The Letter of Credit (LC), as a trade finance instrument has not fundamentally changed during the past 150 years. LCs have many similarities with bank cheques. However, bank cheques have been phased out and LCs are still being used in today’s trading environment. These physical documents are an anomaly in today’s digital world. Their creation and use involve cumbersome processes, adding extra costs. In particular when the logistics of your product involve several stages (also known as multimodal / transhipment).

The case study below highlights the challenges faced by a company engaged in a project requiring a multimodal transportation effort.

About a month ago we had to deliver several components for a wind farm, about 500km north of Nairobi. It concerned the ‘Lake Turkana wind farm project’. The route from Rotterdam to the place of destination included several hubs over land.

After planning all the legs of the journey meticulously, we requested our bank to issue a Letter of Credit (LC).

Following several days of silence, we were advised that ‘transhipment’ was not included in the template terms and conditions of their LC and that deviations would have to be escalated to senior management. It took us more than two weeks to get a sign-off from our bank. But by that time, we had to replan the entire journey.

We were ‘lost in transhipment’…..what could have been a simple security became a bureaucratic nightmare.

Nowadays we us the Mercurion platform backed by Vistra, a PSD2 compliant payment service provider supervised by the Dutch Cantral Bank.

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