Shipping Guarantees Vs Delivery Orders (Letter of Credit)

Shipping guarantees and delivery order both are used to take the delivery of goods in absence original transport documents.

So here the first question comes in mind, when shipping guarantee and when delivery order!
In order to get the answer of the above questions lets understand each topic one by one.

Shipping Guarantees:

Shipping guarantee is needed when the goods have been arrived in the importing country and ready to be delivered, however, in case of sea shipment if it is not a non-negotiable bills of lading case then original bills of lading are needed to take the delivery of the goods, reason being that the bills of ladings are "Contract of Carriage/Title to Goods" which means that consignee can only take the delivery of the goods upon surrender of originals bills of lading.
Sometimes, due to large number of banks involvement documents reach to the applicant via issuing bank well beyond consignment reaches the destination port.
Such a case could put applicant into dilemma if the delivery of the goods are not being taken at time as below:
1. Goods may not meet the standards as it was asked in the letter of credit due to additional time mostly in eatable goods e.i frozen meet, fruits, or any other consumable items.
2. Detention charges may levied.
3. Goods may be ceased by custom in worst scenario.

In order to avoid such a circumstances, applicant need to take the delivery of the goods and in that prospect they must need to ask the issuing bank to issue the shipping guarantee if the goods are consigned either to order of issuing bank or to issuing bank, In most of the cases gods are consigned to the order of the issuing bank as it secures the issuing banks being primary means.
As the name itself explains word "Guarantee", it is a guarantee issued by the issuing bank to shipping company to deliver the goods to the named consignee/applicant, most of the banks take counter indemnity from applicant to debit there account irrespective of discrepancies, shipping guarantees do not have any expiry dates and need to submit it back to the issuing bank in order to close it once bills of lading are received and submitted to the shipping company.

Delivery Orders:

We must need to understand that the transport documents those defined in article 21,23, and 24 in UCP600 are not document of title (delivery does not occur only on submission of original), In those cases wherein, shipment are being happened through air, rail or road delivery may be given to the consignee upon simple identification.
As we already learnt that goods may be the primary means of security in letter of credit apart from facilities and lien, so if the goods are directly consigned or even asked for "to order" consignment to the bank it may be directly consigned as per ISBP745, wherein, only banks can take the delivery of goods.
Article 5 of UCP600 says that the banks deal with documents not with the goods and bank may never go to take the consignment or act as an agent of applicant, in that manner bank may have to issue a delivery order to the applicant against indemnity to debit the account or credit the banks account at first demand (in case, if not account is maintained) irrespective of discrepancies. 

Points to be noted:

Delivery orders are not a bank guarantee and have an expiry date wherein shipping guarantees is used as in guarantee issued by bank and my comes under URDG.

Shipping Guarantees are used in sea shipment as delivery orders are used for rail, road or air shipment commonly.

We should check the applicant counter indemnity before issuing either shipping guarantee or delivery order based on the case as bank are going to provide and take the risk of conversion.

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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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