Delivery & Settlement

The final stages of a trade determine whether all the work up to this point translates into actual profit. Delivery and settlement require precise documentation, coordination with multiple parties, and careful management of payment flows.

Delivery Process

Physical Delivery Overview

DELIVERY STAGES
───────────────

1. PRE-DELIVERY
   - Final documentation preparation
   - Buyer coordination
   - Quality certification

2. DELIVERY
   - Physical transfer of goods
   - Title transfer (B/L endorsement)
   - Risk transfer per Incoterms

3. POST-DELIVERY
   - Final measurements
   - Claims assessment
   - Documentation completion

Delivery by Commodity Type

Commodity	Delivery Mechanism	Title Document	Risk Transfer Point
Crude Oil	Ship discharge	Bill of Lading	Ship’s flange
Products	Tank transfer	Certificate of Transfer	Tank inlet
Metals	Warehouse delivery	Warrant	Warehouse receipt
Grain	Silo/vessel discharge	B/L or warrant	Discharge point
LNG	Ship-to-terminal	B/L	Flange

Bill of Lading Details

BILL OF LADING COMPONENTS
─────────────────────────

FRONT:
- Shipper (seller)
- Consignee (buyer or "To Order")
- Notify party
- Vessel name
- Port of loading
- Port of discharge
- Cargo description
- Quantity
- Condition ("Clean" or "Claused")
- Freight status (prepaid/collect)
- Date of issue
- Master's signature

BACK:
- Terms and conditions
- Carrier's liability
- Jurisdiction

TYPES:
- Original (3 originals typical)
- Copy (non-negotiable)
- Telex release (electronic)

Clean vs Claused B/L

Type	Description	L/C Impact
Clean	No defects noted	Required for L/C
Claused	Defects recorded	L/C likely rejected

Critical

If the Bill of Lading is claused (e.g., “cargo contaminated” or “short-shipped”), the Letter of Credit will likely be rejected by the bank. Always resolve issues before B/L issuance.

Documentation Package

Complete Document Set

Document	Purpose	Issuer
Commercial Invoice	Claim for payment	Seller
Bill of Lading	Title, transport proof	Master/carrier
Certificate of Origin	Country of origin	Chamber of Commerce
Certificate of Quality	Spec verification	Independent surveyor
Certificate of Quantity	Volume verification	Independent surveyor
Packing List	Cargo details	Seller
Insurance Certificate	Coverage proof	Insurer
Phytosanitary Certificate	Health clearance (agri)	Government

Document Preparation Timeline

DOCUMENTATION TIMELINE
──────────────────────

DAY -7:  Prepare draft documents
DAY -5:  Inspection company engaged
DAY -3:  Vessel nomination confirmed
DAY 0:   LOADING BEGINS
DAY +1:  Quality/quantity samples taken
DAY +2:  B/L issued (after loading complete)
DAY +3:  Certificates ready
DAY +4:  Document package assembled
DAY +5:  Documents presented to bank (L/C)
         or sent to buyer (non-L/C)
DAY +7:  Bank reviews documents
DAY +14: Payment (if documents compliant)

Document Discrepancies

Type	Example	Impact
Major	Wrong party name	L/C rejection
Minor	Typo in address	May be waived
Data mismatch	Invoice vs B/L quantity	Clarification needed

Common Discrepancies:

FREQUENT DOCUMENT ERRORS
────────────────────────

1. Name misspellings
   "ABC Trading Ltd" vs "ABC Trading Limited"

2. Quantity mismatches
   B/L: 25,000.000 MT
   Invoice: 25,000 MT (missing decimals)

3. Date issues
   B/L dated after shipment deadline

4. Missing documents
   Insurance certificate not included

5. Unauthorized amendments
   Manual corrections not initialed

Payment Methods

Payment Options

Method	Risk (Seller)	Risk (Buyer)	Use Case
Advance payment	None	High	Trusted seller
L/C at sight	Low (bank guarantee)	Low	Standard trade
L/C deferred	Medium	Low	Buyer needs time
CAD	Medium	Medium	Established relationship
Open account	High	None	Strong relationship

Letter of Credit Process

L/C LIFECYCLE
─────────────

1. BUYER requests L/C from their bank (Issuing Bank)
2. ISSUING BANK issues L/C, sends to Advising Bank
3. ADVISING BANK notifies Seller
4. SELLER ships goods, prepares documents
5. SELLER presents documents to Advising Bank
6. ADVISING BANK checks documents, sends to Issuing Bank
7. ISSUING BANK verifies, pays Advising Bank
8. ADVISING BANK pays Seller
9. BUYER reimburses Issuing Bank

                      ┌──────────────┐
                      │   ISSUING    │
    ┌─────────────────│    BANK      │─────────────────┐
    │   L/C request   └──────────────┘   Payment       │
    │                        │                         │
    │                        │ L/C                     │
    │                        ▼                         │
    │                 ┌──────────────┐                 │
    │                 │  ADVISING    │                 │
    │   Docs         │    BANK      │     Payment     │
    │                 └──────────────┘                 │
    │                   ▲         │                    │
    │                   │ Docs    │ Advice            │
    │                   │         ▼                    │
┌───▼───┐                              ┌──────────┐
│ BUYER │◄───────── Goods ────────────│  SELLER  │
└───────┘                              └──────────┘

L/C Types

Type	Description	Seller Protection
Irrevocable	Cannot be changed without consent	High
Confirmed	Second bank guarantees	Very High
Sight	Pay on document presentation	Immediate
Usance/Deferred	Pay after period	Delayed
Transferable	Can assign to third party	Flexible
Back-to-back	Two L/Cs linked	Intermediary use

Cash Against Documents (CAD)

