28 May 2008

Shipping Guarantee: Part 2

In international trade, banks deal with documents and not with physical goods although these documents represent goods and movement of goods. The regulatory and commercial requirements of international trade have resulted in the use of many and varied documents. It is not unusual to see exports department and imports department staff of banks buried under huge mass of documents. You will appreciate that due to this inherent characteristic of international trade shipping documents through delays, losses in the mail and bureaucratic procedures may arrive after the goods have reached their destination. Non-arrival of shipping documents may result in the importer facing a loss should he not be able to take delivery of goods and sell them especially if they are perishable goods. To assist the importer to take delivery of the goods a Shipping Guarantee (SG) is issued in favour of the carrier of the goods.

In general, SGs only relate to bills of lading that have been delayed, lost, mislaid, stolen or destroyed.

SG is an indemnity given by the consignee to which the bank jointly indemnifies the carrier of goods so that the consignee so named can take delivery of the goods without production of the relevant bills of lading. The consignee and the bank jointly undertake to indemnify the carrier against all liabilities relating to the delivery and undertake to surrender the bill of lading duly endorsed to the carrier on receipt of it.

On receipt of notice of arrival of ship bearing the goods, the consignee will ascertain whether the bank has received the relevant shipping documents, particularly the bill of lading. If the shipping documents are not on hand, the consignee will then request the bank to issue a SG.

The normal prudent consideration for a banking facility is applied. If the consignee is someone who is not known to the bank or who has had minimal dealings with the bank, a deposit varying in amount up to the full invoice value of the imports normally required by the bank. This deposit is commonly known as a margin and provides the requisite security should the consignee turn out to be someone who is not entitled to the goods. A counter indemnity is also taken whereby the consignee undertakes to indemnify the bank against all losses, damages and expenses in relation to the issue of the SG and at the same time undertake to deliver the bill of lading duly endorsed on receipt or obtain a discharge of the bank’s liability under the indemnity. Having satisfied that all precautions have been taken the bank will then issue the SG and forward it to the carrier or his representative for the goods to be released.

On receipt of the shipping documents, the bank will extract the bill of lading and after having obtained the required endorsements forward it to the carrier to redeem the SG.

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