Letter of Indemnity (LOI)

Letter of Indemnity (LOI)

A document that serves to protect the carrier/owner financially against possible repercussions  in connection with the release of goods without presentation of an original bill of lading. A letter of indemnity is used in cases in which the goods arrive at the port of destination before the original bill of lading. The issuance of the letter of indemnity allows the purchaser to take immediate delivery of the goods, thus saving himself time, additional demurrage, storage expenses, insurance costs, etc.

Letters of Indemnity for Telex Release of goods

If a negotiable bill of lading has been issed in an international trade transaction, then importers have to present to the carrier’s agents at the port of discharge one original copy of bill of lading in order to receive the goods.

If buyers could not present this original bill of lading than the shipper may have to fill a document called letter of indemnity to have the goods released without surrender of the original bill of lading. 

This article explains the issuance process of letter of indemnity and telex release of goods.

Bill of lading is a transport document which is used only port-to-port sea shipments. 

In a traditional way bills of lading are document of title which means that with the help of an original bill of lading you can legally transfer ownership of the goods by delivering or endorsing it over to another party.

Traditional bills of lading should be issued in a negotiable form allowing the delivery or endorsement title of goods to another person. 

Negotiable form bills of lading can be issued as bellows:

·                     consignee : to the order of “XYZ Bank” 

·                     consignee : to the order of “the shipper” 

·                     consignee : to the order

Once the bills of lading are issued in a negotiable form as shown above, they can be endorsed to a third party. The receiver of the goods, which is known as consignee, can be changed to a new person or company by endorsement. 

As a result the carrier’s agent at the port of discharge cannot determine without the presentation of original bill of lading by himself who the actual receiver would be in a situation where a traditional bill of lading used as a transport document.

In order to prevent any mistake, shipping sector created regulations for delivery of goods at the port of discharge for shipments made under traditional bill of lading. 

According to these rules at least one original bill of lading must be surrendered to the shipping line’s agent at the port of discharge for delivery of the goods. 

The carrier have to release the goods to the original bill of lading holder at the port of discharge.

In some occasions buyers at the port of discharge could not present at least one original bill of lading to the carrier’s agent. 

Bellow you can find some possible reasons why buyers at the port of discharge could not present at least one original bill of lading:

·        Buyers may have lost the original bill of lading 

·        Bills of lading may have been lost during the courier service 

·        Vessel may have been arrived to the port of discharge before exporter could   dispatch the shipment documents to the importer. 

·        Goods may have been sold couple of times during the transportation between port of shipment to port of discharge. As a result documents may not be ready when the vessel arrived to port of discharge.

If the buyer could not provide the original bill of lading to the carrier at the port of discharge, than the shipper should fill a letter of indemnity to be given in return for delivering cargo without surrendering of the original bill of lading.

What is the required information should be included in a letter of indemnity

There is no formal sample format exist for a letter of indemnity. As a result each shipping line produces its own format. But we can summarize the main parts that need to be included in a letter of indemnity as bellows:

·                     Vessel Name / Voyage Number 

·                     Port of Loading 

·                     Port of Discharge 

·                     Bill of Lading Number 

·                     Number of Packages 

·                     Goods Description 

·                     Indemnify the carrier and their agents and hold all of them harmless in respect of any liability, loss, damage or expense of whatsoever nature which they may sustain by reason of delivering the cargo in accordance with the request to do so provide sufficient funds to defend any claim brought in connection with the delivery of cargo without bills of lading.

Samples:

As I have explained above there is no standard format letter of indemnity exist but ı can give couple of samples to provide general information as bellows:

To : Golden Fortune Shipping Co., Ltd. Hong Kong

(Agents for Shanghai Hai Hua Shipping Co., Ltd.) if appropriate

Dear Sir/Madam,

Vessel/Voy : ___________________________________

Port of Loading :____________________________________

Port of Discharge : ___________________________________

B/L No. : ___________________________________

No. of Packages : ___________________________________

Goods Description : ___________________________________

The above goods were shipped on the above vessel by us and we hereby request you to deliver such goods at the above port of discharge to _____________________________ without production of the bills of lading.

In consideration of your complying with our above request, we hereby agree as follows:

1. The full set of original bills of lading properly endorsed is surrendered at the above port of loading.

2. To indemnify you, your servants and agents and to hold all of you harmless in respect of any liability loss expenses or damage of whatsoever nature which you may sustain by reason of delivering the goods  to_______________________________________ in accordance with our request.

3. In the event of any proceedings being commenced against you or any of your servants or agents inconnection with the delivery of the goods as aforesaid to provide you or them from time to time on demandwith sufficient funds to defend the same.

4. If the vessel or any other vessel or property belonging to you should be arrested or detained or if the arrest or detention thereof should be threatened, to provide such bail or other security as may be required toprevent such arrest or detention or to secure the release of such vessel or property and to indemnify you inrespect of any loss, damage, liability or expenses caused by such arrest or detention or threatened arrest ordetention whether or not such arrest or detention or threatened arrest or detention may be justified.

5. The liability of each and every person under this indemnity shall be joint and several and shall not be conditional upon your proceeding first against any person, whether or not such person is party to or liable under this indemnity.

6. This indemnity shall be governed by and construed in accordance with Hong Kong law and every person liable under this indemnity shall at your request submit to the jurisdiction of the Hong Kong court.

Yours faithfully,

____________________________________

(Cargo Owner/For and on behalf of Shipper)

(Place and date)