, it is in the form of Port-to-Port Bill of Lading or alternatively, FIATA FCR and FCT.

Special Features of FIATA FCR issued for LCL shipments

The issuance of Bill of Lading for LCL shipments delivered FCA at Origin Container Freight Station is inappropriate because Port-to-Port Bill of Lading is not acceptable under L/C without “on board” notation. Hence, the need for FCR document in FCA sales of LCL cargoes made on L/C terms. Unfortunately, many exporters dealing on L/C basis are reluctant to ask for such document saying that there is no express provision in UCP about FCR document and that once the goods are delivered to the carrier nominated by the buyer they lost the control over goods having no assurance that the bank will not refuse the documents.   

Misuse of FIATA FCR in the steel trade and misunderstanding of its functions by exporters are among the factors that discourage its use with documentary credits. Then it is also the fact that many bankers do not have a clear understanding of the special features of FCR document, which is not a transport document but a receipt of the goods whereby the forwarder or shipping line agency, as the case may be, undertake to deliver the goods in accordance with the instructions made by the exporter.

In addition of delivery terms, the FCR document is required to show the name of forwarder or shipping agency, as the case may be, nominated in L/C, the issuing bank as consignee, the forwarding route and means of transport (in this case the name of vessel), all as per L/C terms.

The problem with FCR in L/Cs is that FCR does not attest the actual shipping of goods but only their reception for shipment by the forwarder or shipping agent, as the case may be. Since FCR is not a transport document the provisions of UCP for the determination of shipment date (UCP 600 art.19-25) are not applicable. However, whilst a latest date of shipment cannot be quoted, the L/C may include special conditions to refer to FCR date. In a FCA sale contracts where a FCR is agreed to be the proof of delivery, the date of delivery will be considered the date of issuance of FCR so that this date must be taken in consideration when completing L/C application. 
It is also necessary to state in the L/C a deadline for presentation of documents to the paying bank. The extent of such period of time depends on whether the L/C is available with the exporter's bank, in which case there is no need for much time to prepare the commercial invoice and packing list, or with the issuing bank, when the deadline should be longer so that the documents reach on time to the issuing bank.
The FCA buyer must tell the issuing bank the name of forwarder who is to issue the FCR, the place of issuance (named place) and the latest date of issuance. Other than this it is the responsibility of issuing bank to assist the FCA buyer in completing L/C application.
(See ICC Banking Commission Opinion on this matter in ICC Publication No.596)
Then FCA buyer must send proper instructions to seller for the completion of FCR to avoid the rejection of document by the bank. Here is an example of wording that can be used in L/Cs to refer to the FCR:

"SWIFT FIELD 46A DOCUMENTS REQUIRED:

One original and one copy (1/1) of Forwarder’s Certificate of Receipt showing the beneficiary as consignor, ABC Bank SA Bucharest Branch as consignee and confirming that the goods have been taken in charge by DEF Forwarder at ………………….. with irrevocable instructions to be forwarded to ABC Bank SA Bucharest Branch. 

SWIFT FIELD 47A ADDITIONAL CONDITIONS:

1. Forwarder’s Certificate of Receipt must bear the letterhead of DEF Forwarder and be dated no later than 15/05/2007.

2. The place and date of issuance of Forwarder’s Certificate of Receipt shall be deemed to be the place and date of taking in charge of goods.

SWIFT FIELD 48 PERIOD FOR PRESENTATION:

Documents to be presented within 21 days from the issuance date of Forwarder’s Certificate of Receipt."

It is wise to have the goods consigned to the issuing bank since the exporter receives the payment undertaking from the issuing bank not from the buyer. If the bank refuses the documents, it must return them to the exporter. By surrendering the FCR to forwarder prior to the delivery of goods, the exporter can change the delivery instructions, so that there is no risk to lose the control over goods.  

Special Features of Bills of Lading issued for LCL shipments

The particularity of Bills of Lading issued for LCL shipments are the clauses put on the face and on additional sheet of Bill of Lading. On the face of Bill of Lading, there is a clause indicating how many shipments share the container, e.g. “One of …. part cargoes in the Container.” Such clause is normally acceptable by bankers. Some issuing banks put in their L/Cs a special condition to allow acceptance of Bills of Lading with such clause, e.g. “Bill of Lading indicating that goods are part of container load shall be acceptable.”

