Why LCs require 1/3 of Original B/L Sent Directly to the Applicant?

Here’s a classic case where trade logistics outpace banking procedures. A reader recently flagged an unusual LC condition: the requirement to courier part of the original bill of lading set — negotiable, no less — directly to the issuing bank within three working days of shipment.

Why the rush? And what’s the logic behind splitting up the B/L set this way?

Let’s unpack this one — before the ship beats the paperwork to port.

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QUESTION

We’re the advising bank and have just received a letter of credit that includes the following conditions under field 46B:

• “2/3 set of original clean on-board bills of lading made out to order of issuing bank”
• “Beneficiary’s certificate certifying that 1/3 set of negotiable shipping documents is to be couriered to the issuing bank within three (3) working days after shipment date”

We’re wondering why the issuing bank would request a portion of the negotiable documents to be sent directly within 3 working days after shipment, especially since our bank (as the advising or nominated bank) would ultimately forward the full set of documents anyway.

What purpose does this early dispatch of 1/3 of the negotiable documents serve for the issuing bank or the applicant?

Thank you,

T.T

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ANSWER

Hi T.T,

Great question — and you’re right to pause at that clause, because it’s not a standard textbook requirement. However, it reflects a very practical solution to a common trade timing issue.

In reality, it’s more common for an LC to require 1/3 original bill of lading (B/L) — especially the one made out to the order of the issuing bank — to be sent directly to the applicant, not the issuing bank. But in some cases, the LC may specify the issuing bank as the first recipient, as in your example.

Why is this done? Because there’s often a gap between shipment and document arrival:

1. After shipment, the beneficiary may need several days to prepare and present all required documents.
2. The nominated bank may then take up to five banking days under UCP 600 Article 14 to examine the documents.
3. Only after that are the full documents forwarded to the issuing bank.

Now imagine if the cargo is shipped from Ho Chi Minh City to Port Klang — it might arrive in 48 to 72 hours, faster than the documents can move through the banking channel. If the applicant doesn’t have an original B/L, they can’t clear the goods — leading to storage costs, demurrage, and delays.

To prevent this, the LC may require the beneficiary to courier 1/3 of the original negotiable documents (including one original B/L) within a few days of shipment. This enables the issuing bank to endorse the B/L to the applicant before the full set arrives — but only under specific conditions:

•  The bill of lading must be made out to the order of the issuing bank
•  The applicant must:
  • Pledge full deposit if the LC is to be settled from the applicant’s own funds; or
  • Sign a promissory note if the LC is funded by the issuing bank (under usance or financing terms); and
  • Waive any discrepancies (if the issuing bank has found them in the early documents or expects them later)

Once those conditions are met, the issuing bank can safely endorse the B/L to the applicant so they can take delivery of the goods immediately.

In summary:

This 1/3 document dispatch clause is a risk control mechanism — designed to help the applicant clear the cargo on time while still preserving the bank’s control and the integrity of the LC process.

Best regards,

Mr. Old Man