SHORT SHIPMENT OR PARTIAL SHIPMENT?

Actually, this is not a Q&A but rather a discussion between me and Bogdan, a trade finance expert I have known since we were both editors of LC Monitor (Trade Services Update) 15 years ago. However, the interesting thing is that it was only now that Bogdan discovered that I am also known as Mr. Old Man, when he searched for documents online about partial shipment and short shipment and happened to come across my WordPress website “Mr. Old Man – For Those Who Eat, Sleep and Breathe Letters of Credit”.

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QUESTION

Dear Huu Duc,

You are Mr. Old Man?

I was looking for some opinions on net and I found  this :

https://nhducdng.wordpress.com/2014/02/26/short-shipment-or-not/

We have a client waiting to receive an L/C stating that partial shipments are allowed but under field 47A will state that short shipment is not allowed.

ICC once gave an opinion to a refusal claiming short shipment effected, stating that is not a discrepancy when not all qty is shipped and not entire value of l/c is drawn since partial shipment are allowed.

If you search on wiki or elsewhere you realize that partial shipment and short shipment are referring to different things. Short shipment would mean that the quantity actually received is shorter than the one described in packing list / bill of lading. In such a case, since under l/c we deal with documents and not with goods, I find expression short shipment meaningless and constitutes an issue that must be settled by applicant and beneficiary outside L/C.

Please, I would very much appreciate your opinion on this.

My best regards,

Bogdan

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ANSWER

Dear Bogdan,

Mr. Old Man is the name I have used when answering reader questions on my website and blog of the same name: www.mroldman.net and https://nhducdng.wordpress.com/

I agree with you that neither UCP nor ISBP covers the term “short shipment”. However, in practice banks have raise the discrepancy “short shipment”, especially in cases where the LC does not allow partial shipment, but the documents show that the quantity of goods shipped is insufficient.

The following example may clarify the above situation:

+ LC requires:

Commodity: ABC

Quantity: 1,000 kgs

Partial shipments: Not allowed

+ Presented invoice shows:

Commodity: ABC

Quantity: 900 kgs

In this case the bank usually states the discrepancy as short shipment rather than partial shipments.

I see the term “short shipment” used in ICC opinion TA.816rev summarized as below:

“TA.816rev – Short shipment and short drawing

A credit allowed partial shipment but included a condition that if there were to be no further shipments, then the beneficiary must present a statement to this effect, and for the final shipment, this must also be evidenced by a certificate issued by the beneficiary.

The credit was not fully drawn and the beneficiary presented, along with the other required documents, a certificate confirming that there would be no further shipments.

The presentation was considered by the issuing bank to be discrepant due to ‘short shipment and short drawing’. The nominated bank disputed this due to the fact that the credit allowed for partial shipments and the conditions relating to the certificates that were to be issued by the beneficiary.

…”

I also see it used in ICC Opinion TA869rev regarding a situation where the issuing bank refused a document citing the discrepancy “short shipment in 8 containers”.

For your situation, I think the LC needs to be more specific to avoid disputes.

Example:

+ LC requires:

Commodity:  ABC

Quantity: 1,000 kgs

F47A: Partial shipments are allowed but only 2 shipments, 500 kgs each

+ Documents presented for the second shipment show the quantity of 400 kgs, the bank can refuse the documents citing the discrepancy “short shipment”.

Best regards,

Nguyen Huu Duc