Short Shipment or Not?

Clarifying Quantity Requirements When an LC Covers Multiple Lots

In practice, letters of credit covering multiple lots of goods often give rise to misunderstandings about whether each lot may be shipped separately — and how the limit on the number of shipments should be interpreted.

 On this occasion, let’s take a look at an interesting scenario raised by our colleague PT regarding an LC that allowed partial shipments but limited the entire LC quantity to a maximum of two shipments.

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Question

Hi Mr. Old Man,

I hope you are doing well.

I am writing to seek your professional view and would highly appreciate your early response. Thank you in advance.

We have a case as follows:

We — the issuing bank — issued an LC with these conditions:

• F45A: The goods description consists of two separate lots with different types of goods (Lot 1 and Lot 2).
• F47A: “Partial shipment is allowed but the whole quantity required by the L/C must be shipped in max 2 shipments.”

The documents were presented as follows:

• 1st presentation: shipment corresponding to Lot 1, quantity within tolerance.
• 2nd presentation: shipment corresponding to Lot 2, but quantity is less than required under the LC.

We therefore raised a discrepancy for short shipment under Lot 2.

However, the negotiating bank argued that our discrepancy was invalid, claiming that Lot 2’s shipment quantity was still acceptable, and that a discrepancy would arise only if there were a third presentation, which would violate the “maximum 2 shipments” clause.

From our point of view, the full LC quantity must be completed within the first two shipments, and failure to do so already constitutes a discrepancy.

Could you share your view on this scenario?

Thank you and wish you a nice weekend!

PT

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Answer

Dear PT,

Thank you for your detailed question.

The question is long, but my answer remains short: the discrepancy “short shipment” is valid.

The statement in field 47A — “the whole quantity required by the L/C must be shipped in max 2 shipments” — means exactly what it says:

The total quantity under the LC must be fully shipped within no more than two shipments.

It allows the beneficiary to make up to two shipments in total, even if the LC lists two lots.

It does not mean that each lot may have its own two shipments.

It does not permit a third shipment to complete the remaining quantity.

Since the second shipment did not complete the total LC quantity, the presentation already failed to meet the LC terms. The issuing bank is therefore correct in raising a discrepancy for short shipment at the second presentation.

I hope this helps consolidate your view.

Best regards,

Mr. Old Man