Partial Shipment

A partial shipment is the shipment of goods covered by one sales contract or one letter of credit in two or more separate lots, rather than all at once. In documentary credit practice the term matters because each lot produces its own bill of lading or other transport document and usually its own presentation and drawing, so the credit must say whether this is allowed.

Article 31 of UCP 600 sets the default: partial drawings or shipments are allowed unless the credit says otherwise. Buyers who need the full quantity together state "partial shipments not allowed" in the credit. Partial shipment is distinct from shipment by instalments, where the credit fixes the quantity and timing of each lot, and from transshipment, which is about moving the same goods between vessels or vehicles in transit.

Imagine ordering a dining set online: the table arrives on Monday and the chairs on Thursday. The order is the same, but it came in two deliveries. Whether that is acceptable depends on the buyer. Some are happy to start using the table; others cannot use anything until every piece is there.

In trade, a letter of credit records the buyer's choice. If partial shipments are allowed, the seller can send what is ready and be paid for that portion, then send the rest later and be paid again. If they are not allowed, the seller must ship the whole order in one go, and a bank will refuse documents showing only part of the goods. Sellers like the flexibility because it brings in money sooner; buyers sometimes block it because half an order is useless to them.

UCP 600 treats several situations as not being partial shipments, even when more than one transport document is presented:

• Same vessel, same voyage. More than one set of transport documents evidencing shipment on the same means of conveyance and for the same journey is not a partial shipment, provided they show the same destination, even if they show different loading dates or ports. The latest date shown is taken as the shipment date.
• Different conveyances. A presentation of transport documents showing shipment on more than one means of conveyance within the same mode of transport (for example, two trucks leaving on the same day for the same destination) is a partial shipment.
• Courier and post. More than one courier receipt or post receipt is not a partial shipment if they appear stamped or signed by the same courier or postal service at the same place and date and for the same destination.

Banks apply these tests from the documents alone, guided by ISBP 821. Common errors include presenting two bills of lading for two vessels under a credit that prohibits partial shipments, or splitting a shipment across consolidations arranged by a freight forwarder without checking the credit.

Where a credit requires shipment in instalments within set periods (for example, 1,000 tonnes in each of March, April and May), Article 32 applies: if any instalment is not drawn or shipped within its period, the credit ceases to be available for that instalment and for every later one. This is much stricter than a credit simply allowing partial shipments, which lets the seller ship whatever and whenever it chooses until the latest shipment date. Buyers with continuing needs sometimes prefer a revolving letter of credit instead.

Partial shipment is also related to quantity tolerances in Article 30. Unless the credit states the quantity as a number of packing units or individual items, a tolerance of 5 percent more or less is allowed on quantity, provided the drawing does not exceed the credit amount. Words such as "about" or "approximately" allow 10 percent either way on the amount, quantity or unit price they refer to. A shortfall inside the tolerance is not a partial shipment; a shortfall outside it, when partial shipments are prohibited, is a discrepancy. Even where partial shipments are not allowed, a drawing up to 5 percent less than the credit amount is still accepted if the full quantity is shipped and any unit price is not reduced.

Sellers favour partial shipments when production is staggered, when cargo space is limited, or when one large order would strain their working capital; each lot can be financed and paid separately, for example through post-shipment finance. Traders using a transferable letter of credit need partial shipments to be allowed if they want to split the credit among several suppliers.

Buyers prohibit partial shipments when they need the full quantity to make use of the goods (all parts of a machine, a complete production batch) or to reduce clearing costs and demurrage at the destination port. The choice should match the sales contract and the Incoterms rule agreed. Changing it after issuance requires a documentary credit amendment accepted by the beneficiary. Banks also watch split shipments in trade-based money laundering reviews, since many small partial drawings can be a way to keep individual amounts under review thresholds or to over-invoice gradually.

• International Chamber of Commerce