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(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.â€
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.â€
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.â€
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).â€
Based on the above “Analysis†– the conclusion is that it is a discrepancy that the bill of lading does not show “FCL.â€
[… 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 containerâ€
is fulfilled by the statement “Shipped as: CY/CYâ€
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.â€
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.â€
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).â€
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 risksâ€, 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.â€
In this case the LC Officer must understand the insurance clauses – and whether or not they are “all risk clauses.â€
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.â€
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.â€
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.â€
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