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SystemTrading, Shipping & Fuels Marketing

Letter of Indemnity Management

Letter of indemnity management for trade finance and credit: every cargo released without its bills, who holds them today, and where the cover falls short.

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Follow one morning, from 06:02 to 09:38 ↓
The problem

The ship discharges first, and the bills take weeks to catch up

An oil cargo reaches the discharge port long before its original bills of lading, so the trader gives the shipowner an indemnity and takes one from the buyer in return. That promise runs until the shipowner holds the full set of originals. It has no end date, and nobody is reminded.

The bills meanwhile pass through a seller, two or three banks and a buyer, each hand-over a bank message in somebody’s inbox. A spreadsheet records ship, amount and date, and rarely bank, duration or wording. When a buyer starts to look weak, credit asks for everything open under that name, and analysts search mail for a day. Closure is an email saying the bills were surrendered.

Built forTrade finance analystsCredit managersCargo operatorsTrade counselInternal auditors

The Problem Today

Oil cargoes discharge long before the bills arrive, and each indemnity in their place is a promise nobody watches.

18.6 h
a week to recheck 186 cargoes at 6 minutes each our estimate

Followed by hand today

  • Bills
  • Indemnities
  • Banks
  • Wording
  • Gaps hide between lettersEach looks fine until they lie side by side
  • Distress asks for all of itEverything open with one name takes a day of mail

The Solution

  1. Follow the billsBank messages and receipts place the originals; promises move nothing
  2. Lay them back to backGiven beside received: amount, bank, duration, wording, each cited
  3. Gather everything at onceCredit signals bring each open cargo with that name to one screen
  4. Close on proofOnly the full set of originals and a written release close a row

Built-in controls

  • A checker opens what they sign
  • Wording and liability go to counsel
  • Agents never send, sign, stop or close

What You Get

Credit sees the whole book and can act on one name before a bank holding the bills acts first.

  • Cover you can readEach cargo short of cover, named, with its two letters
  • One decision, two namesA proposer, a signer and each opening on the record
  • Answers from the recordWhere the bills are, with the bank message behind it
One morning on the trade finance desk

Letter of indemnity management on a morning a buyer’s credit turns

A gasoil cargo went to a buyer two months ago, released without its bills. Overnight, three signals arrive about that buyer, and a new cargo to the same name could be released this morning.

demoThe trading house, its counterparties, banks, ships, staff and every amount are sample data.

  1. 0106:02 to 06:40

    186 open cargoes, $4.60B, and the bills placed on each one

    Trade finance analyst

    Overnight the agents read 38 bank messages and 11 courier receipts and moved the bills on each cargo they name. Every row is a relay from seller to shipowner, with a token where the originals sit and how long they have sat there. Beside it, the indemnities standing in for them. Fourteen cargoes read short of cover, $311.80M.

  2. 0209:18

    200% given to the owner, 100% back from the buyer, and no bank behind it

    Trade finance analyst

    The largest gap is one tanker, 61 days out, its bills held 15 days at the trader’s own bank on a discrepancy. Laid back to back, the letter given to the owner is limited to $149,040,000 with no end date; the buyer’s letter to $74,520,000, ending twelve months after delivery, with no bank and only a promise to cooperate. Amount and bank are for credit; duration and security are for counsel.

  3. 0309:23

    Nine open cargoes with one buyer, seven with no bank behind them

    Trade finance analyst

    She sends the two wording points to counsel and opens the buyer’s watch. Three signals sit across the top: the credit insurer cut its cover, a payment is eight days late, and the buyer’s own bank asked where the bills are. Below, everything open with that name: $323.91M of cargo, $140.12M given less received, $269.64M with no bank against a $60.00M limit.

  4. 0409:27

    A stop on new releases, proposed with a reason code, waiting for credit

    Trade finance analyst

    A new cargo to the same buyer, bank countersigned, could still be released today: no rule blocks it. She proposes a stop on new releases and a request for bank countersignatures on the seven unbacked letters, with reason C-04, several signals. Sending fixes a sample of four of the nine for credit to open. She cannot check her own proposal.

  5. 0509:29

    Both letters on a sampled cargo: limit, duration, security, bank

    Credit manager

    He opens the four sampled cargoes in turn: the three largest and one drawn by the system. Each shows the relay and both letters’ key lines, the trader’s promise beside the buyer’s. His sign button counts his own openings and stays off until all four are done. The full back to back sits one click further.

  6. 0609:38

    Signed, with the cargoes he did not open named on the record

    Credit manager

    The decision panel turns green: stop on new releases to this buyer, proposed by the analyst with her reason, checked and signed by credit. It lists the four cargoes he opened and the five he did not, by reference. The nine already released stay covered only by the letters they have. The request for bank countersignatures goes to counsel.

  7. 0709:38

    The new release to that buyer now reads stopped by credit

    Cargo operator

    On the release queue, the pending cargo shows its checks: wording approved, amount 200% of cargo value, the buyer’s back to back with a bank countersignature, within the release limit. One line fails: a signed stop is in force. The operator can ask credit to reconsider. Nothing here lets anyone release around it.

