Meaning
Legal guarantees signed by a shipper allow a carrier to release cargo without the presentation of the original bill of lading. A letter of indemnity protects the shipping line from the financial consequences of delivering goods to the wrong party. This document is used when paperwork is lost or delayed in the mail.
Liability Assumption
Signing the document means the shipper agrees to pay all costs if a third party later produces the original bill and claims the goods. Because a letter of indemnity is a promise to pay, carriers often require it to be countersigned by a bank. This adds a layer of financial security to the promise.
Cargo Release
Operations at the port can proceed without waiting for the arrival of physical documents from overseas. The letter of indemnity ensures that the buyer can take possession of the goods immediately upon arrival of the ship. Speeding up the release process avoids the accrual of storage fees.
Enforcement Clause
Courts treat these documents as binding contracts that survive the completion of the voyage. If the letter of indemnity is invoked, the signer must defend the carrier against any legal action from other claimants. Most of these agreements expire after a period of several years.
