Over the years, I have received several questions from readers relating to a variety of topics on this resource..
Some of them are really valid questions especially if you consider that some of these questions may be from someone importing for the first time or someone exporting for the first time..
It makes you think of the issues that those entering international trade for the first time or shipping their first container would be facing in getting it completed successfully..
The business of shipping, freight and trade could all be a bit overwhelming as there are several processes to be followed and for those who are doing it for the first time, asking questions and finding the right answers is extremely important..
Here are some questions which I received from one of the readers of this resource, possibly, someone who is starting out new or someone experiencing some new problems with their shipments..
1) What happens if the nominated bank sends forged papers based on which the issuing bank releases payment to the nominated bank. I mean, if there was no actual shipment taking place (only fake papers sent to the Issuing Bank)
When shipments involve a Letter of Credit (LC), all the documents required as part of the documentary credit process will be clearly outlined in the LC.. Some of the documents required could be Bill of Lading, Commercial Invoice, Packing List, Certificate of Origin, Analysis certificates..
The shipper has to submit all documents once the shipment has been effected and they are in possession of the bill of lading..
The verification by the bank consists of only checking that the documents as required by the LC have been submitted completely and it is correct in all respects in terms of the LC requirements.. The bank is not obliged to verify whether the cargo mentioned in the bill of lading was actually shipped on the vessel or not..
The reasoning for this is that the bill of lading submitted to the bank is the only transport document involved in the shipment and this document is issued by a shipping line who will only issue it after verifying that
1) the container has been cleared by customs for export for the specified vessel
2) the container has been physically loaded on the vessel/voyage from the load port mentioned on the bill of lading
Banks, therefore, take the bill of lading issued by the shipping line to be authentic and will proceed with the finalisation of the payment transactions based on the documents submitted..
2) What happens if the goods shipped actually does not match the agreed specification of the goods?
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 as packed in the container..
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 documents but they cannot do anything about the goods already shipped physically..
3) As a buyer do I have any guarantee that the (1) Goods are actually shipped (2) Goods match agreed specification and quantity? If they do not match, as a buyer how can I have a remedy?
Whether it relates to documentation or verifying actual cargo in the container, to be brutally honest, if you don’t trust the shipper, you don’t have any guarantee and it is up to you as the buyer to take appropriate measures to safeguard against shipping and freight fraud..
If you are unsure of the shipper and the cargo being shipped, you should employ an independent surveyor to be present at the seller’s premises when the cargo is being packed in the container, verify the quantity and specification of the goods and present that survey report to you along with pictures..
With regards to the cargo being actually shipped, you can also ask your surveyor/agent to track the container from the time it is packed and enters the port and they can liaise with the shipping line to get you a confirmation that the container has been loaded onboard..
If until this stage everything has been above board, then the shipping line’s bill of lading showing that the container has been shipped is proof enough..
If you still want to check further, you can track the container or bill of lading on the shipping line’s tracking system where if you give the bill of lading or container number, it will bring up the details of where the container/vessel is currently located..
As you can see, things like this could be quite tricky and that is one of the main reasons many of the customers employ the services of a Freight Forwarder as these are some of the services that a freight forwarder provides..
Better safe than sorry I say.. 🙂
IMB’s perspective
The International Maritime Bureau (IMB) is a division of the International Chamber of Commerce (ICC) established to help fight maritime crime and malpractice..
Apart from investigating and reporting on various frauds, including documentary credit fraud, charter party fraud and cargo theft, one of IMB’s tasks is to assist ICC member banks in authenticating trade finance documentation..
The IMB has previously warned banks to check shipping documents with particular caution as attempts to manipulate pre-financing have gained momentum..
This warning seems to have been issued on the back of an increase in pre-financing fraud involving importers in West Africa and exporters in China wherein falsified shipping documents were submitted to the banks to unlock funds before goods are actually shipped..
GTR reported Michael Kim, head of shipping at DLA Piper’s London office as saying that these frauds, though committed by exporters, could have dangerous consequences for banks.
It’s is very important for the seller’s bank to check the contents of the bill of lading very carefully, because if they don’t recognise that it is fraudulent, and transfer the shipping documents to the confirming bank and the buyer’s bank can spot that the bill of lading is fraudulent, they can refuse to pay the seller’s bank. Without being able to get the invoice confirmed by the buyer’s bank, the issuing bank could lose quite serious amounts of money.
IMB director Pottengal Mukundan is of the view that this practice is an abuse of the documentary credit system and can expose banks to a number of risks..
From the bank’s perspective, the biggest risk is that there could potentially be two or more sets of documents in circulation for the same shipment, each generating a set of trade finance [documents] for the same cargo, but going through different banking channels. One reason for the success of such schemes is that banks do not share their information on transactions. Other schemes which build upon this vulnerability include money laundering and long-term frauds in which the bank itself becomes the target of the scam.
Fraudsters are finding new ways every day to circumvent the various checkpoints in the banking and trade channels and as per the IMB, although unauthorised pre-financing scams are not a new phenomenon there is a danger that it may reach a point where sellers may receive funds and do not subsequently ship the goods..
The IMB suggests that banks can refer to the IMB for safe sharing of information between various companies and sectors, which can help frustrate potential fraudsters..
If anyone has any REAL LIFE EXPERIENCE of the issues discussed above, do share it for the benefit of all..
*** This article has been republished after critical updates ***
Hello Hariesh,
Thank you for the blog. It is very helpful.
