Do banks verify whether the cargo has actually been loaded on a ship..??

Shippers who deal with documentary credit know that the clause “Shipped on Board” on the bill of lading carries quite a bit of weight and there is often a lot of discussions, disputes and rejections from the side of the bank if there is any discrepancy in bill of lading in terms of the description of goods, customer details, shipped on board date, stamp or signature..

Since they are being so strict about documentation, one would naturally assume that the banks will verify whether the cargo covered in the bill of lading has actually been loaded on board the ship or not..

WRONG

Currently in the shipping and freight industry, the entities related to shipping (shipping line, freight forwarder, clearing agent etc etc etc) work in isolation to the entities related to trade and finance (banks, insurers, chambers of commerce etc)..

Therefore there is no way for the banks to verify whether the goods have been physically loaded or not..

The 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 and cannot verify if the cargo was actually shipped on the vessel mentioned in the bill of lading..

In fact, in containerised shipments, even the shipping line does not actually know and verify what is inside the container..

All entities take the declaration of the shipper as true, until something is proven otherwise or a maritime disaster due to cargo misdeclaration brings to light what was in the container..

If you are wondering if the banks are justified in paying out funds without actually verifying whether the goods have actually been shipped or not, well,

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 basis for the bank is that 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 from the 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..

As 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..

Of course in the case of breakbulk or bulk cargoes, there may be reports like the Mate’s Receipt or Outturn reports from the ports which may be used as proof, which may be used by the banks as proof..

The banks will 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..

So if you are the receiver of the goods and wondering how do I verify if my goods were actually shipped, there are a few ways to establish that..

Article republished with some critical updates