Mapping trade finance risk

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Many roads

COVID-19: Disruptions when sending documents

The current wave of COVID-19 related lockdowns initiated by authorities around the world (most recently in  India) has resulted in additional delays or interruptions in the normal process of sending documents between banks. 

For example, we are currently experiencing that couriers, including our usual partner DHL, have temporarily stopped all deliveries to India. This means that no physical deliveries can be made to India at the present time. Nordea Trade Finance are currently following the situation very closely and exploring new ways of providing support to customers in these challenging circumstances.

DHL is also monitoring developments and has requested special status from the Indian government in order to resume deliveries as soon as possible. COVID-19 has also impacted DHL’s delivery times to other countries. You can keep up to date with the latest information from DHL regarding suspended operations and additional transit time per country here.

Banks are currently exempt from the lockdown in India as they have been deemed critical services. However, the lack of DHL’s courier service means there will be severe delays and increased difficulty in handling transactions with India. All transportation of goods is suspended except for ‘essential goods’ only. This may be important when considering whether or not to ship goods to Indian counterparts.

Lockdowns such as the one in India will have an effect on documentary credits. A documentary credit may be structured in different ways and the structure – as well as the following acts – may decide the outcome of the transaction. We have gathered some guidance below for documentary credits issued and advised by Nordea.

Documentary credits issued by Nordea

If the documentary credit is available with another bank (or any bank) and expires in the country of the beneficiary then a complying presentation of documents to the nominated bank will obligate Nordea to pay.

Therefore, if you are the applicant to the documentary credit (e.g. expiring in India) it may be expected that the documents will arrive later than they normally would. Perhaps even after expiry of the credit. It is advised to keep an ongoing dialogue with the beneficiary to understand if the goods have been shipped and if the documents are expected presented under the credit.

It is also important to note that in documentary credits the banks deal with documents and not with the goods. In other words a complying presentation of documents under the credit will obligate Nordea to pay  regardless the fate of the goods. However, if the documents do not comply with the terms and conditions of the credit they may be refused and there would be no obligation to pay. It is important to have a dialogue with Nordea regarding refusals (if any).

Documentary credits advised by Nordea

For documentary credits advised by Nordea there are several variations so please reach out to Nordea for specific guidance. However, please note the following scenarios:

  1. For documentary credits confirmed by Nordea, Nordea is obligated to pay to beneficiary when a complying presentation is made. This is regardless of the challenges in getting the documents to the issuing bank.
  2. For documentary credits available with Nordea, but not confirmed by Nordea, Nordea is not obligated to pay the beneficiary when a complying presentation is made. However, the risk of documents lost or delayed in transit is on the issuing bank. 
  3. For presentations that do not comply with the terms and conditions of the credit there is the risk that the presentation may be refused by the issuing bank, however, it is important to note  that the risk of documents lost or delayed in transit is on the beneficiary. This is especially relevant for the current situation e.g. with India. 
  4. For documentary credits which expire in the country of the issuing bank, it is important to note that the risk of documents lost or delayed in transit is on the beneficiary.  

As can be seen from the above, lockdowns of countries and banks relating to COVID-19 may have a huge impact in getting the documentary credit documents to and from the affected banks. Therefore it is important to agree the actual next steps with Nordea.  

In all scenarios Nordea will of course assist in getting the documents to the affected banks.