According me, the only way to secure the Quality and Quantity of the cargo is through independent certify international inspection company. (IIC)
Buyer pay to the IIC and request the company to inspect the cargo before be loaded. The IIC must visit the shipper facility take samples and do analyses of the cargo in regards of the quality (can be done during the production process as well-it is based on the buyer request).The IIC must request the shipper to reserve certain batches and quantity of the produced/ planned export product/s on a side for the particular buyer. Upon verification of the cargo’s quality the IIC issues Quality certificate to the buyer. The right way is the shipping to be organized only and after the results are ready.
The IIC also must attend the loading process and count quantity shipped, record the loading process and ensure the reserved batches are loading into the container . Upon which the IIC issues Quantity certificate to the Buyer.
In this way the Buyer can be assured the quality and quantity of the cargo is matching his PO / Sales agreement before the shipment take place .
Through my experience I used to work a lot with IICs as SGS , Bureau Veritas for food ingredients and commodities.
It helps especially when you are dealing with new suppliers/ traders.
Please let me know your opinion. Thanks
Hi Tanitsa, yes your points are very valid and useful for those first time exporters or importers..
This is a great way to track if the goods were actually shipped. Thanks for posting.
I salute you on answering this person.You have expounded every part very well.In fact i am happy with the way you answered question 3 and 4.Well done Sir.You are a good teacher.
Thank you very much for your kind words Simon..
WHEN DO I HAVE TO ISSUE A HOUSE BL ?
Hi, I think the question of the asker contains a contradiction in the first phrase “forged” and “bank”. Those two really do not go together. Your client’s/suppliers bank will be on a list which your bank has control on.It is YOUR bank (if you have a decent bank) who will check the LC, and where it is coming from/going to. An LC invokes real genuin documents, and they are very well controlled by your bank. That is the first trust: your bank. The second trust is your supplier/client. If you do not trust him/her: dont’ sell or buy to/from…
As for the rest of the article: well, I myself go sometimes to the port to see for myself the goods are shipped to my client. The other way around, I can not check, and I have to say, there are problems if you don’t urge for the original BL. Some suppliers (China) don’t work with LC but with prepayment. Be VERY cautious choosing your supplier, do a test order, or, go over there…as I did …
Third but not least is your shipping company, there are crooks, but if you do not choose wildly, and do a test shipping, you are good to go. I myself have found through Hariesh the best there is…
Indeed: better safe than sorry.
hello, the information given is true and very professional but there is one more solution and it called: SGS company which acompany the shipment from the packing and loading step till it arrive to your warehouse.
Thanks Li-Tal, this is the solution I have mentioned in the post.. 🙂 “…….With regards to the cargo being actually shipped, you can also ask your surveyor to track the container from the time……….”
Hariesh,
Eliash’s questions are pertinent – maybe he’s been caught by an unscrupulous “seller” previously? Hopefully the occurrence of forged documents is a rare occurrence as the perpetrator has to go to a lot of effort to manufacture these – from warehouse to transporter to freight forwarder to shipping line – although I have seen it happen several times (and it will possibly happen again) in some “lawless” parts of the world such as some locations in Africa.
Lakshmi makes the obvious point – if the offer looks too good to be true, don’t buy it in the first place! However, if you go ahead but still have reservations, it is more than just good practice to appoint a surveyor or independent inspector at the loading point of the container or at the port of loading of breakbulk or bulk cargo. Verimet Inspection Services Africa has experience of this and has contacts in many parts of Africa – in many cases simply notifying the supplier that you will be appointing an inspector may cause them to back out of the deal or, at least, to do an honest job.
Note – if the perpetrator has gone to all the trouble to falsify the documents, the container may indeed be shipped but not hold what you expect it to, so tracking it online won’t help – you may still receive a container full of rubbish.
Thanks for the valuable points Ross.. Appreciate it..
Good article. Very practical advice for buyers. Ultimately you have to trust your counter-party.
Thank you Andrew.. 🙂
How do I verify goods were actually shipped..?? is a question that has and will continue to disturb clearing and forwarding companies as well as shippers
An FCR issued by a forwarder is a confirmation of receipt of the cargo from the supplier. Sometimes, it is the FCR that is submitted for negotiation under LC, though this isnt accepted by all banks/always.
Once shipped, the container/BL can be tracked online.
As for the compliance of the cargo itself to the order placed by you, you could nominate an Inspection agency and do a TPI of the goods and get their certificate confirming quality of goods, before actual packing and shipping of the material.
Baseline is in the trust that you place on your supplier/shipper. You don’t trust them or they haven’t much of a reputation to speak of, think a gazillion times before placing an order with them in the first place!
You have adequately explained in your answer on this issue & I fully agree with the views.
Good day
From a Carriers perspective in RSA a Shipped on Board B/L is issued based on following
info / confirmation received from Port Authorities (TNPA)
a) For Containerised Cargoes a N76 report is issued comprising all units and stowed on board vessel and a (BRT) stow position is given bay / row / tier however with the advent of Navis and EDI the way of reporting may have changed
b) For breakbulk cargoes a copy of the Shipping Order is utilised as a Mates Receipt whereby the Chief Mate obo Master of Vessel acknowledges receipt of cargo by way of stamping the SO with Vessels Stamp that has all vessel relevant details and also stow position of said cargo
A cross check may be conducted on what info / details you may given FF and against the B/L info you have received and discrepancies (if any) may identified by the various check points …transporter / warehouse / documentation etc
Trust this may be beneficial to you