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Tuesday, 03 November 15
THE DISCHARGE OF CARGO IN THE PRC WITHOUT ORIGINAL BILLS OF LADING - CLYDE&CO
 KNOWLEDGE TO ELEVATE
On occasions, a vessel may arrive at a port and be ready to discharge but the original bills of lading in respect of the cargo have not passed through the banking chain to the ultimate receivers, cargo is then discharged against a letter of indemnity (“LOI”) and released to a party who has not paid for the goods, resulting in a claim against the carrier for mis-delivery and, ultimately, a call under the LOI. This scenario is becoming increasingly common in the PRC, particularly in the iron ore trade where banks are looking to enforce their rights in view of the deteriorating financial health of local steel mills and traders. This article highlights the key risks and considers ways in which a party can minimise their potential exposure.
Carriers often come under pressure to deliver cargo without production of the original bills. In light of the potential liabilities, no prudent carrier would agree to delivering cargo without the original bills until they had received an LOI from a party who is financially reliable. Often the carrier will not accept an LOI from the end receiver, who they have had no previous dealings with, and will demand one from its direct contractual counterparty, the charterer. The charterer will in turn want an LOI from the sub-charterer, if there is a charter chain, who may look to its buyer under the cargo sale contract and so on down the chain to the ultimate receiver.
Often the charterer, as shipper the goods, has received payment and, in order to facilitate the discharge of cargo without delay and to avoid a demurrage claim, may issue an LOI without a full appreciation of the risks involved.
There is always a risk of the LOI being called upon. This can happen in circumstances where the bills of lading do not make their way through the chain to the receiver to whom delivery of the cargo has been facilitated by the LOI. The bank, which has paid the seller under the letter of credit, may not have received payment from its customer and therefore retains the bills of lading. The bank then demands delivery of the cargo which has already been delivered (to the party named in the LOI, often the bank’s customer). The bank may have a claim against its customer, but the easier target is a claim against the carrier for mis-delivery. The carrier then inevitably makes a call under the LOI.
Clearly the safest option is for a party to refuse to issue an LOI. However, it not be commercially viable to suggest that LOIs should be avoided at all costs.
If a party is considering providing an LOI, careful scrutiny of the security for payment under the sale contract and of the risk of the bills of lading being stuck in the chain should be conducted first. If practicable, the internal authority for the issuance of LOIs should be reserved to senior staff in the credit or finance functions of the business as the provision of an LOI re-opens the counterparty risk.
The vast majority of LOIs are issued on the International Group of P&I Clubs standard wording and there is often very little, if any, scope for seeking to negotiate this wording. However, if possible, a party should try to limit its liability under the LOI to be issued with regard to amount and duration.
If a party issues an LOI then it should always obtain an LOI from its charterer/buyer down the chain. The indemnity should be on materially identical terms to the LOI provided (subject to any limits included). Parties should always remember that security is only as sound as the solvency of the party providing it and so the indemnity should be backed by a guarantee from a first class international bank or, at the very least, a parent company of substance.
It is important to consider the enforceability of the indemnity and the appropriate law and jurisdiction clause and whether the LOI would need to be registered.
At ports in the PRC, cargoes are often discharged from vessels to customs controlled warehouses or holding areas pending collection by the cargo owner. Effective control over the cargo is often difficult to monitor following discharge. Bills of lading are often exchanged for delivery orders issued by the carrier's agent which can be used to collect the cargo. If the bills have not arrived, the delivery order is often given to the receiver named in the LOI without due consideration as to whether they are entitled to the delivery order and the cargo released against presentation of it.
In the PRC, it is this lack of physical control of the cargo that is leading to the exposures/losses. Parties should try to insert provisions into its contracts which ensure that delivery orders are only exchanged in return for original bills of lading and find ways of asserting greater control over local agents. Charterers should also instruct the vessel to retain the delivery order until the original bills of lading are presented and insist that the carrier's and receiver's agents are different entities.
Another option which should be explored is increasing the usage of independently owned or leased warehouses or bonded warehouses into which cargo can be discharged. Whether this is viable would largely depend on the facilities at the relevant port and the point at which import duty will become payable.
Written by Gerald Yee, Leon Alexander and Kate Docton | Clyde&Co
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Thursday, 31 December 15
2016 FOB NEWCASTLE COAL SWAP RALLY TO CLOSE AT $37.98/TON
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2016 delivery rose another $1.48 per ton (4.05%) this past week compared to the sam ...
Wednesday, 30 December 15
FINAL DEALS OF THE YEAR TAKING PLACE, AS SHIP OWNERS PREPARE FOR 2016 - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The Holidays’ investment lull has taken a grip over the newbuilding and S&P market for second hand vessels, as shipbrokers are reporting ...
