Month: November 2022

Many companies, indirectly involved in the shipping of goods, underestimate the risk of loss of the ‘Original Bill of Lading’ which forms an integral part of the Letter of Credit process. 

The Bill of Lading is a set of physical documents that have to be transported across the globe, usually by courier, to the place of delivery in order to get the goods in transit released. 

As it happens, they sometimes get lost. These documents are essential as they are documents of title, meaning that whoever owns the bill is entitled to delivery of the goods. This also means that losing this document has major repercussions, which one of our customers experienced recently when they tried to get a cargo, containing chemicals, in Africa delivered. 

The loss of the Original Bill of Lading required them to get a letter of indemnity (LoI) and a bank guarantee, both involving cumbersome processes. The result of the fact that the shipper refused to take any risk in terms of his liability in case of a potential claim of non-delivery, which could occur if he were to have delivered the cargo to the wrong party.

The LoI had to formally discharge him of any responsibility in this regard. The guarantee would then cover a potential subsequent refusal of the rightful consignee to pay, not having received the goods. To get these documents we had to produce a lot of supporting documentation, such as, a written statement of loss, the packing list, the commercial invoice, and a copy of the LC (its validity being conditional on the existence of an OBL). Lastly they needed to put in a formal request to have the goods released without OBL as the issuance of a new OBL would have taken even longer; more work for the lawyers, more costs.

Having gone through all of this, incurring significant costs and ending up with some very unhappy customers they wondered if there wasn’t a better way to manage this risk or even to avoid it altogether. We introduced then to Mercurion Trade Services, a company offering a platform through which transactions can be safely settled without the need for an OBL, and at the same time offering an alternative for an LC.

The process is simple, safe and much more efficient. It’s based on an Escrow process: buyer pays in Escrow and only when the confirmation of delivery at the agreed place of destination has been uploaded onto the platform, funds will be released. All through an entirely digital interface in real time. They are glad to have found this new way of doing business; less bureaucracy feels so much better! 

If security is required we simply decline the business!

Having had experience with the LoC process in a number of different contexts, our customer has had a disproportional number of problems with these documents. In particular, considering the small volume of business they conducted with counterparties requiring LoCs.

The problem was that as soon as something changes that is not foreseen in the schedule the existence of the LoC leads to delays in settling the transaction. In some occasions entangling a transaction that was put on hold due to discrepancies in the documentation, (small) delays, or procedural issues raised by one of the banks involved, required too much time and effort and on average made these transactions unprofitable. 

Having had this experience management decided to decline all business where clients asked for LoCs, or where they felt they needed security. This involved keeping their customer-base tight and only trade with our longstanding relationships or through solid referrals.

So, the question we needed to solve is how to speed the expansion of our client universe without having to set up a larger infrastructure to deal with LoCs.

We introduced them to ‘Mercurion Trade Services’, who offered an alternative based on the principle behind an exchange: ‘settlement against delivery’. Effectively an escrow service conducted through a user-friendly cloud-based platform; easily accessible for everyone, globally. Any monies to settle a transaction prior to delivery are held by Baltic Exchange, an institution involved in the business of trade for over 300 years with offices around the world. Being part of Singapore Exchange their security is very solid. The group has a first class record in providing security and settling transactions.

Having discovered Mercurion they were able to open the ‘flood gates’ a bit more and placate our sales force. All in all the implementation of Mercurion’s offering solved some organisational behaviour problems in tandem with our more straight-forward objective to increase profitability. A risk management tool without the complications of the LoC, which is embedded in a state of the art platform providing a very clear and user-friendly interface, really is a no-brainer!