This article provides you with information regarding Pre-Shipment Inspection (PSI), a service that is offered by third party inspection organizations.
Venders and purchasers utilize this service any time commodity items are purchased by using a letter of credit (LC), concerning the financial institutions of each party involved.
All of these goods will be examined independently, prior to transport, by the third party pre-shipment inspection corporate. This is done to make sure correct marking, packing, quality, loading, and quantity criteria are fulfilled.
There are many types of documentation that will be brought to the seller's financial institution to collect the purchase value. The items required will include: a certificate of origin, a bill of lading, a certificate of inspection, and a packing list.
The inspection certificate is submitted by the TPI organization and given to the seller. Then, the seller will take this document, along with the others, and present it to the bank to complete the transfer of funds.
Obligatory inspection conditions might be put in the LC, but it depends to the buyer and seller. They might decide to ignore inspection. So in this case the inspection will not be done. But please note, the pre-shipment inspection in some countries is mandatory and buyer or seller cannot waive it.
Here is an example to make it easier to comprehend what happens during pre-shipment inspection:
An oil company wishes to acquire a gas turbine for its facility; therefore, it comes up with a strategy to order the design, manufacture, procurement, and installation of the desired gas turbine. A contract is signed with an engineering firm to meet these needs. A letter of credit is opened by the request of the oil company. With this request the oil compay's bank opens the LC. The LC is opened to transfer contract value to the engineering company.
A contract is then made between the engineering company and a gas turbine manufacturer. Subsequently, a request is made for a "transfer LC". The request will be submitted by the oil company to the bank. Then the bank will issue a LC amendment and submit to the oil company. The letter of credit states that:
The applicant and consignee is oil company, the engineering company will receive the position of primary beneficiary, and the secondary beneficiary will be the turbine company.
46.A is a clause in the LC, that lists the necessary documents that must be submitted to the bank by the seller. It is necessary for any fund transfer. So, for this example, one of the items that can be found in 46.A clause is:
The original certificate of conformity should be submitted by a pre-shipment inspection firm. This certificate must be supplied after date of bill of lading. The pre-shipment inspection must be done by "the name of inspection firm. The inspection certificate must states:
The quality, quantity, and the packing of the goods inspected are exactly conforming with specifications of the commodity revealed in the related proforma invoice, the terms of LC and any modifications made thereto as delivered to "name of PSI inspection company" by the customer"
Bear in mind that 46.A clause will consist of numerous documents that need to be delivered to the bank to receive payment. The inspection certificate is only one of these important types of documents.
The wording bolded above must be stated exactly like this within the inspection certificate. Even if the original document contains a syntax error, it must be stated to in the same form.
Any alteration in this wording will be rejected by the bank and the funds will not be transferred to the beneficiaries.
When the TPI organization ensured the marking, packing, quantity, and quality of the gas turbine was carried out appropriately, the inspection release note is issued for shipment.
The vendor of the gas turbine then makes arrangement with the shipping company. The loading date must be notified to pre-shipment inspection agency to send its inspector to witness loading operation.
The third party inspection company must be attended during the loading of the gas turbine. The inspection body will submit the loading inspection visit report to the client.
The pre-shipment inspection agency will issue the inspection certificate when the gas turbine vendor sent them the following important documents:
Bill of Lading (by truck loading)
Certificate of Origin (it is not mandatory in all countries)
Packing List (signed and approved by the inspection body)
The pre-shipment inspection agency already has the purchase order, proforma invoice, and LC in their possession (they received these documents before inspection). Using these documents all together; the inspection body will issue the certificate and deliver to the gas turbine vendor.
Finally, the gas turbine vendor collects all documents alongside with the inspection certificate. Then will take these documents to its bank and receives its payment.
Venders and purchasers utilize this service any time commodity items are purchased by using a letter of credit (LC), concerning the financial institutions of each party involved.
All of these goods will be examined independently, prior to transport, by the third party pre-shipment inspection corporate. This is done to make sure correct marking, packing, quality, loading, and quantity criteria are fulfilled.
There are many types of documentation that will be brought to the seller's financial institution to collect the purchase value. The items required will include: a certificate of origin, a bill of lading, a certificate of inspection, and a packing list.
The inspection certificate is submitted by the TPI organization and given to the seller. Then, the seller will take this document, along with the others, and present it to the bank to complete the transfer of funds.
Obligatory inspection conditions might be put in the LC, but it depends to the buyer and seller. They might decide to ignore inspection. So in this case the inspection will not be done. But please note, the pre-shipment inspection in some countries is mandatory and buyer or seller cannot waive it.
Here is an example to make it easier to comprehend what happens during pre-shipment inspection:
An oil company wishes to acquire a gas turbine for its facility; therefore, it comes up with a strategy to order the design, manufacture, procurement, and installation of the desired gas turbine. A contract is signed with an engineering firm to meet these needs. A letter of credit is opened by the request of the oil company. With this request the oil compay's bank opens the LC. The LC is opened to transfer contract value to the engineering company.
A contract is then made between the engineering company and a gas turbine manufacturer. Subsequently, a request is made for a "transfer LC". The request will be submitted by the oil company to the bank. Then the bank will issue a LC amendment and submit to the oil company. The letter of credit states that:
The applicant and consignee is oil company, the engineering company will receive the position of primary beneficiary, and the secondary beneficiary will be the turbine company.
46.A is a clause in the LC, that lists the necessary documents that must be submitted to the bank by the seller. It is necessary for any fund transfer. So, for this example, one of the items that can be found in 46.A clause is:
The original certificate of conformity should be submitted by a pre-shipment inspection firm. This certificate must be supplied after date of bill of lading. The pre-shipment inspection must be done by "the name of inspection firm. The inspection certificate must states:
The quality, quantity, and the packing of the goods inspected are exactly conforming with specifications of the commodity revealed in the related proforma invoice, the terms of LC and any modifications made thereto as delivered to "name of PSI inspection company" by the customer"
Bear in mind that 46.A clause will consist of numerous documents that need to be delivered to the bank to receive payment. The inspection certificate is only one of these important types of documents.
The wording bolded above must be stated exactly like this within the inspection certificate. Even if the original document contains a syntax error, it must be stated to in the same form.
Any alteration in this wording will be rejected by the bank and the funds will not be transferred to the beneficiaries.
When the TPI organization ensured the marking, packing, quantity, and quality of the gas turbine was carried out appropriately, the inspection release note is issued for shipment.
The vendor of the gas turbine then makes arrangement with the shipping company. The loading date must be notified to pre-shipment inspection agency to send its inspector to witness loading operation.
The third party inspection company must be attended during the loading of the gas turbine. The inspection body will submit the loading inspection visit report to the client.
The pre-shipment inspection agency will issue the inspection certificate when the gas turbine vendor sent them the following important documents:
Bill of Lading (by truck loading)
Certificate of Origin (it is not mandatory in all countries)
Packing List (signed and approved by the inspection body)
The pre-shipment inspection agency already has the purchase order, proforma invoice, and LC in their possession (they received these documents before inspection). Using these documents all together; the inspection body will issue the certificate and deliver to the gas turbine vendor.
Finally, the gas turbine vendor collects all documents alongside with the inspection certificate. Then will take these documents to its bank and receives its payment.
About the Author:
Bob Rasooli is a Pre-Shipment Inspections Engineer. He has worked more than 15 years in the field of commodity inspection, shop inspection and QA/QC. He is the writer of Inspection 4 Industry. Bob provides independent pre-shipment inspection services. For more information visit his website.
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