Personal opinion of the author served without prejudice  E&0.E

Advice and insight  for all commodity traders  World-wide


Posted: 28 Sept 2019:

ICC UCP 600 DLC (Uniform Custom and Practice for Documentary Credits) is a universal ruling bank application applied under the SWIFT communication system served in the form of ‘Message Text’ (MT) formate. A SWIFT code is an international bank code that identifies particular banks worldwide (also known as a Bank Identifier Code (BIC) consisting of 8 or 11 characters.) The 'eUCP' aspect is a banking process which allows transport documents to be presented electronically in support of the documentary credit. URC (Uniform Rules for Collections) are uniform rules applied to the collection process of a UCP endorsed letter of credit. When UCP, URC, SWIFT and eUCP are applied in a transaction, an instantaneous contract application (ICA) is in place. A DLC must have on its form words to effect “Applicable rules UCP latest version” to take advantage of the security features inherited by using such a financial instrument. A UCP endorsed DLC is not a guarantee of payment outright as conditions need to be met before the collection process can take place. The issuing bank ‘will honour’ payment is those conditions are met. This is why a ‘Standby letter of credit’ (SLC) must never be used to pay for purchased goods as an SLC is an ‘unconditional financial instrument.’

A UCP endorsed DLC may be advised to the supplier as not transferable. The end buyer issues a transferable DLC to the seller like FTNX. A transfer fee applies to be paid by the seller unless agreed otherwise. The proper procedure related to uor business  is for the end buyer to pay the transfer fee if parties to the contract agree. The transfer fee is addressed on the contract that the seller such as FTNX has with its end buyer. If a Non-transferable DLC is issued to the seller by the end buyer then the DLC  must be confirmed; often as confirmed by the bank of the seller is the first preference. The confirmation fee is payable by the end buyer if this type of credit is offered.

The UCP adhering bank of the seller (FTNX) will not readily accept to act on a DLC unless its issuance if conducted by a strong and/or corresponding bank of the seller.The advising bank of the pCT will need to assess who has issued the DLC before acting on such.  FTNX as seller uses a top 100 bank of the world. The bank of the Buyer/Seller (FTNX) is called an ‘advising bank.’ The end buyer issues ( the issuing bank) a DLC to FTNX  who transfers the buying price to the supplier. The advising bank plays no part in the underlying transaction and is simply defined as an ‘intermediary ‘proper. The transfer fee is the bank's commission which must be paid upfront before a credit will be transferred, in return, the trader has the security of a leading bank to assist in the matter of the financial aspect of the deal. The bank cannot get involved in the matter of the sales contract because UCP rules  states as much. A transferable UCP DLC can only be transferred once from the advising bank to the receiving bank of the supplier. Some end buyers have earned a reputation for intently breaking contracts. This is the main reason why the transfers fee is agreed to be paid/made payable by the end buyer buying goods from the FTNX. As an example, a 10 million dollar contract, will ostensibly attract a $40,000 transfer fee. If the belligerent end buyer intentionally breaks a contract after the DLC is transferred means the FTNX will lose money if the transfer fee had been paid from its own pocket. Losing such funds on a 200 million contract could mean sustaining huge financial loses or even cause the trader to become insolvent. In this light, FTNX often is prepared to return the transfer fee, as a separate cash rebate once first delivery is initiated. The transferable UCP DLC once applied correctly is the safest and quickest transactional trading aspect. 

A non-transferable credit may also be  advised to FTNX and accepted on the condition it's confirmed. The confirmation fee is payable by the end buyer as per the confirmation secured from our bank or acceptable corresponding bank. This is a test. If our top 100 bank of the world accepts the DLC from a bank where the end buyer is situated, then the creditworthy client is deemed to be financially stable. A Confirmed DLC means that seller FTNX applied for collection at its bank and remits the payment as a SWIFT transfer directly to the supplier. This means the supplier may use eUCP or post hard copies of the transport documents to FTNX. If the document complies (are cleanly presented at sight) the supplier is paid form the bank of the seller and not the issuing bank. The bank of the seller then collects the full value of the credit from the issuing bank. This aspect offers a quicker collection process to the supplier by 5 banking days. If the gross profit of FTNX is not enough to bear the discount, then a problem will arise accordingly; not all products can serve the virtues of a non-transferable DLC. Only where large gross profit margins are apparent can FTNX pass the majority of the buy price to the end buyer, retaining enough funds to cover both operational expenses (OPX) and any discount sought from our bank. A transferable credit offers the best lowest price in where a 10 days transaction period or less applies before collection can apply and in where a CDLC will have a 5 banking days collection process, albeit at a marginally higher cost. FTNX will accept a documentary letter of credit. The type of credit used dictates the final price. The end buyer opens and advises the DLC to FTNX within 7 days of the signed contract being returned, as the first delivery date is already activated as being 30 days after contract signing date (CSD). We use ‘days’ rather than ‘banking days’ when applying as a matter of business and contract. The DLC application, however, applies ‘banking days ‘

A storm hits the ship where it lost at sea. The suppler was entitled to be paid because ‘delivery had occurred’ port of loading. The insurance coverage taken out by the end buyer is where a claim for such loss is made, not the supplier. ICC Incoterms delivery rules used prescribes as much as it relates to matters of ‘delivery’.

