Q A Series No 33 - Letters of Credit Part 3

 

The Banking Tutor

Question Answer Series 2025

S No 33                                                                   04-08-2025

Letters of Credit – Part 3 

52. What is a MAWB? 

MAWB stands for Master Airway Bill. A Master Air Waybill  is a non-negotiable transport document issued by an airline or its agent to a freight forwarder, acting as a receipt for the shipment and a contract of carriage for the entire journey from origin to destination. It consolidates multiple shipments from different forwarders under one document. 

53. What is a HAWB? 

HAWB stands for House Airway Bill. A House Air Waybill (HAWB) is a document issued by a freight forwarder to a shipper as a receipt for goods shipped via air freight, particularly when multiple shipments are consolidated into a single master shipment. It acts as a contract between the forwarder and the shipper, outlining the terms of the shipment and providing detailed information about the specific cargo. 

54. Who design Airway Bill ? 

The International Air Transport Association (IATA) designs and distributes air waybills. 

55. How many types of Airways Bills are designed and what are they? 

There are two types of AWBs—an airline-specific one and a neutral one. Each airline AWB must include the carrier’s name, head office address, logo, and air waybill number. Neutral air waybills have the same layout and format as airline AWBs; they just aren’t prepopulated. 

56. How many digits will be there in Airway Way Bill Number and how many copies are issued for one Air  Way Bill? Whether Paper Airway Bills are in use? 

An air waybill has 11 numbers and came with eight copies of varying colours. With the Multilateral Electronic Air Waybill Resolution 672, paper air waybills are no longer required. Dubbed the e-AWB, it’s been in use since 2010 and became the default contract for all air cargo shipments on enabled trade lines. 

57. What is full form of SGS Clause ? 

SGS stands for Société Générale de Surveillance.

58. What is the SGS Clause? 

In a Letter of Credit (LC), the SGS clause refers to a requirement for a third-party inspection, typically by SGS (Société Générale de Surveillance), to verify the quality and quantity of goods before shipment. This clause is included to assure the buyer that the goods meet their specified requirements and to minimize the risk of discrepancies between the ordered goods and the shipped goods. 

59. What is the purpose of SGS Clause? 

The SGS clause is a quality control measure in international trade transactions. 

60. What is Lloyd's Certificate ? 

Lloyds Certificate is a certificate issued by Lloyds Registry of Shipping certifying the age, classification and seaworthiness of the vessel in order to ensure marine insurance cover under Institute Classification Clause. 

61. What is meant by Devolvement of LC? 

If the buyer fails to pay the amount to the seller the letter of credit is called devolved. In that case, the issuing bank or buyer's bank has to pay for the goods owned by the buyer. 

62. What is full form of UCP 600 and what it is ? 

UCP 600  stands for Uniform Customs & Practice for Documentary Credits (UCPDC). UCP 600 is a set of rules agreed by ICC (the International Chamber of Commerce), which apply to finance institutions which issue Letters of Credit – financial instruments helping companies finance trade. 

63. How many Articles are there in UCP 600? 

UCP 600 contains 39 Articles. 

64. What is eUCP ? 

The eUCP is a supplement and digital companion to the UCP 600 in purely digital form, allowing a quicker and safer way for financing trade. 

65. What is Standby LC? 

Standby Letter of Credit (SBLC / SLOC) is a guarantee that is made by a bank on behalf of a client, which ensures payment will be made if their client cannot fulfil the payment. 

66. What is the difference between SBLC and LC ? 

An SBLC is paid when called on when conditions have not fulfilled. However, a Letter of Credit is the guarantee of payment when certain conditions are fulfilled and documents received from the selling party. In the event that there is non-payment, the seller will present the SBLC to the buyer’s bank so that payment is received. 

A letter of credit is a short-term instrument, where the expiry is usually 90 days. A standby letter of credit is a long-term instrument, (validity is usually one year or so.) 

67. What is the difference between SBLC and Bank Guarantee ? 

Level playing field - Bank Guarantees (except for those under UDRG 758 ) are subject to a certain law and jurisdiction, which is either that of the applicant or the beneficiary. However, in case of SBLC, the underlying rules are either UCP or ISP. 

Expiry date - a guarantee can be open ended, a SBLC can not be open ended. 

68. What is ISP-98? 

ICC (International Chamber of Commerce) formulated a separate set of rules relating to SBLC in 1998 known as International Standby Practices (ISP-98), ICC Publication No 590 which has come into force on 01-01-1999.  ISP- 98 reflects the generally accepted practices, customs and usage of Standby LCs. 

69. What is full form of Incoterms and what is the purpose of the Incoterms? 

“Incoterms” is an acronym standing for international commercial terms. These are common terms to be used in International Trade and developed by ICC (International Chamber of Commerce. Different practices and legal interpretations between traders around the world necessitated a common set of rules and guidelines. As a response, ICC published the first Incoterms® rules in 1936. 

70. What is the latest version of Incoterms? 

The latest version of Incoterms 2020 were released in January 2020 to reflect the latest developments in international trade practices. The new version has incorporated many improvements and updates to the existing Incoterms 2010. 

71. How many Terms are there in Incoterms 2020? 

Both in Incoterms 2010 and 2020 there are 11 terms. 

72. What is the main difference between Incoterms 2010 and 2020? 

In Incoterms 2010, there is no mention of any safety and security measures taken by the seller while in the 2020 version of Incoterms, it is clearly mentioned that the seller is required to take any necessary measures for the safety and security of the goods during transportation process and pay for any necessary charges involved (where the seller is responsible for such measures). 

73. In how many categories Incoterms are classified and what are they ? 

The Incoterms are divided into four principal categories: E, F, C and D. 

Category E (Departure), which contains only one trade term, i.e. EXW (Ex Works). 

Category F (Main Carriage Unpaid), which contains three trade terms - FCA (Free Carrier) ; FAS (Free Alongside Ship) and FOB (Free on Board) 

Category C (Main Carriage Paid), which contains four trade terms - CPT (Carriage paid to) ; CIP (Carriage and Insurance paid to); CFR (Cost and Freight) ; CIF (Cost, Insurance and Freight) 

Category D (Arrival), which contains three trade terms - DAP (Delivered at Place) ; DPU (Delivered at Place Unloaded) and DDP (Delivered Duty Paid). 

74. What are the Incoterms applicable for any mode of transport ? 

Incoterms for any mode of transport: EXW, FCA, CPT, CIP, DPU, DAP and DDP. 

75. What are the Incoterms applicable for Sea & Inland Waterway transport ? 

Incoterms only for sea and inland waterway transport: FAS, FOB, CFR and CIF. 

Next Issue  will be shared on 6^th  August  2025.

Sekhar Pariti

+91 9440641014