Letter of credit – what is important?


How goods must or must not be shipped often depends on a so called “letter of credit”. Our specialist Philipp Küffner explains, what is important.

A letter of credit is a contract between a shipper and his financial institution (bank) and the consignee and his financial institution. This agreement includes information relevant for shipping: One section in a letter of credit states the “Latest date of shipment”. “This date stipulates the very latest date for the goods to be loaded onboard of the ocean going vessel on which the goods take on their ‘international journey’, from the selected port of loading to the port of destination”, Philipp Küffner, Deputy Branch Manager of our Bremen office, explains. “Decisive is the ‘Shipped on board’ date as noted in the respective bill of lading.”

It is advisible to check whether a port of destination is reached on direct way.

Another part of the letter of credit is an agreement about how to ship goods – whether or not transshipments and partial deliveries are allowed i.e.. We recommend checking with a freight forwarder if such regulations can be adhered to before opening a letter of credit. A specialist knows about the possibilities in the market and may give valuable advice on what is possible and what is not. “A common case is the question, if there is a direct ocean shipping connection available for the port of destination selected. If not, goods have to be transshipped. If that prohibited in the letter of credit, there may be delays which not only cost money but time”, our logistic specialist says "and in the worst case, the letter of credit cannot be fulfilled."

Further requirements

Same applies to special certificates which might be mandated in a letter of credit. “A case we frequently come across is a letter of credit stipulating a maximum age of the vessel used. We recommend our customers to contact us beforehand – that is, before actually opening up a letter of credit – to check which options are available in the market in the first place.”

2nd of March 2018

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