An original bill of lading and especially a “Negotiable Bill of Lading” is a very important document in global trade as it is the basis on which goods are released to the right person and also the title is established..
In cases where an original bill of lading is lost, there are several steps that need to be taken to carry on business and secure release without an original.. I previously wrote about What to do when an Original Bill of lading is lost so I am not discussing it again here..
One of the solutions for release without original bill of lading is a Bank Guarantee..
The Bank Guarantee referred to in this case, is different from a Letter of Credit (yes there has been this confusion and questions as well)..
Letter of Credit is established between a buyer and seller as part of the documentary credit process and is considered as the preferred instruction for the settlement of monies in international trade and ensure that all the conditions of trade are met..
The purpose of this Bank Guarantee is to secure release of goods without the presentation of original bill of lading which may not be available due to postal delays, loss, due to issuance of a replacement bill of lading (original misplaced or lost)..
It is required by the shipping line to effect release to the right party especially in the case of negotiable bills of lading or straight bills of lading..
In terms of the bank guarantee issued in lieu of original bill of lading, one of the common questions is how long is the guarantee valid..?? If a bank guarantee has a term of say 5 years, then should the person who took out the guarantee wait for 5 years before the guarantee is released even if the cargo has been released to the right party and both sides have settled their payments..??
Depending on the issuing bank, country and type of guarantee, a bank guarantee may or may not have a time frame attached to it..
In terms of how long the guarantee will be active, the answer is NO, they don’t need to wait for 5 years..
Generally all that the bank needs to know before they cancel the guarantee, is that the cargo is being released to the rightful owner/consignee of the cargo..
The general process to be followed by the shipper (or the entity that put up the bank guarantee) is :
1) Get confirmation from the consignee of the bill of lading in writing on their letter head that
- That they have received the cargo covered under the bill of lading in full
- That they have paid the shipper of the cargo all their monies
- They are relinquishing any further claim on the cargo in full or part2)
2) Upon receipt of this confirmation, the bank that issued this guarantee will have to
- Verify that the letter is indeed authentic and has been issued by the actual consignee/receiver of the cargo
- The bank will have to verify this properly as different types of bills of lading will have different consignees (Direct, To Order (of Shipper), To Order of Bank etc)..
- Where the bill of lading is consigned To Order (of Shipper) or To order of Bank, the actual receiver/buyer of the cargo will have to be verified basis the contract or purchase order exchanged between the Seller and Buyer..
Needless to say, each bank will have their own working policies, but this would be the general route to follow..
In essence, once both buyer and seller have confirmed that the deal has been concluded and they have received the cargo and money respectively, the bank guarantee can be cancelled by the bank..
Each shipping line has their own format of indemnity letter that the consignee would need to submit before securing release of goods against presentation of a Bank Guarantee..
The carriers indemnity must be worded appropriately so that, any claims relating to improper release of the goods (even if it is against a bank guarantee) must be raised with the shipping line (if applicable) within a period of say “6 months or 1 year etc”..
Hi,
Thanks for the above article. One question – once both seller and buyer confirm receipt of goods and money, bank may close guarantee. But what happens to the original guarantee with customs?
Hi Tomy, that is an entirely different discussion as it is very much country rule based.. Even if both seller and buyer confirm completion of the transaction, the customs guarantee remains in place until customs is satisfied that all obligations, including duties, taxes, and compliance conditions, have been fully discharged.. The guarantee is only released or cancelled once the relevant customs procedure is acquitted, which may require proof of payment, export, or compliance depending on the case.. The original guarantee is then either formally cancelled, returned, or its limit reinstated if it is a revolving or comprehensive guarantee..
This of course could also vary based on the country as each customs entity works on their own principles..