Limitations of and proposals for L/C application of optional on-board B/L under the IncotermsⓇ2020 FCA rules

Abstract

PurposeThis study examines the limitations of the practical application of letter of credit transactions requiring an on-board bill of lading under the FCA and presents opinions on the practical use of FCA-ruled bills of lading for letter of credit transactions.Design/methodology/approachIt is very significant that the IncotermsⓇ2020 FCA rules have added new content regarding the optional description of the on-board bill of lading. However, even if the seller has received the on-board bill of lading, there is a limitation in that the bank may not judge the presented documents as a consistent presentation for payment. Identifying these limitations and suggesting solutions are very important for future international commerce transactions. This study is conducted in the following order. First, we review the UCP regulations that banks apply to confirm the consistency of transportation documents in letter of credit transactions. Second, we confirm the limitations in applying the selective description of the on-board bill of lading newly established in the FCA rules proposed by the ICC to letter of credit transactions. Lastly, necessary opinions are presented on how the buying and selling parties can properly utilize the Incoterms in letter of credit transactions.FindingsThe establishment of the ICC’s Incoterms 2020 FCA rule’s on-board bill of lading option regulation is intended to resolve merchants’ inconvenience caused by the document screening standards of banks that ignore changes in the trade environment such as the emergence of containers and maintain traditional ship trading practices. It can be interpreted. However, there are still problems with the presentation of on-board bills of lading under FCA rules, and there are also problems with practices between merchants and banks. Existing prior research is limited to dealing with the problems of using FOB rules in container transportation and the limitations of the onboard bill of lading option provisions of FCA rules. The Fourth Industrial Revolution has also affected trade, ushering in the digital era. Trade platforms developed with new technologies are either under development or being prepared for commercialization.Originality/valueThis study reaffirmed the main implications covered in previous studies and proposed the use of multimodal transport documents rather than bills of lading as an alternative to problems that may arise in letter of credit transactions that require on-board bills of lading under FCA rules. Above all, it presented opinions on changes in banks’ practices that require on-board bills of lading in letter of credit transactions, which are inconsistent with the mainstream container-based intermodal transportation.