Letter of Indemnity, abbreviated as LOI, is a document that functions under Habsburg rules, which allows the carrier of goods to release them to the consignee without a proper and original bill of lading.
This document is a letter of guarantee, at the same time protecting the owner of the goods from possible losses that could result from theft, destruction, loss or other events. This includes fortuitous situations that could in any way adversely affect the shipment being transported.
In addition, if any loss or damage arises as a result of a breach of contract, the LOI undertakes to hold the freight forwarder responsible for it.
Letter of guarantee – what are its functions?
The transportation of various types of goods is always associated with a certain risk, which involves damage to the cargo or the occurrence of factors due to which certain items do not reach the consignee complete or intact. Any transport, especially international transport, is also the need to fill out a number of relevant documents. In a situation where the transport uses the so-called Telex Release, the cargo may not be released at all if a letter of guarantee is not among these documents.
The most important function of an LOI in transportation and forwarding is to provide financial security in the event of a default by one of the parties or an unlawful change in the terms of performance of the assigned task. Then the party that issued the LOI provides financial compensation to the aggrieved person or company, so that no losses are incurred.
The LOI sometimes also serves as a bill of lading and bill of lading. With it, it is possible to release the cargo in a situation where the bill of lading is lost, or a special type of goods is being transported. The document is also sometimes very helpful when unauthorized persons are on board or goods not listed on the bill of lading are delivered to the port.
The use of an LOI also has its advantages when using a telex, i.e. an electronic marine bill of lading (Telex Release). In this case, the release of goods to a party on the basis of a bill of lading ensures that the shipping company will not suffer any loss if it hands over the cargo to the consignee without the original bill of lading. If this document is found later in a paper version, and the released cargo differs from it, for example, in quantity or type, the carrier is not at fault.
How is the LOI structured ?
An LOI is an important document, and three parties are involved in its creation. These are: the party seeking potential compensation, i.e. the carrier, the company or person who provides compensation in the event of an unsuccessful situation (the gestor, shipper or consignee of the goods), and an external party who supports the company or company providing compensation (guarantor).
Among the information contained in the letter of guarantee are:
- the title of the document and the date of the contract,
- the names or surnames of the two parties and their details including addresses,
- the name and affiliation of the third party,
- obligations and conditions of the parties,
- the validity period of the letter of guarantee,
- a detailed description of the items covered by the letter of guarantee,
- detailed description of the intentions,
- signatures of the parties.
You can find a sample LOI document HERE.