CAD PROCESS
───────────

1. Seller ships goods
2. Seller sends documents to Buyer's bank
3. Bank holds documents
4. Buyer pays bank
5. Bank releases documents to Buyer
6. Bank remits payment to Seller

RISK: If buyer doesn't pay, seller has documents
      but goods may be at destination

USE: When L/C cost not justified
     Established relationships

Settlement Process

Settlement Workflow

SETTLEMENT SEQUENCE
───────────────────

1. DOCUMENT PRESENTATION
   Day 0: Documents presented

2. BANK REVIEW
   Days 1-5: Bank checks compliance

3. PAYMENT INITIATION
   Day 5: If compliant, payment initiated

4. FUNDS TRANSFER
   Days 5-7: Wire transfer executed

5. RECEIPT
   Day 7: Seller receives funds

6. RECONCILIATION
   Days 7-10: Match to invoice, book P&L

TOTAL: 7-10 business days from presentation

Settlement Complications

Issue	Cause	Resolution
Document rejection	Discrepancy	Amend or get waiver
Delayed payment	Bank processing	Follow up, escalate
Partial payment	Quantity dispute	Negotiate, claim
FX difference	Rate change	Reconcile, adjust

Claims Management

Types of Claims

Claim Type	Basis	Timing
Quality	Off-spec delivery	Within 30 days
Quantity	Short delivery	Within 15 days
Demurrage	Loading/discharge delays	After voyage
Dead freight	Undershipment	After voyage

Quality Claim Process

QUALITY CLAIM EXAMPLE
─────────────────────

CONTRACT: Crude oil, max 0.5% sulfur
DELIVERED: 0.7% sulfur (out of spec)

BUYER'S CLAIM:
1. Notify seller within 24 hours
2. Retain samples (both parties)
3. Independent analysis
4. Calculate value differential

VALUE IMPACT:
0.2% excess sulfur = $2/bbl discount
On 2M bbl: $4,000,000 claim

RESOLUTION:
Option A: Seller pays claim
Option B: Negotiate settlement
Option C: Arbitration (if disputed)

Quantity Claim Process

QUANTITY CLAIM
──────────────

SHIPPED (B/L): 25,000 MT
RECEIVED (outturn): 24,850 MT
SHORTAGE: 150 MT (0.6%)

CONTRACT TOLERANCE: 0.5%
CLAIM QUANTITY: 0.1% (25 MT excess loss)

CLAIM VALUE:
25 MT × $9,000/MT = $225,000

RESOLUTION:
1. Review survey reports
2. Check for measurement errors
3. Assess voyage losses (normal: 0.3%)
4. Negotiate or insure claim

P&L Realization

Trade P&L Calculation

FINAL P&L CALCULATION
─────────────────────

REVENUE
Sale price (CIF):            $78.50/bbl
Volume:                      2,000,000 bbl
Gross revenue:               $157,000,000

COSTS
Purchase (FOB):              $74.00/bbl     $(148,000,000)
Freight:                     $2.20/bbl      $(4,400,000)
Insurance:                   $0.12/bbl      $(240,000)
Financing (55 days @ 6%):    $0.67/bbl      $(1,340,000)
Port costs:                  $0.08/bbl      $(160,000)
Inspection:                  $0.03/bbl      $(60,000)
Documentation:               $0.02/bbl      $(40,000)
Hedge P&L:                   +$0.05/bbl     $100,000
────────────────────────────────────────────────────────
TOTAL COSTS:                               $(154,140,000)

GROSS PROFIT:                              $2,860,000
MARGIN:                                    1.82%

P&L ALLOCATION:
Physical spread:             60%            $1,716,000
Freight savings:             25%            $715,000
Financing:                   10%            $286,000
Hedge gain:                  5%             $143,000

P&L Attribution

Component	Driver	Trader Control
Physical spread	Buy-sell price	High
Freight	Charter rate	Medium-High
Storage	Contango capture	High
Financing	Interest cost	Medium
Hedge P&L	Basis, execution	Medium
FX	Currency movement	Low (if hedged)

P&L Timing

P&L RECOGNITION TIMELINE
────────────────────────

TRADE ACCOUNTING (Mark-to-Market):
Day 0: Book trade at expected margin
Daily: Mark physical and hedge to market
Final: True-up on settlement

REALIZED VS UNREALIZED:
Month 1: Unrealized P&L (cargo on water)
Month 2: Partially realized (delivered, not paid)
Month 3: Fully realized (payment received)

Post-Trade Analysis

Trade Review Checklist

Area	Questions	Purpose
Margin	Did we achieve target?	Performance
Execution	Any operational issues?	Improvement
Hedge	Basis outcome vs expected?	Learning
Counterparty	Any credit issues?	Risk update
Documentation	Any discrepancies?	Process improvement

Lessons Learned

POST-TRADE REVIEW
─────────────────

TRADE: Crude oil Nigeria → China

WHAT WENT WELL:
✓ Freight secured at good rate
✓ Quality matched contract
✓ Payment received on time

WHAT COULD IMPROVE:
✗ Documentation took 2 extra days
✗ Minor L/C discrepancy (corrected)
✗ Hedge timing lost $0.02/bbl

ACTION ITEMS:
1. Document prep to start earlier
2. Review L/C checklist
3. Improve hedge execution timing

Key Takeaways

1. Documentation must be perfect — Discrepancies = delays and cost
2. Payment security is critical — L/C protects both parties
3. Claims are part of business — Handle professionally
4. Settlement requires follow-up — Don’t assume payment will arrive
5. P&L attribution matters — Understand where value came from
6. Post-trade review improves — Learn from every trade

References

• ICC Uniform Customs and Practice (UCP 600)
• International Chamber of Commerce
• GAFTA Trade Rules
• Lloyd’s Survey Handbook