In FCA the containers (FCL) are delivered to the Container Freight Station (CFS) manned by custom agents. A shipped BOL is endorsed and collected/presented as a part of the documentation if the buyer has asked FTNX to do so, at the added expense for the end buyers account. Under the new Incoterms 2020, the FCL can now be delivered directly to the end buyers warehouse or the factory if the end buyer is in the same country as the supplier, but this new addition to the rules has now presented more problems. The CFS delivery aspect will remain in force with FTNX.

The routine when a TDLC is used to pay for goods as per ICC FOB / FCA Incoterms. The vessel is loaded. Documents to be presented are secured; the documents are advised by the supplier's bank, who advises the buyers (FTNX) bank. The ship has already departed the port of loading. At this time, compliance must apply within 5 banking days. 3 days go by when the bank advises FTNX that compliance is apparent. The Bank then seeks further instructions. Required documents are lawfully changed, in where the advising bank seeks collection from the issuance bank who must examine the transport document ‘at sight’ and allows collection to apply within ‘5 bankings days.’ The Issuing bank upon accepting the document allows for collection to proceed in under 5 banking days when such documents were presented. The goods are still i.e: 10 days or more away from arriving at a destination port or more. In FCL sales FCA Incoterms applies in where the container is delivered to CFS.

Some inherited security features using a UCP 600 DLC for at sight collection of cleanly presented documents are;

  • If the Carrier is ordered by FTNX, it cannot present the Charter party BOL but a Shipowners BOL 
  • Documents being presented not complying to the terms of the DLC, the collection process will not proceed
  • If the BOL needs to be secured by FTNX, it must be presented with 21 days its issuance.
  • Only matters of finance are dealt with. Asserting matters of the underlying sales contract is not allowed.

We cannot use bank guarantees, and private bank-issued L/C’s, ICPO’s, BCL’s, SLC’s, cheques and cash payments. A supplier in a country which has Uniform Commercial Code in place can trade internationally using localises rules,( and thus local banking policies apply) even though it not a recommended process. If an end buyer in another country accepts such rules, then a trade could proceed. In such a case, the local supplier has the full protection of its laws when a dispute arises. Localised laws ( and thus localised delivery terms) are however ideally used for coastal trade conducted within a country where state borders are apparent ideally support localised rules. Technically such coastal deals are not ‘international trade deals.’ FTNX cannot use localised rules anyway, as we have to apply our trading application as a universally safe practice and that we do not own the goods and the property therein to be able to use ‘localised laws.’ In most cases, commercial codes of leading countries are very similar in design, where the brilliance of the Uniform Commercial Code (UCC) used in the USA shines through the most. In a situation where localised rules are used by a supplier situated in a country where an ongoing contract of supply is apparent, should the Government located in the country of the supplier suddenly for political reason impose huge increase in tariffs to importers from a country already buying the exporter products, who retaliates by suddenly imposing huge (highly unreasonable) tariffs on imported goods; the end buyer could claim a frustrating event to evade enforcement of the contract, which will not cause the irrevocable aspect of a financial instrument to become revocable. The irrevocable status of a DLC can only be revoked by a proven act of fraud. This is another feature of using a UCP 600 DLC.  

PA CTIDLC: Pre Advised Confirmed Transferable Irrevocable Documentary Letter of Credit.This is the simplest least expensive kind of DLC, but under UCP rules, the end buyer must first check if their bank will issue a UCP PA DLC before accepting an offer. If let's say an end buyer want evidence of our supplier to test our capability to make the offer, then such evidence can be presented with the issuance of a PA DLC as stipulated on the contract. Thus providing evidence of supply is applied on contract, if the supporting offer has offered such evidence. There is not such thing as proof of product, but only the verifiable details of   ‘supplier in possession of goods and the property in them’ being purchased by FTNX as buyer.  Only the goods arriving at destination can attest to  proving  goods, as specified on the contract, as per the goods loaded on board a named  carrier. Goods sold months earlier to another end buyer is not proof  that the same quality of goods are being sold to a current end buyer. The PA DLC is opened to FTNX. The evidence as indicated on the contract is advised to the bank of the end buyer as per the terms and conditions of the credit. Once advised, the pre-advised status of the credit is removed to leave a fully active TIDLC, in where the irrevocable aspect becomes established. Ideal for clients who have not done business with FTNX before, and are unsure of our intent. The PA TIDLC must be issued from a top 150-200 leading bank of the world at the maximum end of the scale. The confirmation aspect is removed unless the bank is over the minimum ranking expected.

  1. TIDLC: Transferable Irrevocable Documentary Letter of Credit.This is the preferred credit.TIDLC must be issued from a top 100-150 leading bank of the world at the maximum end of the scale.
  2. CONFIRMED TIDLC: A top 100 ranked bank of the world does not need to confirm the issuance of a credit to another bank. To do so is a waste of money. If the buyer does not want to issues a transferable credit then the credit would need to be confirmed.
  3. DLC With Added D/P: Deferred payment means that the credit has complied. Documents are (cleanly) presented, but the collection process is delayed by the D/P period offered i.e: 45 days, and thus site the end buyer is receiving 45 days before the credit is collected upon. Any end buyer who has closed a deal with FTNX for the first time may seek D/P aspect on a second deal. 
  4. A CORPORATE ISSUED DLC: FTNX is allowed to produce a DLC form its computer to the end buyer as a UCP complying instrument, and advise such to the supplier as an in-house instrument by email. The supplier now pays its bank to authenticate this in-house private issued DLC with our bank. The only time such an IH DLC is served to a supplier is when a non-transferable DLC in the account of FTNX is backing the issuance of the IH-DLC. This aspect is a costly one but does produce the quickest transaction aspect.

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