Case Study of Partial Shipment

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Transportation is a key link of international trade. And the Transportation Clause is an indispensable part of contracts and letters of credit. In practice, restricted by huge transactions, or by stocking , transportation , marketing and funding constraints, goods are always delivered in a phased manner, commonly known as partial shipment.

What Is Partial Shipment

Case I: M Company is to export 10,000 ton of rice to import merchant N with Transferable Credit, and it is stipulated that partial shipment shall not be made. Therefore, M Company transferred its letter of credit to five of its branches. And these 5 branches loads the qualified rice in accordance with the provisions of the shipment at their respective ports through the same liner loading and get the payment for goods from their local banks. But after the goods reached the port, the importer was not willing to accept the rice for the market for the rice experienced a huge fall. Therefore, the importer refused to pay, with the excuse of M Company has conducted partial Shipment for the different places of delivery and date of shipment. However, the M Company thought there has been no violation of the letter of credit on their part.

The dispute between the two sides lies in whether this case is partial shipment. By "UCP600" Article 31, paragraph b, and "ISBP681" (or "International Standard Banking Practice for the Examination of Documents under Documentary Credits ") Provision 105, the transport documents indicate with the same means of transport, the same voyage, and the same destination, the multiple shipments, even if so indicated with different date of shipment or different port of loading, supervision or place of shipment, would not be regarded as partial shipment at all. However, if all conditions are the same, even if the shipment of goods is made in many vessels, it constitutes a different means of transport and makes it a partial shipment. Obviously, in this case it is not a partial shipment.

Case II: 300 metric tons of yellow sesame seeds are to be transferred from Dalian Port of Rotterdam, and the partial shipment is prohibited. 150 tons of yellow sesame seeds would be shipped from Dalian to Rotterdam, and another 150 tons of yellow sesame seeds from Dalian to Amsterdam instead of the original shipping provisions. Credit provisions are as follows: "300M/Tons of Yellow Sesame seeds, shipment from Dalian to Rotterdam not later than March 31, and Partial shipment prohibited." Subsequently, the content was modified to: "The shipment changed to 150 M / Tons of Yellow Sesame seeds from Dalian to Amsterdam instead of original stipulation.”

Therefore, the seller believes that although the terms stipulated in the original letter of credit do not allow partial shipment, as the terms have been modified to "delivering the goods in 2 shipments "(one to Rotterdam, another to Amsterdam), the clause prohibiting partial treatment no longer exist. Therefore, the seller conducted partial shipment but the issuing bank refused to pay on the ground that the original letter of credit does not allow partial shipment. And the buyer believed that what they had modified is only the port of destination and volume of goods, which have nothing to do with partial shipment. Therefore, the goods for both the destinations shall be loaded on a same ship because the two destinations are on the same route.

In this case, the revised letter of credit used the term "Instead of original stipulation", its meaning can be understood as it would take the place of all the terms of the original shipment, of course, it can include all the shipping terms, including the "Partial shipment prohibited". Moreover, from the general point of view, to divide 300 tons into 150 tons and ship to two different destination port, it is easy to mistakenly think the buyer is to ask the partial shipment. Therefore, the fundamental cause of controversy is not theambiguity of the modified letter of credit.

In this case, the dispute is caused by the ambiguity of the modified letter of credit. And after the dispute had taken place, the exporter failed to grasp the common practices to their advantage, which eventually led to non-payment. This kind of issues always happens in trade disputes, therefore, in practice, when arrange for shipment, the exporter should be strict with the verification of credit and always make modifications in time. It should be made clear that whether the shipment is partial or not. And when there is a problem, we should invoked international practice and should not leave the case merely at the mercy of the importer.

CaseⅢ: A company made an export trade in beans. According to some of the provisions provided by the letter of credit, “altogether 600 tons of beans, partial shipment allowed and should be carried out in 2 batches, with 400 tons shipped to Antwerp on May 31, and 200 tons to Brussels on June 30.” According to the sailing and cabin conditions, there was not enough space to Antwerp. Therefore the 400 assigned to Antwerp must be shipped with 2 different ships. As the letter of credit allowed partial shipment, the foreign trade clerk found it had no problem at all. The company in May 18 loaded 200 tons on Ship A and in May 19 loaded another 200 tons on Ship B to the port of Antwerp. As a result, the bank did not allow the separated shipment and found the document unmatched, therefore refused to make the payment.

