Protect Using L/C on Shipment by Air

L/C or Letter of Credit of course, this is very important in export and import any goods for especially in international trade. Using an letter of credit the funds of any order that is provided by importer are keeping on safety, because bank ensures will not ever release the payment to exporter or beneficiary till the shipping documents are perfectly presented which are having the correct contents as importer request that are mentioned on the L/C. In the other hand the goods that are provided by shipper will be paid by importer through bank if the documents require is perfectly fulfilled and all those documents comply to the L/C.

But, practically starting vessel departure till buyer or applicant received the documents require will be needed so much times to spending up. I have an experience about this matter, view moths ago we have a buyer that requested us to order a type of yarn that we could not found in our country to a company in Italy. This buyer came from Japan. The yarns is quite heavy and so expensive. Because they gave us a short time to finish the order they decided to air the yarns or the shipment mode to become by air prepaid.

Because the yarns supplier may be consider that we are new buyer for them they insisted to issue a letter of credit prior the production were running up. We were understand with this situation. At the time we didn't realize the effect of taking an L/C to this trade. At the event that exporter have finished the production and the yarns were already to ship out, they send us the shipping documents for our reference. When the goods arrived at the Jakarta airport I was shocked, because the shipping documents were still in buyer's hand and they did not sent the documents to bank. Then after view days buyer sent the documents to bank and then bank checked the documents to ensure the documents comply to the L/C. After the checking was finished then bank sent them to negotiating bank. The process needs twelve days starting the on boarding date till the documents were passed to our office. It's means that we have to pay the additional storage fee for the twelve days. If the shipment is not using L/C this additional storage fee can be avoided.

Based on above experience we decided that if we are willing to import any goods we will chose the T/T payment term is becoming our choice to protect the additional storage coming up. The L/C are applying to our import of sea shipment mode only. We choose the T/T payment with a note the shipper are perfectly credible and trusted. Or at least our buyer guaranties in which the goods will be exported to us.

However, if buyer insists on using an letter of credit to each international trade, the extra costs of storage should be included to the production cost when the price are being calculating. So that this matter should be decided whether shipper prefers to chose an L/C or not prior to the purchase order is created up by buyer.