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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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Saturday, 26 December 15
FOB INDONESIA COAL SWAPS KEEP DROPPING
COALspot.com: Indonesian coal swap delivery Q1 2016 declined month on month and week over week.
According to AsiaClear OTC coal swap's rep ...
Friday, 25 December 15
WEEKLY US COAL PRODUCTION ESTIMATES DIP 8.5%
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 14.7 million shor ...
Thursday, 24 December 15
Q3' 16 FOB RICHARDS BAY COAL SWAP SHED US$ 0.60 PER TON OVER WEEK, AND STANDS AT US$ 43.25 PER TON
COALspot.com: Q1’ 2016 API4 FOB Richards Bay Coal swap decline month over month and slightly up week over week.
The Q1’ 2016 FOB R ...
Thursday, 24 December 15
GLOBAL MARINE FUEL REGULATIONS COULD SHOCK REFINING AND OIL MARKETS - OPEC | HELLENIC SHIPPING NEWS
IMO regulations call for global standards for sulphur content in marine fuel to be tightened to 0.5% from its present 3.5%. There is uncertainty ov ...
Thursday, 24 December 15
DRY BULKERS' VALUES ARE PLUNGING - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Dry bulk carriers’ values are falling across the board, as the fall of freight rates is taking its toll, as is to be expected. In fact, accor ...
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- Mercuria Energy - Indonesia
- Petron Corporation, Philippines
- Essar Steel Hazira Ltd - India
- Therma Luzon, Inc, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bayan Resources Tbk. - Indonesia
- Iligan Light & Power Inc, Philippines
- SMG Consultants - Indonesia
- The State Trading Corporation of India Ltd
- Heidelberg Cement - Germany
- Bharathi Cement Corporation - India
- Karbindo Abesyapradhi - Indoneisa
- Kaltim Prima Coal - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Banpu Public Company Limited - Thailand
- New Zealand Coal & Carbon
- Billiton Holdings Pty Ltd - Australia
- Sical Logistics Limited - India
- San Jose City I Power Corp, Philippines
- Wilmar Investment Holdings
- Semirara Mining and Power Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Rio Tinto Coal - Australia
- Standard Chartered Bank - UAE
- Coalindo Energy - Indonesia
- Madhucon Powers Ltd - India
- Parliament of New Zealand
- Singapore Mercantile Exchange
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Georgia Ports Authority, United States
- Central Electricity Authority - India
- Holcim Trading Pte Ltd - Singapore
- Kumho Petrochemical, South Korea
- Romanian Commodities Exchange
- Binh Thuan Hamico - Vietnam
- Bahari Cakrawala Sebuku - Indonesia
- Directorate Of Revenue Intelligence - India
- TeaM Sual Corporation - Philippines
- Siam City Cement - Thailand
- Ceylon Electricity Board - Sri Lanka
- Energy Link Ltd, New Zealand
- Bukit Makmur.PT - Indonesia
- Deloitte Consulting - India
- Gujarat Sidhee Cement - India
- McConnell Dowell - Australia
- Leighton Contractors Pty Ltd - Australia
- Samtan Co., Ltd - South Korea
- Vedanta Resources Plc - India
- Price Waterhouse Coopers - Russia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Antam Resourcindo - Indonesia
- Electricity Generating Authority of Thailand
- Sakthi Sugars Limited - India
- Toyota Tsusho Corporation, Japan
- Kohat Cement Company Ltd. - Pakistan
- Vizag Seaport Private Limited - India
- GVK Power & Infra Limited - India
- Siam City Cement PLC, Thailand
- Global Coal Blending Company Limited - Australia
- Salva Resources Pvt Ltd - India
- Coal and Oil Company - UAE
- Bulk Trading Sa - Switzerland
- Port Waratah Coal Services - Australia
- Rashtriya Ispat Nigam Limited - India
- Xindia Steels Limited - India
- White Energy Company Limited
- Indika Energy - Indonesia
- Trasteel International SA, Italy
- VISA Power Limited - India
- Karaikal Port Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Kartika Selabumi Mining - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Bhatia International Limited - India
- Aboitiz Power Corporation - Philippines
- Dalmia Cement Bharat India
- PNOC Exploration Corporation - Philippines
- Miang Besar Coal Terminal - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Central Java Power - Indonesia
- Straits Asia Resources Limited - Singapore
- Larsen & Toubro Limited - India
- Altura Mining Limited, Indonesia
- Videocon Industries ltd - India
- Africa Commodities Group - South Africa
- Aditya Birla Group - India
- SN Aboitiz Power Inc, Philippines
- PTC India Limited - India
- SMC Global Power, Philippines
- Indogreen Group - Indonesia
