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How Important Is the Shipped on Board Clause?

Posted on Saturday, October 10th by

As shippers handling documentary credits can testify, the Shipped on Board clause weighs quite heavily with banks. Numerous shipments have been rejected, discussed and disputed over time on account of various discrepancies in this clause, dates, stamps or signatures. Normally, these rejections, discussions and disputes should indicate verifications being made by the bank on whether the cargo specified on the bill of lading is actually loaded on a ship or not. However, this is not the case.

Indeed, some verifications are made by banks with regard to the cargo specified on the bill of lading and other relevant pieces of documentation. However, they only refer to the shipping documentation being submitted in compliance with the letter of credit and not to whether the cargo is loaded on a ship or not.

According to article 5 of Uniform Customs and Practice (UCP) 600 on documentation versus goods, services and performance, banks verify the shipping documentation, but do not make verifications with regard to any goods, services or performance that might be related to it. This stipulation is reinforced in article 34 of the same Uniform Customs and Practice (UCP) 600, more specifically in the disclaimer on the effectiveness of the documentation. According to it, the bank is not responsible for the authenticity, form, completeness, truthfulness or legal effect of any pieces of shipping documentation, nor for any conditions that might be stipulated or covered therein. Nor is it responsible for the description, quantity, quality, weight, condition, value, delivery, packing or existence of any goods, services or performance or for the acts, omissions, standing, performance or solvency of consignors, carriers, forwarders, consignees, insurers or other persons.

The bank receives the bill of lading corresponding to a given shipment from the shipping line. However, it should be noted that the shipping line cannot submit this piece of documentation unless the following aspects have been verified in advance: whether the customs have cleared the container or not; whether the container has been loaded on board a ship or not; whether the loading port has been specified on the bill of lading or not.

In this context, the bill of lading is deemed authentic by the bank and, as a result, its verification is deemed unnecessary. In this context, the bank will verify other pieces of documentation instead, such as the commercial invoice, the certificate of origin or the packing list, among others. These pieces of documentation will be approved only if compliant with the provisions of the letter of credit.

Similarly, the cargo specifications featured on the commercial invoice, the bill of landing or any other relevant documents will not be verified by the bank physically either for its representatives do not come into physical contact with the cargo to be shipped at any point. However, they will compare the descriptions featured on the aforementioned documents to those featured in the letter of credit, any discrepancies between them resulting in the immediate rejection of the erroneous piece of documentation.

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