The $2.3M Word-Order Problem

The Discrepancy #001

Here is a story that will feel familiar to anyone who has worked an LC presentation past midnight.

The setup

A mid-sized European commodity trader — let us call them EuroChem Trading, because they asked us not to use their real name — closes a deal to ship 12,000 MT of prilled urea from the Baltic to Southeast Asia. Standard bulk commodity deal. Nothing exotic.

The letter of credit, issued by a major Asian bank and confirmed by a European bank, requires the following among the document set:

"CERTIFICATE OF QUALITY issued by an independent surveyor"

Simple enough. The surveyor inspects the cargo. Issues the certificate. The ops team assembles the presentation. Everything is submitted within the 21-day window.

Then the discrepancy notice arrives.

The discrepancy

The issuing bank's document checking team rejects the presentation. The reason:

"Document presented is titled 'QUALITY CERTIFICATE' — LC requires 'CERTIFICATE OF QUALITY'"

Read that again.

The document contains every required data element. Surveyor name, cargo description, quality parameters, vessel name, B/L reference — everything matches. But the title of the document swaps the word order: QUALITY CERTIFICATE instead of CERTIFICATE OF QUALITY.

EuroChem's trade finance team stares at the notice. The meaning is identical. The document is substantively compliant. But the bank has flagged it as a discrepancy.

The cost of two words

This is not a theoretical exercise. Here is what happened next:

The cargo vessel, MV Nordic Pioneer, arrives at the discharge port in Southeast Asia. The buyer cannot take delivery because the bank has not released the documents. The ship sits at anchor.

Day 1-3: EuroChem contacts the issuing bank to argue the discrepancy is not a discrepancy. The bank's trade operations team says their compliance framework requires document titles to match the LC "as stated."

Day 4-7: EuroChem asks the confirming bank to intervene. The confirming bank sends a message to the issuing bank citing UCP 600. No immediate response.

Day 8: The vessel operator starts charging demurrage. At approximately $4,300 per day for a Handysize bulk carrier, the clock is now ticking in dollars.

Day 9-11: The applicant (buyer) finally authorizes the issuing bank to accept the documents despite the "discrepancy." The bank releases the documents. Total demurrage: approximately $47,000.

Forty-seven thousand dollars because a surveyor titled a document "Quality Certificate" instead of "Certificate of Quality."

What the rules actually say

Let us look at what UCP 600 says about this.

Article 14(d) states:

"Data in a document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit."

The key phrase: need not be identical, but must not conflict.

A "Quality Certificate" and a "Certificate of Quality" are semantically identical. No reasonable reading of UCP 600 would conclude that these two titles conflict with each other. They describe the same document. The data contained within the document satisfies every LC requirement.

ISBP 745 (International Standard Banking Practice), paragraph A22, adds further clarity: the title of a document does not need to match the LC exactly, provided the document's content fulfills the function required by the credit.

The issuing bank was wrong. And EuroChem's $47,000 in demurrage was the price of that error.

Why this keeps happening

This is not a rare edge case. Variations of this story happen every single week in trade finance operations around the world. Here is why:

1. Document checkers are trained to match, not interpret. Banks employ document checking teams whose job is to compare presented documents against LC terms, word by word. This is by design — the independence principle in documentary credits means banks deal in documents, not goods. But the training often emphasizes exact textual matching over contextual reading.

2. There is no cost to the bank for raising a discrepancy. When a bank raises a discrepancy, the applicant can waive it. The bank faces no penalty. But if the bank misses a legitimate discrepancy and pays against non-compliant documents, it loses its right to reimbursement. The incentive structure is asymmetric: over-flagging is safe, under-flagging is risky.

3. The UCP is clear, but interpretation varies. UCP 600 Article 14(d) gives banks room for contextual interpretation. But interpretation requires judgment, and judgment introduces risk. Many banks have internal compliance frameworks that default to strict textual matching to eliminate that risk.

The lesson

If you are on the beneficiary side of an LC, here is what you take from this:

Mirror the LC language exactly. Yes, the UCP says you do not have to. Yes, ISBP 745 supports you. Yes, you are technically right. But being technically right costs $47,000 in demurrage when the issuing bank disagrees.

When you brief your surveyor, inspector, or any third-party document issuer, give them the exact title the LC requires. Character for character. Do not assume that a reasonable synonym will pass a document checker at 2am in a back office in Singapore.

Control what you can control. You cannot control how a bank's document checking team interprets UCP 600. You can control the title on the document.

That is the discrepancy. Two words in the wrong order. $47,000 out the window.

See you next issue.

— Tamara