How to Maintain Buyer–Supplier Confidentiality Under a Transferable L/C?

In international trade, intermediaries often wish to keep their buyer and supplier from knowing each other. One common concern is whether the supplier’s name will appear on the bill of lading when the goods are shipped directly to the buyer.

A reader recently raised this practical question.

Question

Dear Mr. Old Man,

I am a middleman who received an order from a buyer and requested my supplier to ship directly to my customer on CIF terms.

How can I make sure that my supplier’s name does not appear on the bill of lading?

Do I need to contact the same carrier that my supplier is using and ask them to switch the B/L to my name and then send my own invoice to the buyer? Or should I request the supplier to ship in my name?

If the shipment is made in my name, I would need to issue my own invoice, and my margin would become known to my supplier.

What would be the best option for me to keep both the supplier and the buyer from knowing each other?

Best regards,

Daniel

______

Answer

Dear Daniel,

A commonly used solution in this situation is to ask the buyer to open a transferable letter of credit (L/C) in your favour.

You can then request the transferring bank to transfer the L/C to your supplier, who will become the second beneficiary.

Under a transferable L/C, when the second beneficiary presents documents to the transferring bank, you are allowed to substitute your own invoice (and draft, if required). This enables you to keep your profit margin confidential from the supplier.

As for the bill of lading, the L/C can normally allow any party to appear as shipper, so it is possible for the B/L to show your name as the shipper rather than the supplier.

Another point to consider is the insurance document, since the sale is on CIF terms and the L/C will normally require presentation of an insurance policy or certificate.

According to ISBP 821 paragraph K20(a), a credit should not require an insurance document to be issued “to bearer” or “to order”, but should indicate the name of an insured party. In a middleman structure, the credit may therefore require the insurance document to show the trader (first beneficiary) as the insured, rather than the buyer. This helps avoid revealing the buyer to the supplier. If the insurance document is issued in assignable form, the party named as the insured would normally be the one to assign or endorse it.

It may also be noted that under **UCP 600 Article 38(h), the first beneficiary is entitled to substitute its own invoice and draft, if any, for those of the second beneficiary. The article does not address endorsement of the insurance document. Therefore, if the credit requires the insurance document to show the trader (first beneficiary) as the insured, it would be prudent to ensure that the transferring bank is aware of this structure in advance.

With this structure, the buyer deals only with you, while the supplier deals only with the transferring bank, helping prevent the buyer and supplier from identifying each other.

Using a switch bill of lading is generally more complicated and may involve additional operational and legal risks. It is therefore usually better avoided unless absolutely necessary.

Best regards,

Mr. Old Man