  8. 08After the decision

    Who opened both letters on which cargo, minute by minute

    Internal auditor

    The trail lists each step, people and agents alike: the overnight reads, the watch, the wording points sent to counsel, the proposal, each cargo the credit manager opened, and the signature with the cargoes not opened named. Nobody can edit or delete a line. The auditor can read all of it and change none.

One tanker’s two letters, line by line

What the agent found on the largest gap in the book, and who decides each line. A difference in limits is not an expected loss; what it means is for credit and counsel.

LineGiven to the shipownerReceived from the buyerWho decides
How much$149,040,000, 200%$74,520,000, 100%Credit
Bank behind itNone, the trader’s own nameNoneCredit
How long it lastsUntil the owner has the full set12 months after deliveryCounsel
Security if a ship is heldPuts up security, sister ships tooWill cooperate, no promiseCounsel

demoSample data, from the working solution.

Around the book

Discharge letters of indemnity across the book, by holder, buyer and age

The rest of the trade finance desk, on the same book.

The relay, one buyerThe ledger searched by one name after the stop: each cargo’s bills placed, given and received cover, days out, and which are on watch or to chase.
Exposure by counterpartyCargo released without bills, what the trader gave, short of cover and unsecured against limit, for each buyer. Switch to holder, wording or age.
Chasing the bills57 cargoes past the ten-day rule with an outside holder, one drafted message per holder. Five more sets sit with the trader itself: a task for the cargo operator.
Counsel’s queueWording points sent from the back to back wait here: how long the buyer’s promise lasts, and what it says if a ship is held. Only counsel rules on wording.
What may closeComplete: the full set of originals and the owner’s written release, with the evidence. Not closable yet: a missing original, an unreadable scan, no release.
Rules and limitsThe limit given to an owner, the chase rule, the release limit for counsel, the grades that need a bank, and how many cargoes credit opens before signing.

demoSample data, from the working solution.

The analyst proposes, credit signs, counsel rules on words

Every decision has a maker and a second person.

Trade finance analyst
Sees
The relay, the back to back and the watch
Signs
Prepares releases; proposes stops and closures
Credit manager
Sees
The sampled cargoes’ letters, opened himself
Signs
Signs releases, stops, closures and rule changes
Cargo operator
Sees
Arrivals and the release queue
Signs
Asks for releases and sends chases
Trade counsel
Sees
Wording points with the passages cited
Signs
Rules on wording; signs releases above the limit
Internal auditor
Sees
Who opened what before each signature
Signs
Nothing; downloads the trail and evidence
The agents

Agents place the bills and compare letters; none of them stops a release

They read, place, compare and draft. Credit and counsel decide.

Bills tracker

Reads bank messages and courier receipts and moves the bills on each cargo.

  • A promise moves nothing
Indemnity reader

Reads each new indemnity, given or received.

  • Holds a letter whose figures differ from its bill
Back-to-back matcher

Lays the letter given beside the letter received, line by line.

  • Never judges wording
Exposure keeper

Sums exposure by name and puts a counterparty on watch.

  • Proposes; never stops
Bills chaser

Drafts one message per holder of bills past the rule.

  • Never sends
Closure checker

Checks the evidence on each cargo whose bills reached the owner.

  • Never closes on a promise or a partial set

Bank messages, courier receipts and the letters themselves

Each value cites the message or letter it came from.

Trading and risk systemCargoes, buyers, sellers and values
Bank message feedPresentations, holds and transfers of the bills
Courier trackingReceipts for originals in transit
Document managementIndemnities given and received, and releases
Credit systemGrades, limits and credit insurance

What trade finance desks ask about letter of indemnity management

What is letter of indemnity management?

Letter of indemnity management is keeping track of every cargo released without its original bills, the indemnities given and received in their place, and where the bills are now. This solution places the bills from bank messages, lays each back to back letter of indemnity side by side, and lets credit act on one counterparty with two names on the decision.

What is delivery without original bills of lading?

It is discharge to a buyer before the original bills reach the ship. The trader gives the shipowner an indemnity in place of the bills and takes one from the buyer. The promise lasts until the owner holds the full set of originals.

Does it handle discharge and payment letters of indemnity?

Yes. A discharge letter of indemnity and a payment letter of indemnity are different promises, and the screens keep them apart. A received payment indemnity is shown as what it is, and not counted as short of cover on a discharge letter.

What does an LOI without original bill of lading cost us if the buyer fails?

The screens show the difference in limits between the letter given and the letter received, and whether a bank stands behind the buyer’s. That is a sum, not a forecast of loss. What it means is for credit and counsel.

Can an agent stop a release or close an indemnity?

No. The exposure keeper proposes a watch; an analyst proposes a stop; credit signs after opening a sample. A row closes only on the full set of originals and the owner’s written release, checked by a person.

Who decides on wording?

Trade counsel. Wording points from the back to back go to her queue with the passages cited, and only she rules on them.

Trading, Shipping & Fuels Marketing

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Bring your open indemnities
and last night’s bank messages.

We’ll lay your own letters back to back with you and place the bills.

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