Tuesday, 29 December 15
CFR SOUTH CHINA COAL SWAPS ROSE MONTH OVER MONTH
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2016 delivery rose US$ 0.68 (1.64%) per ton month over month.
A commodity swap is ...
Monday, 28 December 15
Q2' 15 U.S. STEAM COAL EXPORTS TOTALED 7.0 MMST; DOWN 16.9% FROM Q1 2015 - EIA
COALspot.com: U.S. coal production during second quarter 2015 totaled 211.1 million short tons.
According to EIA’s preliminary quarterly ...
Monday, 28 December 15
NOVEMBER NEWCASTLE COAL EXPORTS DECLINED 11.87%; THE AVERAGE PRICE OF COAL EXPORTS ROSE 1.37%
COALspot.com: The Port of Newcastle, Australia’s major trading ports and the world’s largest coal export port has shipped $1.120 billio ...
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- Electricity Authority, New Zealand
- Georgia Ports Authority, United States
- Ceylon Electricity Board - Sri Lanka
- Pipit Mutiara Jaya. PT, Indonesia
- Marubeni Corporation - India
- Sical Logistics Limited - India
- Central Electricity Authority - India
- Karbindo Abesyapradhi - Indoneisa
- Africa Commodities Group - South Africa
- Global Business Power Corporation, Philippines
- Thiess Contractors Indonesia
- Heidelberg Cement - Germany
- Bharathi Cement Corporation - India
- Trasteel International SA, Italy
- Videocon Industries ltd - India
- Iligan Light & Power Inc, Philippines
- Karaikal Port Pvt Ltd - India
- Indian Energy Exchange, India
- CIMB Investment Bank - Malaysia
- Tamil Nadu electricity Board
- CNBM International Corporation - China
- Thai Mozambique Logistica
- Jindal Steel & Power Ltd - India
- Pendopo Energi Batubara - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Riau Bara Harum - Indonesia
- Standard Chartered Bank - UAE
- India Bulls Power Limited - India
- Bukit Baiduri Energy - Indonesia
- Baramulti Group, Indonesia
- Tata Chemicals Ltd - India
- Globalindo Alam Lestari - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Power Finance Corporation Ltd., India
- Oldendorff Carriers - Singapore
- Australian Commodity Traders Exchange
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bukit Makmur.PT - Indonesia
- Straits Asia Resources Limited - Singapore
- PowerSource Philippines DevCo
- Neyveli Lignite Corporation Ltd, - India
- Vedanta Resources Plc - India
- Aditya Birla Group - India
- Krishnapatnam Port Company Ltd. - India
- The University of Queensland
- Independent Power Producers Association of India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Price Waterhouse Coopers - Russia
- IHS Mccloskey Coal Group - USA
- Carbofer General Trading SA - India
- Eastern Coal Council - USA
- Bhoruka Overseas - Indonesia
- SMC Global Power, Philippines
- Sarangani Energy Corporation, Philippines
- Samtan Co., Ltd - South Korea
- Latin American Coal - Colombia
- Cement Manufacturers Association - India
- Bangladesh Power Developement Board
- Bank of Tokyo Mitsubishi UFJ Ltd
- Minerals Council of Australia
- Toyota Tsusho Corporation, Japan
- Uttam Galva Steels Limited - India
- Global Coal Blending Company Limited - Australia
- Binh Thuan Hamico - Vietnam
- Madhucon Powers Ltd - India
- Gujarat Sidhee Cement - India
- Malabar Cements Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Renaissance Capital - South Africa
- Kideco Jaya Agung - Indonesia
- Parliament of New Zealand
- Ind-Barath Power Infra Limited - India
- Simpson Spence & Young - Indonesia
- Mjunction Services Limited - India
- Posco Energy - South Korea
- Chettinad Cement Corporation Ltd - India
- Indo Tambangraya Megah - Indonesia
- IEA Clean Coal Centre - UK
- Global Green Power PLC Corporation, Philippines
- Ministry of Transport, Egypt
- Orica Australia Pty. Ltd.
