(FCL) For CLarification (please)
There is
one discussion within the LC world that seems to be everlasting.
Well … there
are actually many; but here I am thinking of one in particular:
The discussion of “how
much” transport knowledge the LC officer is required to have when examining the
presented documents.
One of the
Draft ICC Opinions to be discussed at the next meeting in the ICC Banking
Commission (in Singapore in April) is revitalising this discussion. I.e.
TA.817.
The
scenario is the following:
Requirements in the LC:
“FULL SET
BILL OF LADING CONSIGNED AND NOTIFIED TO XXXXX, MARKED FREIGHT COLLECT AND
SHOWING SHIPMENT IN FCL CONTAINER.”
The bill of
lading presented did not contain any mention of FCL container but it did
include the following:
Container: ABCD123456
Seal No: S654321
Con. Type 40’ Dry Co
PKGS 983
CBM 59.960
KGS 5504
Shipped as: CY/CY
(Of course)
the presentation was refused by the issuing bank because the “bill of lading did not show shipment in FCL
container.”
So the
question is if the statement “CY/CY” fulfils that requirement.
The Draft
Opinion is “interesting” for a number – at least two – reasons.
1: First of
all because the Analysis includes factual mistakes.
It states
that: “CY/CY stands for „Container Yard /
Container Yard‟ and relates to the receipt of a full container at the location
of the shipper’s premises and delivery by the carrier to the consignee’s
premises.”
It is more
correct to say that CY is an abbreviation for Container Yard that is an area
within the container depot to handle FCL (Full Container Load) containers. It
is equivalent to Terminal to Terminal. I.e. it is for the shipper to deliver
the FCL container to the CY terminal.
2: Secondly
because the analysis concludes: “Common
knowledge of these terms (FCL and CY) would not generally be considered as an
element of such practice (i.e. international standard banking practice).”
Based on
the above “Analysis” – the conclusion is that it is a discrepancy that the bill
of lading does not show “FCL.”
[… pause …]
Let’s try
to – “forget” the conclusion for a little while – and focus on the two above
issues from the Analysis – keeping them separate:
1: I have
discussed this issue with a number of people that has a deep knowledge about
the transport industry; this includes Maersk Line (and I should add that I have
a background from the shipping industry) …. and there is no doubt in my mind
that:
The statement “CY/CY” stated on a bill of
lading has the exact same meaning as stating “FCL/FCL” on a bill of lading.
I.e. from a
pure “transport perspective” there can be no doubt that the requirement
“… Showing shipment in FCL container”
is
fulfilled by the statement “Shipped as:
CY/CY”
It should
be added that (for example) Maersk Line always states “CY/CY” on their bills of
lading – i.e. they do NOT use the terminology “FCL/FCL.”
2: According
to the Analysis international standard banking practice do NOT include common
knowledge of the terms FCL and CY.
This of
course is the “core issue” of the matter – and I am not without sympathy for
that view.
However;
reading through the ISBP 745 does make the argument a bit “thin.”
Three
examples:
ISBP 745
paragraph E27(b) reads:
“An indication of costs additional to freight
may be made by express reference to additional costs or by the use of trade
terms which refer to costs associated with the loading or unloading of goods,
such as, but not limited to, Free In (FI), Free Out (FO), Free In and Out (FIO)
and Free In and Out Stowed (FIOS).”
This requires
that the LC Officer to understand the transport terms Free In, Free Out, Free
In and Out and Free In and Out Stowed. And not only that: The words “such as”
suggest that there can be more! And that “more” is for the LC Officer to know –
since it is part of international standard banking practice.
ISBP 745
paragraph K18 reads:
“When a credit requires “all risks” coverage,
this is satisfied by the presentation of an insurance document evidencing any
“all risks” clause or notation, whether or not it bears the heading “all
risks”, even when it is indicated that certain risks are excluded. An insurance
document indicating that it covers Institute Cargo Clauses (A) or Institute
Cargo Clauses (Air), when dispatch is effected by air, satisfies a condition in
a credit calling for an “all risks” clause or notation.”
In this
case the LC Officer must understand the insurance clauses – and whether or not
they are “all risk clauses.”
ISBP 745
paragraph C9 reads:
“Additional charges and costs, such as those
related to documentation, freight or insurance costs, are to be included within
the value shown against the stated trade term on the invoice.”
This means
that the LC Officer is required to understand what costs is included into the
various trade terms – even though Incoterms 2010 does NOT describe that. That
would actually have been natural to include into Incoterms 2010 – but it seems
that this was not easy for the drafting group. Still the LC Officer must be
able to determine that.
The three
above examples (taken directly from the key source to “international standard
banking practice” ISBP 745) requires the LC Officer to have very specific
knowledge about transport issues, insurance issues – as well as issues related
to the commercial contract between the exporter and the importer…
On that
basis it is really hard to understand why FCL and CY falls “outside” what is
common knowledge of the LC Officer. If the Analysis were to carry any weight –
that should have been explained.
From the
above it is fair to conclude that the Analysis if severely flawed on all
issues.
For that
reason the Conclusion is wrong too!
So what is
the “correct” conclusion … and why?
A:
Transport industry practice is that the requirement “… Showing shipment in FCL container” is fulfilled by the statement “Shipped
as: CY/CY.” I.e. when stated on a bill of lading “FCL/FCL” has the same
meaning as “CY/CY.”
B: For that
reason international banking practice should be the same!
There is an
independent argument in making sure that transport practice and LC banking
practice is the same: The LC instrument is there to support trade of real goods
– and the more in line the practice between the two industries are – the better
the two industries works together –for the benefit of the exporter and the
importer.
C: By
publishing an Official ICC Opinion that makes it clears that “FCL/FCL” has the
same meaning as “CY/CY” – THAT effectively becomes part of international
standard banking practice. I.e. a well-drafted Official ICC Opinion will make
it easy for the LC Officer to handle cases like this – and eventually this can
be part of the ISBP publication.
And as
argued above – international standard banking practice already includes big
chunks of transport practice (like free out, free in and out etc.)!
In addition
it is fair to say that the issue of “CY
versus FCL” is much more “clear” and easy to understand than the issue of
free out … or “all risk insurance” or “costs included in trade terms.”
D: Based on
the above Analysis the conclusion should read:
1. The
document is NOT discrepant.
2. The
stated marking fulfils the requirement.
So let’s
hope for a revised Final Opinion! I will keep you posted.
Meanwhile
please take care of yourself and the LC!
Best
regards
Kim