Do banks verify if cargo is actually loaded on a ship..??

Do banks verify if cargo is actually loaded on a ship..??

Shippers who deal with documentary credit know that the term Shipped on Board carries quite a bit of weight and there is often a lot of discussions, disputes, rejections etc from the side of the bank if there is any discrepancy in the shipped on board clause or date or stamp or signature..

So one would naturally assume that the banks verify if the cargo covered in the bill of lading is actually loaded on board the ship or not..

WRONG

Image for verificationThe verification by the bank consists of only checking that the documents as required by the Letter of Credit are submitted properly.. The bank is not expected to verify if the cargo was actually shipped on the vessel mentioned in the bill of lading..


UCP 600 – Article 5 – Documents v. Goods, Services or Performance clearly states

Banks deal with documents and not with goods, services or performance to which the documents may relate.

UCP 600 – Article 34 – Disclaimer on Effectiveness of Documents further reinforces this in saying

A bank assumes no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any document, or for the general or particular conditions stipulated in a document or superimposed thereon; nor does it assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods, services or other performance represented by any document, or for the good faith or acts or omissions, solvency, performance or standing of the consignor, the carrier, the forwarder, the consignee or the insurer of the goods or any other person.

The bill of lading that is submitted to the bank is issued by a shipping line who is allowed to issue it only after verifying that

1) the container has been cleared by customs
2) the container has been physically loaded on the vessel/voyage and load port mentioned on the bill of lading

Therefore the bank is taking the bill of lading issued by the shipping line to be authentic and will proceed with the verification of the other documents (like Commercial Invoice, Packing List, Certificate of Origin etc) submitted as per the LC requirement..

image for padAs regards the specification of the goods, the bank does not see the cargo physically so here again, they cannot and will not verify if the cargo specifications mentioned in the bill of lading or commercial invoice are physically correct..

They will merely check if the description of the goods mentioned in the bill of lading and commercial invoice and other documents submitted match the description of the good mentioned in the LC..

If there is a variance between these two descriptions, they will reject the wrong document..

So if any of you were under the misconception that the banks actually verify if the cargo covered under a documentary credit has been loaded on not, well you know the answer now..

Do you have any interesting experiences relating to submission of documents to the banks as part of the documentary credit process..??

*** End of Article ***

4 thoughts on “Do banks verify if cargo is actually loaded on a ship..??”

  1. Dear Hariesh ,

    I want to thank you for your very informative post.

    At the same time i will be very grateful to get your professional answer / response to the aspect of LC document verification that i am confused about :

    ” I am a new Buyer trying to import some Bulk goods from China and I am new into the whole process of payment by 100% LC at sight, I have read a lot on internet about it’s Risk to buyer since presented documents “are not verified” by bank ( only checked for compliance ) and that some seller do issue false bogus BOL which is making me worried.

    I need your professional response if you can answer question I have below :

    After I have opened the LC to Seller in China and they “shipped ” the goods and presented all requested papers to my bank( LC issuing Bank ).

    Does it really mean that my Bank ( all LC Issuing Banks Generally ) will NOT:

    (1) Verify THE VESSEL NAME on the BOL to make sure that VESSEL / SHIP actually Sailed, ?

    (2) or if the said VESSEL even actually EXIST at all before they will release my money (Transfer payment ) to the Seller’s Bank ( just because presented documents of the seller are compliant without discrepancies ) ?

    Looking forward to hear from you.

    Sincerely,
    Paul

    Reply
  2. All of us know that there are a lot of different remarks may be included into the b/l due to the condition of the cargo. In the most cases according to the l/c the seller needs to represent a clean bill of lading. But as I understand that some special remarks do not influence on the clearance of the bill of lading and banks may accept these document. Am I right? I kindly ask you to explain this issue. I will very appreciate you. Thank you

    Reply

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