Shipping Certificate

Posted in Finance, Accounting and Economics Terms, Total Reads: 494

Definition: Shipping Certificate

Shipping Certificate is a document used by future exchanges which states that an approved facility should make the delivery of the underlying asset to the buyer of a futures contract. The shipping Certificate is unique because there is no necessity for the approved facility to actually store the deliverable until the delivery date arises which makes it different from the other types of guarantees. In the case of a warehouse receipt, they are required to store the product but here the issuer of the shipping certificate can meet its obligation of delivering the commodity from the current production or through put or even from its inventories.

It is an instrument also described as negotiable instrument which transfers the underlying commodity to the holder of certificate by an approved delivery facility under the prescribed terms. These certificates confirm the commitment of the delivery of the commodity provided in the document to the certificate holder under prescribed terms by the approved facility. These certificates can only be issued by facilities which are approved by the exchanges involved. All shipping certificates to be valid for delivery on futures contracts should indicate the applicable premium charges which are based on the underlying commodity. The premium charges are required to be paid and such payment should be endorsed on the shipping certificate for it to be valid.

The shipping certificates are mainly issued for commodities like wheat, corn, soybeans and plywood. The exchange approved facilities are then bound by the prescribed terms of the certificate to deliver the commodities to the certificate holder. Its unique characteristic of not requiring the commodity to be stored until the delivery date by the approved facility allows it to be delivered using the future production of the commodity and the harvesting date generally takes place before the future date and because of it the commodity can be transported to the certificate holder by its due date.


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