TOLERANCE — UNDERSTANDING SUB-ARTICLE 30(c)

INTRO

Understanding sub-article 30(c) of UCP 600 can be tricky, especially when an LC specifies a fixed quantity and unit price. Many practitioners wonder how the credit amount can be reduced without causing a discrepancy. In this Q&A, Mr. Old Man clarifies the purpose of the 5% tolerance rule and illustrates it with a practical CIF example.

QUESTION

Dear Mr. Old Man,

I find it hard to understand Article 30(c) of UCP 600, which says that even when partial shipments are not allowed, a tolerance of up to 5% less than the credit amount is permitted, provided that the full quantity is shipped and the unit price is not reduced.

My confusion is: if the quantity and unit price remain unchanged, then the LC amount seems fixed (quantity × unit price). So how can the total amount be reduced? Maybe I misunderstand the purpose of this provision. Could you give me an example to clarify?

Thank you.

H.M.

_________

ANSWER

Dear H.M,

Thank you for your thoughtful question. Let me clarify sub-article 30(c) in practical terms.

1. Why the LC amount may be lower even when quantity × unit price is unchanged

Under CIF or CFR terms, the LC amount usually includes:

• the product value (quantity × unit price), plus
• freight, and/or
• insurance.

When the LC is issued, the CIF amount may include freight and insurance figures based on preliminary estimates (soft quotations). At presentation, the beneficiary invoices the actual freight and insurance, which may be lower than the figures used when negotiating the contract.

Sub-article 30(c) ensures that this normal commercial variance does not create a discrepancy, provided that:

1. the full quantity is shipped, and
2. the unit price is not reduced.

This is why a reduction of up to 5% from the LC amount is allowed.

2. Example

LC terms

• Amount: Not exceeding USD 231,000
• Goods: Mitsubishi Destinator 2025
• Quantity: 10 units
• Unit price: USD 20,000/unit
• Delivery term: CIF Da Nang Port, Vietnam
• Freight: Actual, but ≤ USD 30,000
• Insurance: Actual, but ≤ USD 700

Presented invoice

• Product value: 10 × 20,000 = USD 200,000
• Freight: USD 25,000
• Insurance: USD 600
• Total: USD 225,600

Difference vs. LC amount:

231,000 – 225,600 = 5,400, roughly 2.3%, which falls within the allowable 5% tolerance.

3. Conclusion

The invoice amount of USD 225,600 is acceptable under UCP 600 sub-article 30(c) because:

• the full quantity is shipped,
• the unit price is unchanged, and
• the difference results solely from lower actual freight and insurance costs.

This is exactly the scenario for which the tolerance exists.

I hope this helps clarify the provision.

Best regards,

Mr. Old Man