Letter of indemnity, delivery without bill of lading ORA-BL-5531, Orana Grain Traders
Letter of indemnity for delivering cargo without the bill of lading
A letter of indemnity lets a carrier release cargo without the original bill of lading in return for the requesting party's promise to cover any loss that follows. This two page letter from a grain exporter asks a shipowner to deliver 3,000 tonnes of barley to a named receiver while the original bill is still in the bank chain.
The document, page by page
Every page as it renders and as it prints, with nothing summarised. Read the wording before you reuse it.
Section by section
What each section is for, so you can keep the ones you need and drop the rest.
- Ledger letterhead and footer
- The exporter's name and shipping contact, and a footer naming the bill of lading with page numbers.
- Addressee
- The shipowner, the vessel and the claims department.
- Shipment details
- Vessel, voyage, ports, bill of lading, cargo, shipper and receiver as rows.
- The request
- Why the original bill is delayed and the delivery asked for.
- Undertakings 1 to 3
- Indemnity, funds to defend proceedings and security on arrest.
- Undertakings 4 to 6
- Delivering the original bill, liability without demand on others, and English law.
- Countersignature note
- The carrier's request for a bank countersignature and when it will be given.
- Signature block
- The director's name and title for the exporter.
Why the original bill matters
A bill of lading is a receipt, evidence of the contract of carriage and, when it is made out to order, a document of title. Whoever holds the original is entitled to the goods, which is why banks hold it until a letter of credit is paid. A carrier that hands over cargo without it risks paying twice: once by delivering to the receiver, and again to the true holder who later produces the bill. Statutes such as the Carriage of Goods by Sea Act 1992 in the United Kingdom set out who can sue on a bill, and the protection and indemnity clubs that insure shipowners publish standard forms of letter of indemnity so their members know what wording they can rely on.
Who risks what
The carrier risks a misdelivery claim and the arrest of its ship. The shipper or receiver giving the indemnity takes on that risk in exchange for getting the cargo moving, often to avoid demurrage of thousands of dollars a day. The bank that countersigns takes the credit risk on its customer and charges for it. The true holder of the bill, if things go wrong, keeps its claim against the carrier. A letter that sets out the shipment exactly, limits delivery to one named receiver and provides for security on arrest keeps each of these risks where the parties expect it.
How to adapt this document
If your carrier or its club has a preferred standard form, use that wording and transfer the shipment details into it, because a carrier will often refuse anything else. Otherwise, replace the eight rows with your own shipment, copied from the bill of lading. Change the request if the problem is a change of discharge port rather than a missing bill. Keep all six undertakings, as each answers a specific risk. Check with your bank before promising a countersignature, and choose the governing law your contract of carriage uses.
What makes this document work
The shipment is identified in eight rows
Vessel, voyage, both ports, bill of lading number and date, cargo, shipper and receiver are listed before any promise is made. An indemnity is only as good as its description of what it covers, and a carrier's claims team checks these against its own manifest.
Delivery goes to one named receiver
The request is for delivery to Delta Agro Feeds Ltd or a party the carrier believes represents them. Naming the receiver limits the indemnity to the delivery actually requested, and gives the carrier a clear instruction its agent at the discharge port can follow.
The arrest clause is the expensive one
Clause 3 commits the exporter to provide bail or security if the vessel, or a sister vessel, is arrested over the delivery. That is the carrier's real fear, because a ship held in port costs far more than the cargo, and the bank countersignature note adds a party able to pay.
Questions people ask
What is a letter of indemnity in shipping?
It is a written promise, usually from the shipper or the receiver, to compensate a carrier for any loss it suffers by doing something the bill of lading does not allow, most often delivering cargo without the original bill or to a different port. It lets trade continue when documents are late, but it moves the risk onto the party giving the letter.
Is a letter of indemnity legally binding?
Yes, as a contract between the party giving it and the carrier, provided it is properly signed and supported by the carrier's agreement to act. It does not bind the true holder of the bill of lading, who can still sue the carrier for misdelivery. That is why the carrier wants the indemnity, and why it often wants a bank to countersign it.
Why would a carrier refuse a letter of indemnity?
A carrier may refuse if it doubts the requesting party can pay, if the cargo value is very high, if the receiver is not clearly entitled, or if its insurer has warned against it. Delivering without the original bill is usually outside a shipowner's ordinary liability cover, so the indemnity may be the carrier's only protection.
Why do carriers ask for a bank countersignature?
A letter of indemnity is only worth the financial strength of the person who signs it. A trading company may be wound up before a claim surfaces, which can take years. A bank's countersignature adds a party almost certain to be able to pay. Banks usually charge a fee and may ask for security, so build the time and cost into the shipment plan.
Can a letter of indemnity be used to issue a clean bill of lading for damaged cargo?
It should not be. Asking a carrier to issue a clean bill for cargo it knows is damaged, in return for an indemnity, can amount to a fraud on the buyer or bank relying on the bill, and courts in several countries have refused to enforce such indemnities. A legitimate letter of indemnity covers a genuine practical problem, such as late documents.
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