Letter of Indemnity (LOI)

What Is a Letter of Indemnity (LOI)?

A Letter of Indemnity (LOI) is a document in which one party agrees to compensate another for a specific loss or liability, commonly used in shipping to allow cargo release without presenting the original bill of lading.

How Does an LOI Work?

When an original bill of lading hasn't arrived in time for cargo pickup (a common occurrence when documents move slower than the physical shipment), the consignee's bank or the consignee itself can issue an LOI, guaranteeing to indemnify the carrier against any loss if a claim later arises over the cargo. The carrier then releases the goods without the original document, relying on the LOI as a legal safeguard.

Why an LOI Matters

An LOI lets cargo move without delay when paperwork is lagging, but it shifts risk onto whoever issues it, since they're on the hook if a dispute later arises over rightful ownership of the goods. Carriers generally require LOIs from a bank rather than an individual party for larger or higher-risk shipments, since a bank-backed guarantee carries more assurance.