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TOLERANCE APPLICABLE AGAINST INDIVIDUAL QUANTITIES

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QUESTION

LC stipulates:

– Item A: 30 pcs
– Item B: 40 pcs
– Item C: 1000 pcs

Total quantity: 1070 pcs

Tolerance more or less 5 percentage in amount and quantity is allowed.

Shipment is effected as follows:

– Item A: 50 pcs
– Item B: 40 pcs
– Item C: 980 pcs

Total quantity : 1070 pcs

The issuing bank raised the discrepancy “Item A is over-shipped”.

Is the discrepancy valid?

—————-

ANSWER

Hi,

I have ever answered a similar question. The discrepancy is valid.

Tolerance of +/- 5% is applicable against individual quantities.
So, Item A is over-shipped.

By the way, would you accept the following shipment?

– Item A: 0 pcs
– Item B: 0 pcs
– Item C: 1070 pcs

The answer is NO.

Please also refer to ICC Opinion R688 / TA619.

Kind regards,
Mr. Old Man

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4 Comments

  1. carolinechiny777

    September 1, 2016 at 4:30 pm

    Dear Mr. Old Man,

    I really hope to receive your opinion about the following case of an L/C discrepancy in which we are beneficiary.
    Commodity: Plywood, Unit: M3

    //////////
    – Original LC stipulates:

    + F32B:
    AMOUNT: 83000,00 USD

    + F45A: ADDITION TO COVER ABOUT 275M3 OF VIETNAMESE PLYWOOD
    Partial shipment: Allowed

    – AMENDMENT N0. 1:

    + F32B: INCREASE OF DOCUMENTATY CREDIT AMOUNT:
    AMOUNT: 180000,00 USD

    + F79: NARRATIVE
    GOODS AND/OR SERVICES:
    ADDITION TO COVER ABOUT 600 M3 OF VIETNAMESE PLYWOOD
    //////////

    Accumulative quantity shipped: 655M3

    Quantity in the latest shipment with documents presented: 86M3

    The bank raised discrepancy: Over-shipped quantity (They states that the correct quantity in this shipment should be 83.61 M3 not 86M3 which also makes me confused along with following explanation)

    The bank explains that in F79 of amendment No. 01 mentioned: Addition to cover about 600M3 which totally replaced the same condition in F45A in Original LC (Addition to cover about 600M3). Therefore, the total quantity for the letter credit is ABOUT 600M3 (The bank allows +/-10% in quantity with the word “about”)

    From our customer’s and our point of view, the increased credit amount and the “addition of 600M3” are for our additional orders excluded 275M3 in the Original L/C that we already shipped out.

    I am now having a big wonder about the above case and hope to receive your opinion because you’ve been the one and only that can totally clear my doubt for all LC issues.

    I hope to hear from you soon. Thank you so much!

    Best regards,
    Carol

    Reply

    • mroldman

      September 5, 2016 at 8:47 am

      Hi,

      MT707 would include field 32B (Increase of DC Amount) and field 34B (New DC Amount After Amendment). If either field 32B, field 34B must also be present and vice versus.

      From your description I understand that field 32B of MT707 is an increase of the DC amount in addition to the original amount, so the quantity of goods is to be increased accordingly.

      Check if the DC is issued correctly.

      Kind regards,
      Mr. Old Man

      Reply

  2. carolinechiny777

    September 6, 2016 at 6:24 pm

    Dear Mr. Old Man,

    Thank you so much for your kind reply.

    I would like to give you further update on the above case. The mentioned discrepancy is raised by our negotiating bank in Vietnam and as a result, they refused to negotiate our set of documents. Due to our own situation, negotiating is better than waiting for the issuing bank’s payment from Japan. Therefore, we have asked our customer for an L/C amendment so that the documents can be complied with the negotiating bank’s point of view.
    Unfortunately, on 06 September, the issuing bank issued an L/C amendment as following: (Maybe we failed to convey our idea on L/C amendment to them)

    //////////
    – AMENDMENT No. 2:

    + F32B: INCREASE OF DOCUMENTATY CREDIT AMOUNT:
    AMOUNT: 80,000.00 USD

    + F34B: NEW DOCUMENTARY CREDIT AMOUNT AFTER AMENDMENT
    AMOUNT: 343,000.00 USD

    + F79: NARRATIVE
    GOODS AND/OR SERVICES:
    ADDITION TO COVER ABOUT 270 M3 OF VIETNAMESE PLYWOOD
    //////////

    The issuing bank in Japan has the same idea as yours: “Field 32B of MT707 is an increase of the DC amount in addition to the original amount, so the quantity of goods is to be increased accordingly”. Thats why they issued such L/C amendment corresponding to new orders from our customer. We have asked them to contact the negotiating bank and explain about above F79 in their L/C amendment, hoping the negotiating bank can accept.

    I know that negotiating documents in L/C needs very careful checkings but it is really inconvenient in such cases when negotiating banks have their own point of view. If only our negotiating bank had more open understanding about DC, it would be great and more convenient for beneficiaries like us.

    Once again, thank you so much for your time and kindness. Your answer defenitely cleared my doubt. I have gained lots of knowledge about DC thanks to your blog and reading your posts is one of my favorite.

    Thank you

    Best regards,
    Carol

    Reply

    • mroldman

      September 7, 2016 at 8:25 am

      Hi Carol,

      The fact that the negotiating bank refuses to act on its nomination, i.e., refuses to negotiate the documents even when the documents are complying , is quite common. The case in question could be a pretext for its refusal of negotiation.

      Kind regards,
      Mr. Old Man

      Reply

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