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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Shipping guarantee

What is a shipping guarantee, and why is it a risk for the bank that signs it?

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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

A shipping guarantee is a bank's undertaking, usually given by countersigning the importer's letter of indemnity to the carrier, that lets the carrier release goods before the original bill of lading has arrived. It solves a timing problem common on short sea routes, where the ship arrives before the documents. The bank becomes liable to the carrier for any claim by whoever holds the original bill, which can exceed the value of the goods, so it books the guarantee as an exposure and treats it as open until the original bill reaches the carrier and the guarantee is handed back.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

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