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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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Wednesday, 23 December 15
SHIPPING MARKET INSIGHT - PANOS MAKRINOS
As we are heading towards the end of the year we could argue that most of those involved in the shipping industry share mixed feelings for 2015. Th ...
Wednesday, 23 December 15
FOB NEWCASTLE COAL SWAP CLOSES FIRM
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2016 delivery up $0.45 per ton (1.22%) month over month to US$ 37.20 per ton. The swap wa ...
Tuesday, 22 December 15
3800 GAR INDEX CLOSED AT US$ 22.03 PER TON; DOWN 0.15% W-O-W
COALspot.com: The 5000 GAR CS (i) coal index decline US$ 0.03 per ton (-0.07 %) week over week.
According to the CS (i) coal (system generated ...
Monday, 21 December 15
Q3' 2016 CFR SOUTH CHINA COAL SWAP CLOSED SLIGHTLY LOWER COMPARE TO Q1'16 CLOSING PRICE
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2016 delivery up US$ 0.20 (0.48%) per ton month over month.
A commodity swap is a ...
Sunday, 20 December 15
THE FREIGHT RATES FROM INDONESIA TO INDIA IS EXPECTED TO BE SOFT NEXT WEEK
COALspot.com: The BDI facing all time low's this week. The bulk dry index closed at 477 points on 18 December 2015.
The cape index was als ...
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- Tamil Nadu electricity Board
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- Aboitiz Power Corporation - Philippines
- Eastern Coal Council - USA
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- Agrawal Coal Company - India
- Bukit Asam (Persero) Tbk - Indonesia
- Parliament of New Zealand
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- Directorate General of MIneral and Coal - Indonesia
- Sindya Power Generating Company Private Ltd
- International Coal Ventures Pvt Ltd - India
- Intertek Mineral Services - Indonesia
- Jindal Steel & Power Ltd - India
- Electricity Generating Authority of Thailand
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- Coal and Oil Company - UAE
- Chamber of Mines of South Africa
- New Zealand Coal & Carbon
- Wood Mackenzie - Singapore
- Lanco Infratech Ltd - India
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- Billiton Holdings Pty Ltd - Australia
- Gujarat Mineral Development Corp Ltd - India
- Goldman Sachs - Singapore
- Bhoruka Overseas - Indonesia
- Indian Oil Corporation Limited
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- Thiess Contractors Indonesia
- Kobexindo Tractors - Indoneisa
- Orica Australia Pty. Ltd.
- Cigading International Bulk Terminal - Indonesia
- Attock Cement Pakistan Limited
- Indogreen Group - Indonesia
- Central Java Power - Indonesia
- Directorate Of Revenue Intelligence - India
- Coalindo Energy - Indonesia
- OPG Power Generation Pvt Ltd - India
- Karaikal Port Pvt Ltd - India
- Heidelberg Cement - Germany
- Kepco SPC Power Corporation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Sakthi Sugars Limited - India
- Cement Manufacturers Association - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- LBH Netherlands Bv - Netherlands
- Sinarmas Energy and Mining - Indonesia
- PTC India Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Manunggal Multi Energi - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Wilmar Investment Holdings
- Barasentosa Lestari - Indonesia
- San Jose City I Power Corp, Philippines
- Georgia Ports Authority, United States
- Commonwealth Bank - Australia
- ASAPP Information Group - India
- India Bulls Power Limited - India
- Oldendorff Carriers - Singapore
- Standard Chartered Bank - UAE
- Bangladesh Power Developement Board
- London Commodity Brokers - England
- Africa Commodities Group - South Africa
- Pendopo Energi Batubara - Indonesia
- Star Paper Mills Limited - India
- Bharathi Cement Corporation - India
- AsiaOL BioFuels Corp., Philippines
- Australian Coal Association
- Petron Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- GAC Shipping (India) Pvt Ltd
- Ind-Barath Power Infra Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Malabar Cements Ltd - India
- Bhushan Steel Limited - India
- Videocon Industries ltd - India
- Sarangani Energy Corporation, Philippines
- Chettinad Cement Corporation Ltd - India
- Semirara Mining and Power Corporation, Philippines
- European Bulk Services B.V. - Netherlands
- PetroVietnam Power Coal Import and Supply Company
- Leighton Contractors Pty Ltd - Australia
