Freight Forwarding & Incoterms: Key Terms Explained in Detail

A Letter of Guarantee (LOG) is a formal document issued by a bank or an importer to assure payment or compliance with agreed obligations in an international trade transaction. It serves as a financial commitment that protects the beneficiary if the applicant fails to meet contractual terms. The LOG gives confidence to sellers, carriers, or authorities that obligations such as payments, customs duties, or cargo release conditions will be honored.

In logistics and shipping, a Letter of Guarantee is often used when original documents are delayed or unavailable. For example, it may allow cargo release without the original Bill of Lading, or secure payment of port charges, demurrage, or customs duties. The issuing bank or importer guarantees that any outstanding requirements will be fulfilled within an agreed timeframe. This helps prevent shipment delays and operational disruptions.

The LOG is legally binding and outlines specific terms, conditions, and validity periods. If the applicant fails to comply, the beneficiary has the right to claim under the guarantee. Because of this risk, banks issue LOGs only after proper assessment of the applicant’s creditworthiness. Clear wording is essential to avoid misunderstandings or disputes.

Overall, a Letter of Guarantee plays a vital role in facilitating smooth international trade. It provides financial security, supports trust between parties, and allows shipments to proceed even when standard documentation or payments are temporarily pending.