A Letter of Indemnity, or LOI, is a written promise that one party will compensate another for losses, claims, or liabilities resulting from a specific action. In shipping, an LOI is often used when a carrier, shipper, or consignee asks another party to take an action that involves risk, such as releasing cargo without an original bill of lading or accepting alternative documentation. Because LOIs can create serious legal and financial exposure, they should be reviewed carefully before use. It is commonly used when the original B/L has not arrived at the destination before the vessel.
- Enables cargo release when originals are delayed in transit
- Typically backed by a bank guarantee to satisfy the carrier
- Higher risk arrangement: the shipper accepts full liability if the wrong party collects the cargo
- An LOI should only be issued by a creditworthy shipper in a trusted buyer-seller relationship
Related terms: Bill of Lading (BOL), Express Bill of Lading, FCL.