- Salva Resources Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Parry Sugars Refinery, India
- Ambuja Cements Ltd - India
- Gujarat Sidhee Cement - India
- Altura Mining Limited, Indonesia
- MS Steel International - UAE
- Binh Thuan Hamico - Vietnam
- Economic Council, Georgia
- TeaM Sual Corporation - Philippines
- Price Waterhouse Coopers - Russia
- Carbofer General Trading SA - India
- White Energy Company Limited
- Kideco Jaya Agung - Indonesia
- Sical Logistics Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Ministry of Mines - Canada
- Aditya Birla Group - India
- Meralco Power Generation, Philippines
- CNBM International Corporation - China
- Maharashtra Electricity Regulatory Commission - India
- Maheswari Brothers Coal Limited - India
- Bukit Makmur.PT - Indonesia
- Medco Energi Mining Internasional
- Rio Tinto Coal - Australia
- Siam City Cement PLC, Thailand
- Edison Trading Spa - Italy
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Uttam Galva Steels Limited - India
- Merrill Lynch Commodities Europe
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Holcim Trading Pte Ltd - Singapore
- Trasteel International SA, Italy
- Interocean Group of Companies - India
- Iligan Light & Power Inc, Philippines
- Vedanta Resources Plc - India
- Petrochimia International Co. Ltd.- Taiwan
- Mercuria Energy - Indonesia
- Kartika Selabumi Mining - Indonesia
- Therma Luzon, Inc, Philippines
- Indika Energy - Indonesia
- Port Waratah Coal Services - Australia
- Siam City Cement - Thailand
- SMC Global Power, Philippines
- Kalimantan Lumbung Energi - Indonesia
- SMG Consultants - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Asmin Koalindo Tuhup - Indonesia
- Straits Asia Resources Limited - Singapore
- The Treasury - Australian Government
- Mjunction Services Limited - India
- GMR Energy Limited - India
- Global Business Power Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Singapore Mercantile Exchange
- Posco Energy - South Korea
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Anglo American - United Kingdom
- The State Trading Corporation of India Ltd
- Globalindo Alam Lestari - Indonesia
- Energy Link Ltd, New Zealand
- Independent Power Producers Association of India
- SN Aboitiz Power Inc, Philippines
- Savvy Resources Ltd - HongKong
- McConnell Dowell - Australia
- Eastern Energy - Thailand
- CIMB Investment Bank - Malaysia
- Bayan Resources Tbk. - Indonesia
- Samtan Co., Ltd - South Korea
- Semirara Mining Corp, Philippines
- Power Finance Corporation Ltd., India
- Dalmia Cement Bharat India
- Xindia Steels Limited - India
- Latin American Coal - Colombia
- Electricity Authority, New Zealand
- Makarim & Taira - Indonesia
- Ministry of Finance - Indonesia
- Timah Investasi Mineral - Indoneisa
- Ministry of Transport, Egypt
- Jaiprakash Power Ventures ltd
- Bhatia International Limited - India
- Rashtriya Ispat Nigam Limited - India
- Kapuas Tunggal Persada - Indonesia
- IEA Clean Coal Centre - UK
- Thai Mozambique Logistica
- Tata Chemicals Ltd - India
- IHS Mccloskey Coal Group - USA
- Gujarat Electricity Regulatory Commission - India
- Mintek Dendrill Indonesia
- Ceylon Electricity Board - Sri Lanka
- Romanian Commodities Exchange
- South Luzon Thermal Energy Corporation
- Mercator Lines Limited - India
- Coastal Gujarat Power Limited - India
- Krishnapatnam Port Company Ltd. - India
- Borneo Indobara - Indonesia
- Riau Bara Harum - Indonesia
- Sree Jayajothi Cements Limited - India
- Banpu Public Company Limited - Thailand
- Minerals Council of Australia
- Alfred C Toepfer International GmbH - Germany
- Kumho Petrochemical, South Korea
- Global Coal Blending Company Limited - Australia
- GVK Power & Infra Limited - India
- Bulk Trading Sa - Switzerland
- PNOC Exploration Corporation - Philippines
- Toyota Tsusho Corporation, Japan
- Renaissance Capital - South Africa
- Metalloyd Limited - United Kingdom
- Indonesian Coal Mining Association
- Larsen & Toubro Limited - India
- PowerSource Philippines DevCo
- Planning Commission, India
- Formosa Plastics Group - Taiwan
- Kaltim Prima Coal - Indonesia
- The University of Queensland
- Baramulti Group, Indonesia
- Energy Development Corp, Philippines
- Global Green Power PLC Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Australian Commodity Traders Exchange
- Orica Mining Services - Indonesia
- Essar Steel Hazira Ltd - India
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