Risks Involved in Charter Party Bills of Lading when Letter of Credit is the Method of Payment

Charter Party Bills of lading are a transport documents commonly used in letter of credit defined by UCP article 22 and ISBP para G. So when we see the charter party Bills of Lading, first question arises, why charter party instead of a marine Bills of Lading?

Let's understand it thoroughly, there are many similarities among other Bills of Lading and Charter Party Bills of Lading, though we will look for differences only.

1. There is no carrier involvement: charter party Bills of Lading does not contain carrier information, reason being that the ship is hired/leased by shipper or group of shippers for their particular shipments as these shipments are bulk commodities.
2. Owner's Involvements: Owner is the person/entity who may be no where related to the letter of credit but may still controls the trade somehow, in case of any default by the charter owner may take the custody of the goods and sale to cover the unpaid lease/rent of the ship.

2. Charter involvement: Charter is the person/entity who may be beneficiary or applicant as it depends on IncoTerm, in case of FOB an applicant may be charter or similarly term with CFR a beneficiary may be the charterer.
So if an applicant does not want to receive the goods later after issuance of LC wherein they are charterer, may default on charter party contract and goods can be ceased by the owner to cover the loss as per charter party contract.

3. Tentative/undecided port of discharge: A charter party Bills of Lading may contain a geographical area for port of discharge which is also a risk wherein the applicant was expecting and comfortable the goods to be unloaded on a particular port wherein a chartered ship may have different routing to the same country and may unload it to different port due to that an applicant may have to bear an additional cost to take it to their final place.

The primary security of a banks are in most of the letter of credit is goods, they may ask the beneficiary to consigned "to order of issuing bank" however, due to the involvement of owner in charter party Bills of Lading it may not works in that way.

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Chandan Kumar Yadav
My name is Chandan Kumar Yadav CDCS, CSDG, CITF, PGDIBO,AML-KYC, CCFE, MLIBF, CSF, 6SIGMA a trade finance professional with an experience of 11 years whereas worked with several stages of letter of credit, bank guarantee and on other payments methods of trade transactions such as documentary collection, open accounts, SBLC etc., I have a fair understanding of Trade Based Money Laundering as well, Blogging related to Trade Finance is my passion and I want to share which I know and learn from others, I have worked with Wells Fargo, Yes Bank Limited and Bank of America, India which helped me to gain knowledge, view of Trade Finance and importance of International Trade in world's economy. Trade Finance is thumping product, everyday we are learning something new so in order to keep learning I started this as one of the platform. . Let's Learn Together

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