In this case, “allowing partial shipment “has been restricted by” two batches” are limited, i.e., 400 tons are shipped to Antwerp, and 200 tons to Brussels and it can not be divided among each batch. But in this case of partial shipments, although the cabin at that time was insufficient, the foreign trade clerks had misunderstood the terms of the letter of the credit, which led to the failure of this case.   

CaseⅣ: Import and Export Corporation export a batch of frozen game animals, and the letter of credit stipulates that of the 900 metric tons of pheasants, 300 tons are of class A, 300 tons are of Class B, and 300 tons are of Class C, and shipments shall be divided into two equal batches. According to the rules stipulated by the letter of credit and their inventory, this import and export cooperation decided to arrange for two shipments: the first batch will be 450 metric tons, including 140 tons of Class A, 140 tons of Class B and 150 tons of Class C. and the second batch would also be 450, with 140 tons of Class A, 160 tons of Class B and 150 tons of Class C. However,   the Bank has refused to pay on the ground that the shipments are divided into two equal batches and therefore the document does not match.

Although the contract and letter of credit amount for each batch of shipment , but supply , ship and other reasons , the seller may not be shipped in batches according to the established requirements . The case of the letter of credit , including three levels of 900 tonnes of cargo , and provides for three levels of the number , and then provides two groups of equal number of shipping points , including three levels of course the number of equivalent two batches should be installed by , otherwise do not meet credit requirements.

In addition, goods like 1,000 boxes of tea cannot be divided into exactly three batches of shipments, according to bank practices, the indivisibilities can be put on the last batch. That is, the first and second batch would go with 333 boxes, and the third batch would be 334 boxes. Otherwise, if it goes like 300 boxes for both the first and the second batch and the 400 boxed left for the third batch, the bank may refuse to pay.

Intervals Between Shipments

CaseV:Company A export are to export 200 tons within 2 month from March to April. And the shipment shall be made 100 ton per month and transshipment allowed. Company A loaded the first 100 tons on Ship A in 30th, March and loaded another 100 tons on Ship B` in 2rd, April. and both the ships made the transshipment in Singapore, when the two batches of goods were all loaded on a Ship C to deliver to the port of destination.

If regulations allow only partial shipment, it would be more convenient for the sellers, who are totally capable of get the shipping period specified in the contract under control. But when the partial shipment clause stipulated the shipping time as “A certain number of shipments per month”, it is important for the seller to wisely manage the intervals of the shipment.

If the payment is made through letter of credit, then the document would not be a problem when it comes to partial shipments. However, in this case the requirement of “shipped 100 tons per month” was misunderstood. Although this partial shipment took altogether 2 months (March and April respectively), which on the surface met the requirement but indeed there were only 2 days between the shipment intervals. Then because of the trans-shipment, the goods reach their destination at one go, which violated the wishes of the B Company because it may bring inconvenience even extra cost to the B Company.

Therefore, in practice, the shipping side must manage the length of time between shipment intervals. In this case, special attention needs to be paid to the keyword “month”. Counted for 30 days per month, and based on changes in five days, shipping period should be between about 25 to 35 days. To maintain a long-term trade relationship, it is necessary to control the time in a reasonable scope and to think from the perspective of the receiving party.

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1 Responses to " Case Study of Partial Shipment "

  1. vijay dixit on  JUN   17th , 2012 6:47 AM

    Although cases referred are good. It lacks clarity.
    Some places there are clerical mistakes. English is not good. The discussion should have been more elaborate giving exact clauses and ISBP Sections.

    Otherwise it is very good and useful for the beginners to understand the nature of discrepancies and how to handle them.

    Regards and thanks

    Vijay Dixit
    Faculty in Management.

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