Letter of indemnity (LOI)
A letter of indemnity (LOI) in shipping is an undertaking — usually from a charterer or cargo interest, often counter-signed by a bank — to indemnify a carrier for losses arising from doing something not strictly permitted under the contract of carriage. The two classic cases:
- Delivery without production of the original bill of lading, common where the documents lag behind a short sea voyage or sit in a bank chain. The LOI protects the owner against a later claim by whoever ultimately holds the original bill.
- Change of discharge port from that named in the bill.
P&I clubs treat these liabilities as outside standard cover, precisely because they are voluntary departures from the carriage contract — which is why the International Group publishes standard LOI wordings and owners weigh the counterparty’s creditworthiness carefully. An LOI given to obtain clean bills for cargo known to be damaged, by contrast, can be tainted by fraud and unenforceable.
LOIs are a routine but genuinely risky lubricant of commodity trading: enforceable in principle, they are only as good as the party (or bank) standing behind them.