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TOLERANCE REVISITED (2)

By Mr Old Man
Posted on April 19, 2015
3 min read
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QUESTION

Hi Mr. Old Man,

I have a question about the amount L/C tolerance. Could you please give me your advise on the following case:

L/C at sight with full amount 252,259 USD. L/C does not show tolerance and  partial shipment is prohibited.

If we issue the invoice with the amount less than 252,259 USD, then is it a discrepancy or not?

Your quick response is highly appreciated.

Regards

Patrick

———

ANSWER

Hi,

The information provided in your question is not enough to give a definite answer.

Please check if your case falls into the cases referred to in UCP 600 sub-article 30 (b) or sub-article 30 (c) as quoted below for your reference:

Sub-article 30 (b):

A tolerance not to exceed 5% more or 5% less than the quantity of the goods is allowed, provided the credit does not state the quantity in terms of a stipulated number of packing units or individual items and the total amount of the drawings does not exceed the amount of the credit.

Sub-article 30 (c):

Even when partial shipments are not allowed, a tolerance NOT TO EXCEED 5% LESS THAN THE AMOUNT OF THE CREDIT IS ALLOWED, provided that the quantity of the goods, if stated in the credit, is shipped in full and a unit price, if stated in the credit, is not reduced or that sub-article 30 (b) is not applicable. This tolerance does not apply when the credit stipulates a specific tolerance or uses the expressions referred to in sub-article 30 (a).

According to R689 / TA618, any drawing under the LC would be subject to the allowances made in UCP 600 sub-article 30 (b) or sub-article 30 (c), depending on the terms of the LC and the underlying drawing. A drawing of up to 5% less in the LC amount would be allowed under the LC.

Kind regards,

Mr. Old Man

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7 Comments

7 Comments

  1. Kodi

    May 4, 2016 at 1:09 pm

    Dear Mr. Old Man,

    LC states 50 MT of Aluminium scrap USD 1900 per MT total of USD 95,000/-
    No tolerance level stated for both price and quantity. Trade Term: FOB MUMBAI
    FOB Cost should be shown separately.

    I assume, I can ship max. of 5% less or 5% more on quantity and allowed to invoice accordingly as 5% default tolerance level is accepted if credit does not state quantity in particular number.

    45 MT x 1900/MT = USD 85,500/-
    55 MT x 1900 /MT= USD 104,500-

    1.Is my assumption correct?
    2.How to show FOB cost separately in case pre carriage cost is USD 1500/-

    Thanks in advance.

    Reply

    • mroldman

      May 4, 2016 at 2:13 pm

      Hi,

      1. You do not let me know the LC amount.
      Please note that where the goods are subject to weight measurement as in your case, i.e., 50 MT, a tolerance of +/-5% applies to the quantity provided the amount drawn does not exceed the LC amount.
      So, the minimum quantity of goods shipped is 47.5 MT and the maximum quantity of goods shipped is 52.5 MT. I’m afraid your assumption is not corect.

      2. If the trade term is FOB, the buyer (i.e., the applicant) must contract at his own expense for the carriage of the goods from the named port of shipment. So, the invoice issued by the beneficiary shall not include freight charge.

      Kind regards,
      Mr. Old Man

      Reply

  2. kodi

    May 4, 2016 at 7:36 pm

    Thank you Mr. Old man

    The LC amount is USD 95,000/- (USD 1900 per MT, 50 x 1900= USD 95,000).

    Can I ship 47.5 MT in total and invoice full LC value of USD 95,000/- or should I invoice only for 47.5 MT?

    Thank you for your time.

    Reply

    • mroldman

      May 5, 2016 at 8:28 am

      I think you should invoice for the quantity actually shipped, i.e., 47.5. It’s ok if LC indicates no unit price.

      Reply

      • Kodi

        May 7, 2016 at 10:42 pm

        Dear Mr.Old Man,

        In case if I ship 52.5 MT, then invoice should not exceed LC amount (USD 95000/-) in the other hand if I ship 47.5 MT should I invoice only for the actual qty shipped?..Is it so??

        Is there any article in UCP 600 clarify about it.

        Regards,

        Kodi

        Reply

        • mroldman

          May 9, 2016 at 8:34 am

          Dear Kodi,

          I understand that the article is applicable to the case where LC does not state unit price. Where unit price is stated, the total amount should be equal to the quantity shipped x unit price. This is not applicable to the situation where the terms are CFR or CIF and the price quotation is based on a hypothetical or soft quotation on the insurance premium and/or the freight charges.

          Kind regards,
          Mr. Old Man

          Reply

  3. Lan

    June 23, 2016 at 4:13 pm

    hi
    as per discussion between you and Koki, can we conclude that:

    When we apply 30(b), tolerance of quantity is +/- 5pct, the amount must not exceed l/c amount. It means that the amount can be less than LC amount, even it is less than 5% of l/c amount
    fx: LC amount of USD 50,000/ Quantity:10000kg, no unit price is mentiioned
    Invoices presented quantity is 9900kg, invoice amount is USD 40,000–>whether it is right?

    Thanks for your precious advice as always

    Lan

    Reply

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