Billing Letter Sample for Shipping that Simplifies Your Process

Billing letter sample for Shipping

let's have indemnity allowing the smooth running of shipping and trade finance within commodity trading a very misunderstood area of our business [Music] hi i'm richard watts founder of hr maritime welcome back to commodity brief in this episode we're going to continue our series looking at the fundamentals of commodity trading and we're going to be looking in particularly at letters of indemnity so let's indemnity is quite a wide subject and essentially there are two different types of lesser intensity which are used in our business today so we have a very quick look at them we're not going to have the time to go into as much detail as we'd like but it's one of those subjects which is very important to have at least a fundamental knowledge of so first of all the two different types that we look at one is used in trade finance so particularly the oil trade and it basically it is in the place of providing a lot of documents when you're presenting documents for payment after a letter of credit and so the letter of credit might call for a number of different documents for the invoice for the bill of lading for the inspection certificates for the certificate of origin and the different documents related to the cargo and essentially the seller who is looking to get paid for the goods they are saying to the buyer we have not received these documents yet so here is our invoice and also as we have not received these other documents yet we are given to give you this letter of indemnity we're going to indemnify you against the consequences of you not receiving these documents now it's interesting because it's only used in oil trading we very very rarely see it in the agri-side of the business in the metal side of the business so as you'll understand the idea is to indemnify someone against the consequences of them accepting to proceed along a certain course of action now obviously this indemnity is only worth the company which is issuing it so we need to be very very careful who is issuing it so the most commonly used forms of lois letter indemnities that we use are in the shipping industry and there are many many different ones which are used on a regular basis so again the idea is to iden indemnify someone against the consequences of performing the action that we're asking them to do by far the most common letter indemnity is for discharge of cargo without presentation of the original bills of lading so the bill of lading is a receipt for the cargo the idea is that when the vessel arrives at the discharging port you turn up at the discharging port with the bill of lading and the ship captain will give you the cargo back now it often happens that the bills of ending are not available they are still stuck in the banking channel or it might be a short voyage and so they have not arrived at the destination yet and so what happens is the charterer will often ask the ship owner to discharge the cargo to the receiver or to their party of their choice and the ship owner will then turn around and say i don't want to because i want the bills of lading the charter will then say okay well i will give you a letter of indemnity i will indemnify you against the consequences of discharging this cargo without receiving the original bills of lading now the risk to the ship owner is that somebody else turns up with that original bill of lading and says i want my car go back and so essentially the risk to the ship owner is the value of the cargo itself and so they have to be certain that the party that is issuing that letter of indemnity is able to honor the guarantee that they've given and sometimes you see lois being counter-signed by a bank because then we have the additional guarantee the liability will be honored [Music] now there are many many different forms of let's indemnity which are issued on a daily basis unfortunately there are two in particular which are issued which really shouldn't be one is for clausing bills of lading so basically putting a mention on a bill of lading or removing a mention of on a bill of lading which is essentially committing fraud on the receiving party and so the loi as a legal document will not be worth anything because it is to facilitate an illegal act also back dating bills of lading so putting the wrong date on the bill blading again exactly the same situation but we have a number of situations which could revolve around adding dye to the cargo co-mingling two cargos of oil or similar aspects like that where basically we are asking the ship owner to do something they are not strictly obligated to do so under the charter party but they're willing to do so if we then will guarantee them that the consequences will not fall upon them now one thing we need to be very careful about with lesser indemnity is what is our liability what is the risk to us as the party which is issuing them and can we control that risk so we might be in a situation where we have already provided the bills of lading to our receiver and so if we issue an loi to the ship owner to indemnify them against consequences of delivering the bills of lading we will also want our receiver to give us a back-to-back loi in order for us not to bear those risks ourselves now it's very important to read the wording of an loi if ever you don't understand the wording to seek advice because they are very very very tricky documents and they can incur a huge liability now there are a lot of resources for information on lois that are available on the internet first of all you have pni clubs protection indemnity clubs which have a lot of information on lois and the risks that you are exposing yourself to in terms of issuing them but also accepting them and receiving them and believing they are a guarantee for you schooled another pni club have an awful lot of information and otherwise on a lot of legal firm websites you can find some very very very good information so here holmen fennec they have some very good articles about the practical problems of receiving or issuing bills of lading and they do say is this the biggest risk that a ship owner can take potentially so that basically brings us to the end of looking at lois letters of indemnity it is a vastly complicated subject we can spend a lot more time looking at it but that's all the time we have for today so i hope you've enjoyed this episode of commodity brief please click back to find more subjects thank [Music] you