Two Discrepancies and a Manager Who Wants Them Ignored
A Ludhiana garment exporter holds an irrevocable letter of credit issued by a bank in Nairobi and advised through its Indian bank: USD 84,000, shipment latest 15 March, presentation within 21 days of shipment, goods described as 100% cotton knitted men's T-shirts, 12,000 pieces, as per PO 8891. The credit calls for a full set of 3/3 original clean on board ocean bills of lading, an insurance certificate covering Institute Cargo Clauses (A) for 110% of invoice value, and a certificate of origin. The goods were handed to the carrier on 12 March. The vessel sailed on 16 March and the bill of lading shows shipped on board 16 March. The insurance certificate was issued on 17 March. The exporter presents documents to the advising bank on 2 April. The documents come back with two discrepancies: late shipment and insurance dated after shipment. The manager says the goods left the factory on 12 March, so the shipment was on time, and asks the bank to ignore the point because the buyer is happy.
1. Identify every discrepancy in the presentation and explain why each one is a discrepancy. Also state which apparent problem is not a discrepancy.
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Two discrepancies, and one point that looks like a problem but is not.
- Late shipment. The credit requires shipment by 15 March. Under UCP 600, where a bill of lading bears an on-board notation, the date of shipment is the date of that notation. The B/L shows 16 March, so the shipment is one day late. The gate-in or factory-despatch date of 12 March is irrelevant; the credit measures shipment against the transport document, not against the exporter's internal dispatch.
- Insurance document dated after shipment. UCP 600 requires the insurance document to be dated no later than the date of shipment. It is dated 17 March against a shipment date of 16 March, so the cover did not exist on the shipment date. This is a documentary discrepancy regardless of whether a claim ever arises.
- Not a discrepancy: the 21-day presentation period. Shipment on 16 March plus 21 days runs to 6 April. Presentation on 2 April is within time. Flagging it would be an error and would weaken the exporter's credibility on the two real points.
The lesson is that the examination is against the credit terms and the UCP, not against the physical movement of goods. A document checker who assumes the factory date or the 21-day rule without computing it will miss one issue and invent another.
2. What are the exporter's realistic options now, and what is wrong with the manager's instruction?
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The manager's instruction cannot be followed, and saying so is part of the job.
Why it fails: a bank examines documents on their face against the credit and the UCP. The buyer's satisfaction does not bind the issuing bank, and the nominated bank will not override a document it has already identified as discrepant. There is no procedure for asking a bank to ignore a discrepancy; there is only a waiver or an amendment, and both are the applicant's decision, not the beneficiary's.
Options:
- Request an LC amendment extending the latest shipment date to 16 March and accepting the insurance dated 17 March, routed through the advising bank in writing. This is the cleanest route when the buyer cooperates, but it takes time and the issuing bank can decline.
- Ask the applicant to waive the discrepancies. Under UCP 600 the issuing bank may approach the applicant for a waiver, but it retains the right to refuse. Get the waiver in writing through the banks; do not rely on an email from the buyer's purchase officer.
- Present on a collection basis. The documents go forward without the bank's undertaking. It preserves the goods movement but converts a bank risk into a buyer risk at the moment the goods are already at sea and the exporter has lost control of them.
- Hold the documents and negotiate directly. Usually the worst option: demurrage and storage at destination accrue against the exporter.
The recommendation is to seek an amendment and, in parallel, obtain a written waiver, while keeping the collection route as a fallback with the buyer's written acceptance of the discrepancies.
3. What controls would you put on the next LC shipment so this does not repeat?
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Work backwards from the two failure points: a date and a document.
- LC abstract sheet on receipt. One page: latest shipment date, presentation period, all required documents, exact goods description, Incoterm, amount tolerance, ports. Everyone who touches the shipment signs it.
- Book the vessel with a buffer. Work to a sailing date at least 5-7 days before the latest shipment date, so a rolled booking does not automatically create a discrepancy. In this case, cutting it to the last day is what produced the failure.
- Separate the two dates in the forwarder instruction. Ask for the on-board date in writing from the carrier at sailing, and compare it to the LC before documents are released. Do not infer shipment from gate-in.
- Insurance on the day of handover. Instruct the insurer to issue the certificate with effect from the handover date, and check the certificate date against the B/L date before it goes into the document set.
- Two-person document check against the LC abstract, with a checklist signed and dated, at least two working days before the 21-day clock runs out.
- Track the presentation clock from the on-board date, not from the invoice date, on a visible calendar.
None of these controls is sophisticated; all of them are cheap compared with a USD 84,000 presentation that turns into an unsecured collection.