- Indonesian Coal Mining Association
- Coastal Gujarat Power Limited - India
- Kobexindo Tractors - Indoneisa
- South Luzon Thermal Energy Corporation
- MS Steel International - UAE
- Latin American Coal - Colombia
- Wood Mackenzie - Singapore
- Pendopo Energi Batubara - Indonesia
- Planning Commission, India
- Australian Coal Association
- LBH Netherlands Bv - Netherlands
- Borneo Indobara - Indonesia
- IEA Clean Coal Centre - UK
- Indian Energy Exchange, India
- Commonwealth Bank - Australia
- Kapuas Tunggal Persada - Indonesia
- Eastern Coal Council - USA
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Timah Investasi Mineral - Indoneisa
- Sree Jayajothi Cements Limited - India
- Indian Oil Corporation Limited
- European Bulk Services B.V. - Netherlands
- Jindal Steel & Power Ltd - India
- Renaissance Capital - South Africa
- Medco Energi Mining Internasional
- Ministry of Mines - Canada
- Riau Bara Harum - Indonesia
- Star Paper Mills Limited - India
- Carbofer General Trading SA - India
- Anglo American - United Kingdom
- Bhoruka Overseas - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- PowerSource Philippines DevCo
- Goldman Sachs - Singapore
- Kideco Jaya Agung - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Petrochimia International Co. Ltd.- Taiwan
- Uttam Galva Steels Limited - India
- Interocean Group of Companies - India
- Chettinad Cement Corporation Ltd - India
- ICICI Bank Limited - India
- Ministry of Finance - Indonesia
- Mintek Dendrill Indonesia
- Kepco SPC Power Corporation, Philippines
- The Treasury - Australian Government
- Jaiprakash Power Ventures ltd
- Minerals Council of Australia
- Sojitz Corporation - Japan
- Intertek Mineral Services - Indonesia
- Eastern Energy - Thailand
- Gujarat Electricity Regulatory Commission - India
- Ambuja Cements Ltd - India
- Cement Manufacturers Association - India
- Maharashtra Electricity Regulatory Commission - India
- Makarim & Taira - Indonesia
- Sarangani Energy Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Marubeni Corporation - India
- London Commodity Brokers - England
- Tamil Nadu electricity Board
- Sinarmas Energy and Mining - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Chamber of Mines of South Africa
- Bhushan Steel Limited - India
- Mercator Lines Limited - India
- Economic Council, Georgia
- Mjunction Services Limited - India
- Manunggal Multi Energi - Indonesia
- Thiess Contractors Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Metalloyd Limited - United Kingdom
- Cigading International Bulk Terminal - Indonesia
- Edison Trading Spa - Italy
- CNBM International Corporation - China
- Oldendorff Carriers - Singapore
- Bangladesh Power Developement Board
- Bukit Asam (Persero) Tbk - Indonesia
- Attock Cement Pakistan Limited
- Agrawal Coal Company - India
- Posco Energy - South Korea
- Jorong Barutama Greston.PT - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Krishnapatnam Port Company Ltd. - India
- Ministry of Transport, Egypt
- Maheswari Brothers Coal Limited - India
- Meralco Power Generation, Philippines
- Global Green Power PLC Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- OPG Power Generation Pvt Ltd - India
- Lanco Infratech Ltd - India
- Power Finance Corporation Ltd., India
- Global Business Power Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Barasentosa Lestari - Indonesia
- Orica Mining Services - Indonesia
- Simpson Spence & Young - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Energy Development Corp, Philippines
- Semirara Mining Corp, Philippines
- Grasim Industreis Ltd - India
- Parry Sugars Refinery, India
- Tata Chemicals Ltd - India
- Merrill Lynch Commodities Europe
- Alfred C Toepfer International GmbH - Germany
- Savvy Resources Ltd - HongKong
- Independent Power Producers Association of India
- Australian Commodity Traders Exchange
- ASAPP Information Group - India
- Baramulti Group, Indonesia
- Bukit Baiduri Energy - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- GMR Energy Limited - India
- India Bulls Power Limited - India
- Malabar Cements Ltd - India
- The University of Queensland
- International Coal Ventures Pvt Ltd - India
- CIMB Investment Bank - Malaysia
- Directorate General of MIneral and Coal - Indonesia
- Sindya Power Generating Company Private Ltd
- IHS Mccloskey Coal Group - USA
- Ind-Barath Power Infra Limited - India
- Electricity Authority, New Zealand
- GAC Shipping (India) Pvt Ltd
- Formosa Plastics Group - Taiwan
- Thai Mozambique Logistica
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