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Home Trade News Articles The DOC CREDIT CLINIC – ‘Can you tolerate this?’
The DOC CREDIT CLINIC – ‘Can you tolerate this?’ E-mail
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Monday, 21 March 2011 16:53
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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