Letter of Indemnity

Start with the request: a carrier normally checks the transport document before handing over goods, but if a ship arrives before the original bill of lading, a receiver may ask for release against an LOI instead. The carrier is taking a risk, because a person later presenting a valid bill could say that the goods went to the wrong party and seek compensation.

The requester promises reimbursement, and the exact promise depends on the wording, parties, governing law and facts, and may include the costs of defending a claim, not merely the cargo price. This is not a permission slip, since the party entitled to cargo does not lose its rights because other parties signed an LOI.

Identify the issuer, because a letter from a thinly capitalised company may offer little protection even if its words sound broad, so review financial strength and who can enforce the promise. A bank may countersign, which can improve security if the bank actually undertakes the obligation in enforceable terms.

Check the underlying bill, confirming whether it is an original negotiable bill, a sea waybill or another document, because delivery obligations differ and the right solution may not require an LOI at all. Match the vessel, cargo, quantity, bill, receiving party and discharge port against the actual instruction, and for a changed destination check who has authority to alter delivery.

Compare alternatives such as waiting, holding cargo in secure custody or using a properly issued waybill, although each has costs and contractual limits. Consider insurance: P&I clubs warn that delivery without an original bill can prejudice cover for resulting misdelivery liability, and taking an LOI does not itself reinstate that cover.

Check the insurer directly, since its rules and any available additional cover matter. The UK P&I Club describes both insurance and collectability risks when a carrier accepts an LOI, and the Swedish Club also explains exceptions for delivery without the original bill.

Think beyond cargo value, because a claimant may allege consequential losses or legal costs, and a simplistic estimate equal to cargo value understates possible exposure. Think about time too: the indemnity should last long enough for claims to surface under the relevant law and contract, and where documents are delayed, the parties should monitor their arrival and any agreed return or termination of security.

Refuse false documents, as an LOI for knowingly misrepresenting cargo condition may be unenforceable and could create fraud risk. Read the whole undertaking, since who can claim, what losses are included, when payment is due and what law applies matter more than the document title.

For the issuer, approval should reflect the possible loss and the ability to fund it, because the letter is a contingent liability even if no cash changes hands today, while for the recipient a promise is only useful if it can be enforced and the promisor can pay. Review signature authority and any bank backing, store the signed LOI with the delivery records, and use specialist advice, because the practical decision is not just whether a letter exists but whether the requested release, security and insurance position are acceptable.