Types of Letter Of Credit

Contract of Carriage (Coc)

In simple terms, a Contract of Carriage is a contract entered into between the Carrier and the Merchant for the movement of goods from point A to point B using an agreed mode of transport at an agreed price.

Note:

i.In normal trade, the rates and other terms are negotiated between the Shipper/Cargo-owner and the Carrier, and once they reach an agreement or contract, the shipment is “booked” with the carrier and this may be considered as the commencement of the CoC.

ii.The carrier usually sends a booking confirmation as acceptance of the booking. Clauses in the booking confirmation sent by the carrier will indicate the terms and conditions that will govern the booking and CoC.

iii.In the booking confirmations of some of the lines  that the booking is “subject to the terms and conditions of the line’s B/L“, which comes at a much later stage once the shipment has been effected.

Contract of Carriage(CoC): Conventions

1.Hague Rules (1924)

—The first important regulation issued in 20th century originated from Common Law is Hague Rules. It applies exemption of liability for ship and carrier for loss or damage raised from fault of master, pilot or the servants of the carrier in the navigation or in the management of ship.

—Limit of liability has been determined as 100 pounds sterling per package or unit, or the equivalent of that sum in other currency unless the nature and value of such goods has been inserted in the bill of lading.

2.Hague-Visby Rules (1968)

—It is an amendment to Hague Rules. Limitation of liability for loss or damage in Hague-Visby Rules changed to 666.67 units of account per package or unit or 2 units of account per kilogram of gross weight of the goods lost or damaged, whichever is the higher. However exemption of liability for ship and carrier was kept same as it was in Hague Rules.

—The Hague Visby rules are seen as the dominating standard terms and conditions generally incorporated into charter parties and bills of lading worldwide.

3.Hamburg Rules (1978)

—The contract of carriage by sea published by United Nations in 1978. In Hamburg Rules, carrier and its servants are responsible for loss, damage and delay in delivery at port of loading, during the carriage and at port of discharge.

—The limit of liability increased to 835 units of account per package or other shipping unit or 2.5 units of account per kilogram of gross weight of the goods lost or damaged, whichever is the higher.

—If there is any delay in delivery, the carriers liability for this is limited to an amount equivalent to 2.5 times the freight payable for the goods delayed, but not exceeding the total freight payable under the contract of carriage of goods by sea.

—4.Rotterdam Rules (2008)

—In December 2008, a new UN Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea called the Rotterdam Rules was adopted and was designed to replace the above mentioned conventions.

—Under the Rotterdam Rules, the limit of liability is 875 units of account per package or unit, or 3 units of account per kilogram of the gross weight of the goods, whichever amount is the higher, except when the value of the goods has been declared by the shipper and included in the contract particulars, or when a higher amount than the amount of limitation of liability as above has been agreed between the carrier and the shipper.

5.Carriage of Goods by Sea Act (COGSA)

—Under US COGSA, the limitation of liability on the carrier or the ship does not exceed USD500 per package or unit or the equivalent of that sum in other currency, unless the nature and value of such goods have been inserted in the B/L.

—B/L and Delivery of Goods

Delivery of Imported goods against Bill of Lading

—Original bill of lading is issued by carrier of goods once he receives the cargo after completion of customs clearance procedures. The carrier can be a shipping line, freight forwarder, or a Multi model transport operator, or both.

—The exporter, once after obtaining original Bill of Lading, he submits the same along with other required documents with his bank to send to overseas buyer through buyer’s bank.

—The exporter’s bank sends the said documents to buyer’s bank after necessary formalities. The buyer’s bank delivers documents to the buyer. The buyer submits the said original bill of lading to the carrier of goods after completing customs procedures of importing country.

—The carrier receives the said Bill of Lading and arranges to deliver cargo to the consignee, after checking the authenticity of consignee if required.

Delivery Order:  is a document from a consignee (or an owner or his agent of freight carrier) which orders the release of the transportation of cargo to another party.

The endorsements that are required on a Bill of Lading before release of the delivery order:

1.When consigned to a named consignee (Company), the bill of lading is known as a Straight Bill of Lading, and in the case of a Straight Bill of lading, the release maybe given only to the named consignee and this bill of lading is not negotiable or transferable.

2.Since the consignee is a Private Individual, release may be effected only after verification of Original ID of the person.

The endorsements that are required on a Bill of Lading before release of the delivery order(continued):

3.To Order or To Order of ZYX- Shipper’s endorsement stating DELIVER TO THE ORDER OF “ZYX Client” and ZYX’s company stamp and sign in case he is taking the final delivery or his endorsement stating, DELIVER TO THE ORDER OF “ABC Client” (if the cargo has been further sold)….

4.To Order of Bank - Shipper’s endorsement stating DELIVER TO THE ORDER OF “XYZ BANK” and banks’ endorsement stating, DELIVER TO THE ORDER OF ZYX Client and ZYX’s company stamp and sign in case he is taking the final delivery of the endorsement stating , DELIVER TO THE ORDER OF ‘ABC Client’(If the cargo has been further sold).

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