Buying imported cement on a Letter of Credit: how the documents protect you

What is a documentary Letter of Credit, in plain terms?

A documentary credit, also called a Letter of Credit or LC, is a written undertaking by a bank to pay a seller, up to a stated amount, when the seller presents the documents the credit asks for. ICC Academy describes it as given on the instruction of the buyer and conditional on a complying presentation of documents.

Three roles matter. The applicant is the buyer, on whose request the credit is issued. The issuing bank issues it. The beneficiary is the party in whose favor it is issued, normally the seller. In Soku's structure you are the applicant, Soku USA is the beneficiary, and documents move bank to bank, so you pay your own bank against documents. The article numbers below refer to the ICC's UCP 600 (2007 revision), the rulebook most credits follow.

Is a Letter of Credit irrevocable if it does not say so?

Yes. Article 3 of UCP 600 states: “A credit is irrevocable even if there is no indication to that effect.” ICC Academy explains the practical meaning: an irrevocable credit can be amended or cancelled only with the agreement of the beneficiary and, if there is one, the confirming bank.

Our standard structure is an irrevocable credit, and the default rule backs that up. But irrevocability mainly protects the seller, because the payment promise cannot be withdrawn after shipment. What protects you as the buyer is the list of documents the bank insists on before it pays. Focus your negotiating effort there.

What does the bank actually check?

The bank checks paper, not cement. Article 5 says banks deal with documents and not with the goods, services or performance to which the documents may relate. Article 14(a) has the bank examine a presentation on the basis of the documents alone, to decide whether they appear on their face to be a complying presentation. Article 4 adds that a credit is separate from the sale contract, and banks are not bound by it.

Two timing rules are worth knowing. Banks have a maximum of five banking days after the day of presentation to decide whether it complies (Article 14(b)). And a presentation that includes original transport documents must be made no later than 21 calendar days after the date of shipment, and before the credit expires (Article 14(c)).

Which documents are typical for a cement shipment?

The exact list is negotiated for each order. This is a typical set for an ocean cargo, not a fixed Soku checklist.

• Commercial invoice. The seller's invoice for the goods.
• Bill of lading. The ocean transport document. Its shipment date starts the 21-day presentation window.
• Mill test certificate. The mill's report documenting conformance to the standard you ordered, such as ASTM C150. Every Soku shipment includes mill test reports.
• SGS inspection certificate. An independent inspection result from a named inspector, covered below.
• Certificate of origin. States where the goods were produced. The duty position for Vietnamese cement turns on origin, and classification is confirmed with a licensed customs broker before contract.
• Packing list. Lists the cargo and its packing.
• Insurance certificate, CIF only. Under Article 28 it must appear to be issued and signed by an insurer, underwriter or their agents, cover notes are not accepted, and it must be dated no later than shipment unless cover takes effect by then. If the credit is silent on cover, the amount must be at least 110% of the CIF value.

Why does naming the SGS certificate matter?

Because a vague quality condition does nothing. Article 14(h) says that if a credit contains a condition without stipulating the document to indicate compliance with it, banks deem the condition as not stated and disregard it. “The cement must pass independent inspection” written into a credit, with no certificate named, would be ignored by the bank. Naming the certificate turns the wish into a payment condition.

Who issues it matters just as much. Under Article 3, terms such as “independent” or “official” describing the issuer of a document allow any issuer except the beneficiary. Asking for an “independent inspection certificate” lets the seller pick any third party but itself. Naming SGS as the issuer closes that gap. Article 14(f) points the same way: a required document with no stated issuer or data content is accepted if it appears to fulfil its function. Say who issues it and what it must state.

The result is pre-shipment quality control built into the payment mechanism. The inspection evidence has to exist, from the inspector you named, before the bank honors the credit. Independent SGS inspection is available at three stages, with the sampling method, laboratory and acceptance criteria named in the contract rather than left to the certificate. Which stages apply to an order is set in the contract.

One honest limit. The bank checks that the certificate is presented and that its data does not conflict with the credit. It does not judge whether the cement is good, so the acceptance criteria belong in the contract and the credit terms.

FOB, CFR or CIF: which one changes what my bank sees?

Incoterms 2020 is the ICC's set of 11 trade terms. FOB, CFR and CIF are all for sea and inland waterway transport only, and under all three the risk of loss or damage passes to the buyer when the goods are on board the vessel at the port of shipment. The summaries below follow ICC Academy explainers by guest authors, so check the rule text when you draft your contract.

• FOB (Free on Board). The seller delivers the goods loaded on the vessel the buyer nominates. The buyer contracts the carrier and pays the freight. This is how Vietnamese mills typically sell, usually against wire payment.
• CFR (Cost and Freight). The seller contracts and pays the freight to the destination port, but owes no obligation to buy insurance. The buyer is well advised to arrange its own cover.
• CIF (Cost, Insurance and Freight). Like CFR, plus the seller must contract insurance for the buyer's benefit. That is why an insurance document shows up in a CIF credit and not in a CFR one.

The trap is confusing who pays the freight with who carries the risk. On CFR and CIF the seller pays for the voyage, yet risk has already passed to you at loading. Incoterms are terms of your sales contract, while the bank works from the credit (Article 4), so the credit's document list should match the term you chose. Soku quotes all three, with delivered terms depending on freight being available for your route and the vessel booked on the supply side, and we agree the importer of record and the risk-transfer point with you in writing before anything loads.

How does Soku structure its Letter of Credit?

Our standard structure is an irrevocable documentary Letter of Credit with Soku USA as beneficiary, bank-to-bank documents, and a 10-day quality cure period. SGS inspection is available at three stages, with the sampling method, laboratory and acceptance criteria named in the contract. Final terms are set in your contract.

How the cure period interacts with the credit's shipment, presentation and expiry dates is something to settle in the contract and with your bank, not to assume.

What should I check before accepting the draft credit?

1. Every condition names a document. Under Article 14(h), a condition with no stipulated document is disregarded.
2. The SGS certificate, or any other inspection document, names its issuer and states the data you require.
3. The document list matches the Incoterm. An insurance document belongs in a CIF credit only.
4. The shipment date, the 21-day presentation window and the expiry date leave room for your cure period and ordinary delay.
5. The product description and standard read exactly as you want the invoice to read.