More of less 5% – A Small Tolerance, A Big Debate?

A familiar situation in documentary credits: a few kilograms short, a few dollars less—and suddenly, Article 30(b) becomes the center of discussion. Does tolerance quietly apply, or does the LC still demand strict compliance?

QUESTION

Dear Mr. Old Man,

Hope you are doing well. Request you to clarify below queries:

Case Details: 1

LC allows 5/5 tolerance in LC Value.
Goods Qty is 16,000 KGS and Unit Price USD 12.
LC does not specify tolerance for Quantity.
Partial Shipment Prohibited.

Invoice shows shipment of 15,720 KGs, Unit Price correctly mentioned as per 45A.

LC value is within 5 pct less tolerance.

In the above scenario can we apply Article 30(b) and consider the quantity within tolerance, or does full quantity need to be shipped as LC restricts partial shipment?

Case Details: 2

Invoice shows cargo value as USD 10,000, less trade discount USD 1,000.

It specifies USD 9,000 as CIF value and provides breakdown for cost, insurance and freight.

In this scenario, should 110% insurance be calculated on USD 9,000 or USD 10,000?

Case 3

UCP states that if CIF or CIP value cannot be determined, insurance must be calculated on gross invoice value or amount of honour, whichever is higher.

In what circumstances would CIF or CIP value not be determinable?

Regards,
Priya

________

ANSWER

Dear Priya,

Thank you for your thoughtful questions—these are exactly the kind that look simple, but invite different interpretations once we look a little closer.

1. Case 1 – Quantity shortfall vs. Article 30(b)

UCP 600 Article 30(b) provides that a tolerance of ±5% in the quantity of goods is permitted where:

• the credit does not state the quantity in terms of packing units or individual items, and
• the amount drawn does not exceed the amount of the credit.

This provision is generally understood to address shipments of bulk or weight-based goods, where exact quantities are commercially difficult to achieve.

In your case:

• Quantity is stated in kilograms ✔
• Quantity shipped (15,720 KGS) is within −5% ✔
• Amount drawn is within LC tolerance ✔

On this basis:

The presentation complies with Article 30(b), and the reduced quantity may be regarded as within the permitted tolerance.

Note:

Article 30(b) appears to allow this tolerance for bulk goods. However, where the credit specifies a fixed quantity and prohibits partial shipment, not all banks are equally comfortable applying it. Some may still view the situation as a short shipment.

That is perhaps where interpretation—and experience—begin to differ.

2. Case 2 – Insurance: USD 9,000 or USD 10,000?

The invoice clearly indicates:

• Cargo value: USD 10,000
• Less discount: USD 1,000
• CIF value: USD 9,000, with full breakdown

Since the CIF value is clearly determined, UCP 600 Article 28(f)(ii) applies directly:

Insurance must be at least 110% of the CIF (or CIP) value.

Accordingly:

• Basis = USD 9,000
• Minimum insurance = USD 9,900

3. Case 3 – When CIF/CIP cannot be determined

This situation typically arises where the credit is issued on terms such as FOB, FCA, CFR, CPT or EXW, yet still requires presentation of an insurance document.

Where:

• the documents do not indicate a CIF or CIP value, and
• such value cannot be determined from the documents,

UCP 600 Article 28(f)(ii) provides a fallback rule:

Insurance must be at least 110% of:
– the amount for which honour or negotiation is requested, or
– the gross invoice value,
whichever is higher.

A quiet closing thought

Article 30(b) was written to accommodate commercial reality.
Whether it always prevails over strict LC wording—that is where practice, as always, leaves a little room for debate.

Best regards,
Mr. Old Man