- Therma Luzon, Inc, Philippines
- Deloitte Consulting - India
- Parry Sugars Refinery, India
- Billiton Holdings Pty Ltd - Australia
- Xindia Steels Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Electricity Generating Authority of Thailand
- TNB Fuel Sdn Bhd - Malaysia
- Kumho Petrochemical, South Korea
- Vizag Seaport Private Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Manunggal Multi Energi - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Essar Steel Hazira Ltd - India
- GAC Shipping (India) Pvt Ltd
- Anglo American - United Kingdom
- Directorate Of Revenue Intelligence - India
- Intertek Mineral Services - Indonesia
- Wood Mackenzie - Singapore
- Petrochimia International Co. Ltd.- Taiwan
- Jorong Barutama Greston.PT - Indonesia
- Sree Jayajothi Cements Limited - India
- Savvy Resources Ltd - HongKong
- Kohat Cement Company Ltd. - Pakistan
- Medco Energi Mining Internasional
- Port Waratah Coal Services - Australia
- Timah Investasi Mineral - Indoneisa
- Singapore Mercantile Exchange
- Agrawal Coal Company - India
- Ministry of Mines - Canada
- Semirara Mining and Power Corporation, Philippines
- Energy Development Corp, Philippines
- Ambuja Cements Ltd - India
- Bulk Trading Sa - Switzerland
- Salva Resources Pvt Ltd - India
- Wilmar Investment Holdings
- Eastern Energy - Thailand
- Mercuria Energy - Indonesia
- Coastal Gujarat Power Limited - India
- Formosa Plastics Group - Taiwan
- GVK Power & Infra Limited - India
- The Treasury - Australian Government
- Petron Corporation, Philippines
- Orica Mining Services - Indonesia
- Lanco Infratech Ltd - India
- Rio Tinto Coal - Australia
- European Bulk Services B.V. - Netherlands
- Indogreen Group - Indonesia
- Sojitz Corporation - Japan
- Interocean Group of Companies - India
- Metalloyd Limited - United Kingdom
- Goldman Sachs - Singapore
- Borneo Indobara - Indonesia
- LBH Netherlands Bv - Netherlands
- Holcim Trading Pte Ltd - Singapore
- Mercator Lines Limited - India
- Kaltim Prima Coal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bhushan Steel Limited - India
- Larsen & Toubro Limited - India
- Indika Energy - Indonesia
- Meenaskhi Energy Private Limited - India
- Mintek Dendrill Indonesia
- Rashtriya Ispat Nigam Limited - India
- Bayan Resources Tbk. - Indonesia
- Central Java Power - Indonesia
- Kobexindo Tractors - Indoneisa
- Jaiprakash Power Ventures ltd
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Australian Coal Association
- Siam City Cement PLC, Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- PTC India Limited - India
- VISA Power Limited - India
- Sindya Power Generating Company Private Ltd
- New Zealand Coal & Carbon
- London Commodity Brokers - England
- White Energy Company Limited
- Meralco Power Generation, Philippines
- Antam Resourcindo - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- SN Aboitiz Power Inc, Philippines
- Ministry of Finance - Indonesia
- PNOC Exploration Corporation - Philippines
- Kalimantan Lumbung Energi - Indonesia
- Sakthi Sugars Limited - India
- Kapuas Tunggal Persada - Indonesia
- OPG Power Generation Pvt Ltd - India
- Economic Council, Georgia
- Energy Link Ltd, New Zealand
- Kepco SPC Power Corporation, Philippines
- Attock Cement Pakistan Limited
- PetroVietnam Power Coal Import and Supply Company
- Grasim Industreis Ltd - India
- Altura Mining Limited, Indonesia
- San Jose City I Power Corp, Philippines
- Barasentosa Lestari - Indonesia
- Maheswari Brothers Coal Limited - India
- Sinarmas Energy and Mining - Indonesia
- Semirara Mining Corp, Philippines
- TeaM Sual Corporation - Philippines
- Banpu Public Company Limited - Thailand
- Directorate General of MIneral and Coal - Indonesia
- Cigading International Bulk Terminal - Indonesia
- South Luzon Thermal Energy Corporation
- ICICI Bank Limited - India
- Coal and Oil Company - UAE
- Siam City Cement - Thailand
- Planning Commission, India
- Romanian Commodities Exchange
- Bhatia International Limited - India
- GMR Energy Limited - India
- Aboitiz Power Corporation - Philippines
- Merrill Lynch Commodities Europe
- AsiaOL BioFuels Corp., Philippines
- The State Trading Corporation of India Ltd
- Star Paper Mills Limited - India
- Miang Besar Coal Terminal - Indonesia
- Chamber of Mines of South Africa
- ASAPP Information Group - India
- McConnell Dowell - Australia
- Indonesian Coal Mining Association
- Dalmia Cement Bharat India
- Commonwealth Bank - Australia
- SMG Consultants - Indonesia
- Kartika Selabumi Mining - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- International Coal Ventures Pvt Ltd - India
- Coalindo Energy - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Makarim & Taira - Indonesia
- Indian Oil Corporation Limited
- Edison Trading Spa - Italy
- Vijayanagar Sugar Pvt Ltd - India
- MS Steel International - UAE
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