x Is your business involved in the field of import-export, international transportation,...need to learn about Letter Of Indemnity?
x You don't clearly understand the definition of Letter Of Indemnity? When to use?
x Are you wondering about the content, risks, and functions of the LOI?
Next, Proship.vn will quickly answer what a letter of indemnity is, when to use a letter of indemnity, risks, functions of a letter of indemnity, what the letter of indemnity includes,... and some tips. other related formula.
What is Letter of Indemnity? What does the content include?
Concept of Letter of indemnity
What is Letter of Indemnity? LOI (abbreviation for Letter of Indemnity) is a Letter of Indemnity, used for the buyer and seller but drafted by a third party (possibly an insurance company/bank) and accepting payment of compensation. financial assistance to one party in case the other party fails to fulfill its obligations.
The contents are in the LOI
Important content included in the LOI includes:
- Detailed information (name, address,...) of both buyers and sellers;
- Detailed information (name, address, etc.) of the third party organization guaranteeing compensation;
- The terms are agreed upon by the parties;
- Commitment, date of signing and signature of the parties.
In what cases is Letter of indemnity used?
Warranties and guarantees are often needed in the following cases:
Committed to receiving clean (perfect) bills of lading
When delivering exported goods, sometimes there are external deficiencies in the goods that the captain can note on the bill of lading, causing the bill of lading to become unclean and not accepted for payment by the bank or the sender. The cargo must negotiate with the captain and make a guarantee, committing to compensate the carrier for losses if the consignee claims that the cargo is not as stated on the bill of lading.
However, making this guarantee is not widely recognized as legal by international courts. The commitment can have serious consequences, so shippers need to consider carefully.
Guarantee to receive goods
Because the bill of lading needs to be presented to the ship to receive the goods but does not arrive in time for the ship to deliver the goods, the recipient is forced to request the bank's assistance in making a guarantee to be able to receive the goods from the carrier (BankerÙs indemnity). .
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General average contribution guaranteed
According to the York-Antwerp Rules 1990, cargo owners who have property in a ship experiencing general average must sign a general average contribution commitment (Average bond) and advance the payment to the general account to create a new general average fund. receive your goods while on board.
But if the goods are insured, the goods owner will request the insurance company to prepare a letter of indemnity or letter of guarantee to send to the carrier so that the goods can be brought back quickly.
Components of a Letter of Indemnity (LOI) in international transport
Components in LOI include:
Information of related parties
- Full name and detailed address of the party requesting LOI issuance (usually the importer or consignee);
- Full name and detailed address of the LOI issuer (usually a bank or insurance company);
- Full name and detailed address of the LOI beneficiary (usually the shipping line or carrier).
Reason for release, compensation content
- Clearly state the specific reason leading to the issuance of the LOI such as: request to receive goods without the original bill of lading, release of detained goods...;
- List in detail the damages and losses that the LOI issuer commits to compensate in the event of a risk.
Issue date, validity period
- Clearly state the date, month and year of LOI issuance;
- Determine the validity period of the LOI, ensuring compliance with the agreement between the parties.
Signature, seal
- The LOI must be signed by the legal representative of the issuer and the beneficiary;
- Seal (if any) of relevant parties to ensure the legality of the document.
Conditions and terms
- Clearly state the prerequisites for the LOI to be effective, for example providing documents proving damage, notification period when an incident occurs...;
- List cases where LOIs are void or rescinded.
Commitment to compensation
- Confirming the compensation liability of the LOI issuer to the beneficiary when events clearly specified in the content occur;
- Clearly state the compensation method (cash, bank transfer...) and payment deadline.
What is the risk in LOI (Letter of Indemnity)?
What are the risks of Letter of indemnity in import and export logistics? That is:
Legal risks
LOIs do not always have clear legal validity in all countries or in all circumstances. If a dispute arises, the LOI may not be recognized by the court, leading to difficulties in enforcing compensation rights.
Fraud risk
Some parties abuse LOIs to commit fraud such as issuing fake Letters of Indemnity or not being able to compensate, leading to high risks for the parties involved.
Lack of clarity in terms
If you are not careful when negotiating the terms in the LOI (Letter of Indemnity), the terms may be unclear or misleading, which can lead to disputes between related parties when problems arise. happen.
What is the function of LOI (Letter of Indemnity)?
What is the function of letter of indemnity? Letter of Indemnity (LOI) is a letter of commitment used in commercial transactions, especially in maritime transport. LOI has the following functions:
Ensure contract compliance
LOI provides a legal mechanism and clear compensation provisions to ensure the parties comply with the agreed terms in the contract.
Ensure financial risks
LOI (Letter of Indemnity) ensures that party A will be compensated if there is any loss arising due to delivery or failure to comply with the terms as originally agreed.
Enhance trust and cooperation between parties
Letter of Indemnity helps strengthen commitment to the correct implementation of terms and conditions in the contract, building trust between parties.
Minimize legal disputes
LOI (Letter of Indemnity) acts as a legal agreement committed between the parties. Helps minimize disputes between related parties by clearly defining responsibilities and compensation measures for violations.
We at Proship Logistics have clarified what the letter of indemnity is through the article shared above. In short, LOI is not only a legal tool but also a bridge between parties in the supply chain, helping to increase transparency and trust. If you have any questions about cargo transportation services, multimodal import and export activities, documents, related papers, etc., please contact 0909 344 247 for answers.
