Letter of Indemnity in Shipping: When Do You Issue One?

You issue a Letter of Indemnity (LOI) when you need the cargo before you can present the original bill of lading (B/L). If the vessel arrives while the original B/L is still with a bank or in the post, the receiver gives the carrier a written promise to cover any loss from releasing the goods without it, and takes delivery. Whether the carrier accepts, and on what terms, is the carrier’s call, so ask early.

Key takeaways

• An LOI is a promise of indemnity given to the carrier for delivering cargo without the original B/L, or at a port other than the one on the B/L.
• The carrier must deliver to the holder of the original B/L. If the rightful holder later claims, the carrier recovers that loss from the LOI issuer.
• Liability for delivery without the original B/L is excluded from the carrier’s P&I cover, so carriers check the issuer’s finances and may ask for a bank countersignature.

What is a Letter of Indemnity?

An LOI is a written undertaking from the cargo side (usually the consignee, or the charterer in chartered trades) to the carrier. Normally the carrier may release goods only against the original B/L. If the original is not yet available or has been lost, the carrier can release against an LOI and then claim from the issuer for any loss caused by a later claim from the lawful holder.

The key point is that the LOI stands in for the carrier’s insurance. West P&I Club explains that liabilities from delivering without the original B/L, or at another port, are excluded from club cover, and accepting an LOI does not restore that cover. For the carrier, the real question is whether the issuer can actually pay.

When do you need to issue one?

The most common case is a vessel that arrives before the original B/L. It happens on short sea routes and when letter of credit or collection documents are slow to pass through the banks. Leaving the box at the terminal runs up demurrage, so receivers use an LOI to avoid it. For how free time and demurrage work, see demurrage, detention and free time.

The International Group (IG) of P&I Clubs’ standard LOIs follow the same situations: delivery without the original B/L (A), delivery at a different port (B), or both (C), each with a bank countersigned version (AA, BB, CC). The wordings were revised in 2023.

Do not use an LOI to obtain a clean B/L for cargo that is actually damaged. The Swedish Club’s practical guide notes that LOIs given for fraudulent acts are unlikely to be enforceable in court. Used to hide the cargo’s condition so a letter of credit pays out, the LOI may be worthless.

An LOI is not the only route to release without the original. Agreeing a telex release or a sea waybill before shipment removes the need for one. See telex release and surrendered B/L and bill of lading vs sea waybill.

How the issuance process works

1. Ask the carrier (or forwarder) whether release without the original is possible and whether it has a required form. If it does, use it.
2. Fill in the vessel and voyage, B/L number, cargo details, discharge port, the party taking delivery, and why the original cannot be presented.
3. Sign on company letterhead by an authorised signatory. Add a bank countersignature or deposit if the carrier asks.
4. Once the carrier accepts, the delivery order (D/O) is issued and the cargo can leave. See when a delivery order is issued.
5. When the original B/L arrives, surrender it to the carrier straight away and ask for the LOI to be returned or cancelled.

The Swedish Club guide says a first class bank countersignature is ideal but costly, slow and rarely achieved in practice. If a bank guarantee is needed, check the fee and lead time in advance.

Numerical example: wait or issue an LOI?

The figures below are hypothetical and only show the method. Say demurrage is USD 100 per container per day and the original B/L arrives five days after free time ends.

Option	Extra cost (hypothetical)	Remaining risk
Wait for the original B/L	USD 100 × 5 days = USD 500	None
Take delivery against an LOI	Bank guarantee fee or carrier handling charge (varies)	Indemnity liability until the original is surrendered

Actual demurrage rates and fees vary widely by carrier and port, so check your quote and the carrier’s published tariff.

Common mistakes

• Vague cargo details or B/L numbers, so it is unclear which cargo the promise covers
• Not surrendering the original B/L and cancelling the LOI once it arrives, leaving liability open
• Finding out just before arrival that a bank countersignature is required, which delays release
• Issuing an LOI for a clean B/L to hide damaged cargo

FAQ

Who issues the Letter of Indemnity?

In liner imports it is usually the consignee (importer). In chartered trades the charterer often gives it to the shipowner. The issuer must compensate the carrier for loss caused by releasing the cargo without the original.

Can you always get release with an LOI if the original B/L is missing?

No. Carriers can refuse based on the issuer’s credit or the cargo’s value. Because this liability falls outside their P&I cover, they tend to be strict. Arranging a telex release or sea waybill in advance is cleaner.

How much does an LOI cost?

There is no set amount. Some carriers charge a handling fee or ask for a deposit, and a bank countersignature adds the bank’s commission. Check with the carrier and your bank before the vessel arrives.

What is the difference between an LOI and a telex release?

With a telex release, the original B/L is surrendered to the carrier at origin and the carrier’s offices pass the release instruction between them. With an LOI, the original has not been surrendered, so you take delivery on a promise of indemnity and the issuer stays liable.

Do electronic bills of lading reduce the need for LOIs?

They can. A 2023 circular from the American Club reports that operators using electronic bills of lading rely less on LOIs.

Sources

• West P&I – Letters of Indemnity: exclusion from club cover, IG standard forms A to CC
• UK P&I – Circular 11/23, Updated suite of IG-recommended LOI wordings: 2023 revision of the standard wordings
• The Swedish Club – Letters of Indemnity Practical Guide: enforceability of LOIs for fraudulent acts, bank countersignature
• American Club – Circular 12/23: electronic bills of lading and fewer LOIs

Always check the carrier’s current terms and form before issuing an LOI.