On the additional sheet of Bill of Lading, there is a clause whereby all Bills of Lading related to the groupage container have to be presented before any of LCL shipments can be released, e.g.

“In the event more than one Merchant is entitled to delivery of Goods stuffed in a groupage container, such container shall only be released to all Merchants together at a single place or in hands of a single representative agreed by all Merchants. Failing such agreement the Carrier may unpack the Container and release these to the Merchant on an LCL basis.”  

The reason why carriers use such clause in their Bills of Lading for LCL shipments is to protect themselves against the risk that the consignee of one LCL shipment may also receive the other LCL consignments from groupage container. However, bankers are reluctant to accept Bills of Lading with such clause because it impedes the L/C applicant to receive its LCL consignment despite the bank’s payment under L/C, should the other consignees fail to surrender their Bills of Lading. This matter has been addressed in ICC Publication No.681 - International Standard Banking Practice for the Examination of Documents under Documentary Credits Paragraphs 95 and 122 which provide that:

“If a multimodal transport document/ bill of lading states that the goods in container are covered by that multimodal transport document/ bill of lading plus one or more other multimodal transport documents/ bills of lading or words of similar effect, this means that the entire container is to be surrendered to the consignee and therefore all multimodal transport documents/ bills of lading related to that container must be presented in order for the container to be released. Such multimodal transport document/ bill of lading is not acceptable unless all the multimodal transport documents/ bills of lading form part of the same presentation under the same credit.” So unless the L/C is transferable to more than one beneficiary, a Port-to-Port Bill of Lading/or a Multimodal Transport Bill of Lading would be rejected by a bank.

Special Features of FIATA FCT issued for LCL shipments

An alternative proof of delivery would be FIATA document “Forwarder’s Certificate of Transport” which FIATA proposed forwarders to issue for LCL shipments to avoid the problems associated with House Bills of Lading.

Although a hybrid document, FIATA FCT has the advantage of eliminating the trouble with delivery of LCL shipments. By issuing FIATA FCT, the ocean freight consolidator assumes the obligation to deliver the LCL cargo at Destination Container Freight Station through a delivery agent identified on the face of FCT document. The consolidator shall pack the groupage container at Origin Container Freight Station and arrange its dispatch to the break bulk agent at Destination Container Freight Station. The buyers of LCL cargoes know to whom they must apply at Container Freight Station to obtain their goods since the break bulk agent is identified on the face of FCT document. The consolidator is liable to FCT holder if deconsolidator fails to deliver the goods as required by the document.

FIATA FCT resembles FIATA FCR by the fact that the forwarder certifies it has assumed responsibility for dispatch and delivery of goods in accordance with instructions received from the consignor. It is different from FCR by the fact that it is a negotiable document and can be made out to order[1].

Having similar features with FCR, all the things said above about the use of FCR document with letter of credit are applicable to FCT as well, except the L/C conditions which differ slightly as shown below:

"SWIFT FIELD 46A DOCUMENTS REQUIRED:

Three originals and three copies (3/3) of Forwarder’s Certificate of Transport made out to order of beneficiary and blank endorsed, confirming that the goods have been taken in charge by DEF Forwarder at ………………… for dispatch to …………

SWIFT FIELD 47A ADDITIONAL CONDITIONS:

1. Forwarder’s Certificate of Transport must bear the letterhead of DEF Forwarder and be dated no later than 15/05/2007.

2. The place and date of issuance of Forwarder’s Certificate of Receipt shall be deemed to be the place and date of taking in charge of goods.

SWIFT FIELD 48 PERIOD FOR PRESENTATION:

Documents to be presented within 21 days from the issuance date of Forwarder’s Certificate of Transport."

If L/C issuing bank is financing the purchase of LCL cargo and wishes to have control over the delivery of goods, it can ask for FCT issued or endorsed to their order.