Shipping guarantee

Shipping guarantee
Primary topic
Related topics
Methods and techniques

Shipping guarantee (SG) is given by the bank on behalf of the customer to the shipping company until original shipping documents will be delivered. Shipping company lets the customer to release delivery on the base of the shipping guarantee and there is no requirement to create original bill of landing. It is special application form signed off by both customer and bank [1]:

  • In most of countries, this is procedure used on daily basis,
  • Shipping guarantee does not have expiration date,
  • To fulfil the whole procedure letter of credit is also used,
  • Usually it is used for import transactions.

Reason of using shipping guarantee[edit]

Reason behind creating shipping guarantee is that sometimes goods arrive but documents has not arrived yet. For example goods arrived within two or more days from order, but shipping documents were delivered week or even two later. Without shipping guarantee, demurrage charges might be raised because the importer cannot release delivery immediately without proper documentation. Usually shipping companies use so called grant period during which penalty would be not raised, but sometimes there is no guarantee when exactly documents will arrive. To solve this uncertainty, bank offer service called shipping guarantee[2]. Another reason is that the importer does not risk delays, cause truck can drive to another place and lead time is met [3].

Bank perspective on shipping guarantee[edit]

Before signing shipping guarantee form, bank requires protection for example full margin. Banks rely on invoice received from customer or ask customer about the value of delivery [4] . Banks proposes that service to companies that can rely on (for example organisation that have positive history of transactions) [5]. Shipping guarantee is supported with special fund as part of investment support of policy financial institutions [6]. In business banking such investment is treated as trade facility [7].

Footnotes[edit]

  1. Luk K. W., (2011), p. 128; Reuvid J., Yong L., (2006), p. 426; Hossain M., (2018), p. 46 - 47
  2. Luk K. W., (2011), p. 128
  3. Hossain M., (2018), p. 46
  4. Koh K. L., Soe M., Cheang M., (1976), p. 442
  5. Reuvid J., Yong L., (2006), p. 426; Hossain M., (2018), p. 46 - 47
  6. Park K. S., Seo J. Y., Kim A. R., Ha M. H, (2018), p. 7
  7. Alliance Financial Group Berhad, (2016), p. 5

References[edit]

  • Alwi S. F. A., Osman U., Ibrahim U., Sawari M. F., (2016), Examnining issues on Islamic shipping guarantee in "Procedia - Social and Behavioral Sciences Volume 219", Elsevier
  • Alliance Financial Group Berhad, (2016), 2016 Annual Report, Alliance Financial Group Berhad
  • Hossain M., (2018), International Trade and Foreign Exchange for Banking Diploma. IBB Digest, Md Murad Hossain
  • Koh K. L., Soe M., Cheang M., (1976), The penal codes of Singapore and States of Malaya: cases, materials, and comments, Volume 2, Law Book Co. of Singapore & Malaysia
  • Luk K. W., (2011), International Trade Finance: A Practical Guide (2nd Edition), City University of HK Press
  • Park K. S., Seo J. Y., Kim A. R., Ha M. H, (2018), Ship Acquisition of Shipping Companies by Sale & Purchase Activities for Sustainable Growth: Exploratory Fuzzy-AHP Application in "Sustainability 2018, 10, 1763; doi:10.3390/su10061763"
  • Reuvid J., Yong L., (2006), Doing Business with China. Doing Business With Series Global market briefings, GMB Publishing Ltd

Author: Kinga Kutek