What is Letter of Indemnity?
A letter of indemnity (LOI) is an undertaking by which one party, typically a charterer, receiver or shipper, promises to hold the carrier harmless against liability, loss and costs arising from a request that departs from the contract of carriage. In shipping its most common uses are delivery of cargo without production of the original bill of lading, delivery at a port other than the one named in the bill, or both. The International Group of P&I Clubs recommends standard wordings for these three cases, forms A, B and C, plus AA, BB and CC versions in which a bank joins the indemnity. The wordings were updated in 2023, kept English law and High Court of Justice jurisdiction, and added a prominent warning that accepting an LOI in these circumstances will prejudice the shipowner's P&I cover. LOIs given in exchange for clean bills of lading despite known cargo defects are a different matter and can be unenforceable.
Why it matters for forwarders
Delivering without the original bill exposes the carrier to claims from the lawful holder, and P&I clubs exclude cover for that liability unless the club's board decides otherwise, so the LOI may be the carrier's only protection. Forwarders acting as NVOCCs face the same exposure on their house bills when they release cargo to a consignee who has not surrendered an original, often because documents are still moving through banks. Before accepting an LOI, check the financial standing of the issuer, the signatory's authority and whether a bank will countersign; one P&I club circular recommends a bank-backed limit of at least 200% of the cargo's sound market value. The LOI must identify the vessel, voyage, bill of lading numbers, cargo and receiving party exactly. An LOI does not cure the underlying problem: the original bills should still be located and surrendered to the carrier as soon as possible.