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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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Friday, 18 December 15
WHEN IS A MASTER ENTITLED TO REFUSE DAMAGED CARGO? A REMINDER - THE STANDARD CLUB
KNOWLEDGE TO ELEVATE
A master’s authority to clause bills of lading issued by or on his behalf can sometimes become the cause of disagreeme ...
Friday, 18 December 15
CHINA GROWTH SHOCK TO HIT ENERGY, SHIPPING, STEEL MOST - FITCH
Energy, shipping and steel would be the hardest-hit sectors in Asia-Pacific (APAC) in the event of a sharp slowdown in Chinese growth, says Fitch R ...
Friday, 18 December 15
WEEKLY U.S. COAL PRODUCTION REMAINS FLAT ACROSS ALL BASINS
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 16.1 million shor ...
Thursday, 17 December 15
THE LOW DEMAND AND EXCESS COAL OUTPUT, KEEP THE FOB INDONESIA COAL SWAPS UNDER PRESSURE
COALspot.com: Indonesian coal swap for delivery Q1 2016 rose month on month and decline slightly week over week. For the week ended December 11, 20 ...
Thursday, 17 December 15
GLADSTONE PORT COAL RECORD LOOMING, EXPORTS UP 12% - GLADSTONE OBSERVER
COAL exports from Gladstone's port have taken a leap, with more than seven million tonnes leaving the wharves in November.
That increase i ...
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- Orica Mining Services - Indonesia
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- London Commodity Brokers - England
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- Singapore Mercantile Exchange
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- Petron Corporation, Philippines
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- CNBM International Corporation - China
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- Indian Energy Exchange, India
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- European Bulk Services B.V. - Netherlands
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- Billiton Holdings Pty Ltd - Australia
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- Economic Council, Georgia
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- Bangladesh Power Developement Board
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- Ministry of Finance - Indonesia
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- Bukit Asam (Persero) Tbk - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Parliament of New Zealand
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- Indian Oil Corporation Limited
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- Filglen & Citicon Mining (HK) Ltd - Hong Kong
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- Mjunction Services Limited - India
- Heidelberg Cement - Germany
- Global Coal Blending Company Limited - Australia
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- Kumho Petrochemical, South Korea
- South Luzon Thermal Energy Corporation
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- Ambuja Cements Ltd - India
- ICICI Bank Limited - India
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- Jorong Barutama Greston.PT - Indonesia
- Central Electricity Authority - India
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- Interocean Group of Companies - India
- Bukit Makmur.PT - Indonesia
- Meralco Power Generation, Philippines
- Kaltim Prima Coal - Indonesia
- Pendopo Energi Batubara - Indonesia
- Sarangani Energy Corporation, Philippines
- Coal and Oil Company - UAE
- IHS Mccloskey Coal Group - USA
- Holcim Trading Pte Ltd - Singapore
- Straits Asia Resources Limited - Singapore
- Kepco SPC Power Corporation, Philippines
- Cement Manufacturers Association - India
- Sinarmas Energy and Mining - Indonesia
- Power Finance Corporation Ltd., India
- Sojitz Corporation - Japan
- Sindya Power Generating Company Private Ltd
- SMC Global Power, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Vijayanagar Sugar Pvt Ltd - India
- Bhoruka Overseas - Indonesia
- GMR Energy Limited - India
- Mintek Dendrill Indonesia
- Xindia Steels Limited - India
- Eastern Coal Council - USA
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- TeaM Sual Corporation - Philippines
- SN Aboitiz Power Inc, Philippines
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- Sakthi Sugars Limited - India
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- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Chamber of Mines of South Africa
- Semirara Mining and Power Corporation, Philippines
- Madhucon Powers Ltd - India
- Wilmar Investment Holdings
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- Minerals Council of Australia
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- Trasteel International SA, Italy
- Globalindo Alam Lestari - Indonesia
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- TNB Fuel Sdn Bhd - Malaysia
- IEA Clean Coal Centre - UK
- Goldman Sachs - Singapore
- SMG Consultants - Indonesia
- Rio Tinto Coal - Australia
- Kohat Cement Company Ltd. - Pakistan
- Ministry of Transport, Egypt
- White Energy Company Limited
- India Bulls Power Limited - India
- Tata Chemicals Ltd - India
- The State Trading Corporation of India Ltd
- Africa Commodities Group - South Africa
- Riau Bara Harum - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- GAC Shipping (India) Pvt Ltd
- Dalmia Cement Bharat India
- AsiaOL BioFuels Corp., Philippines
- Essar Steel Hazira Ltd - India
- Therma Luzon, Inc, Philippines
- Miang Besar Coal Terminal - Indonesia
- PTC India Limited - India
- LBH Netherlands Bv - Netherlands
- Siam City Cement PLC, Thailand
- Aditya Birla Group - India
- Alfred C Toepfer International GmbH - Germany
- The Treasury - Australian Government
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- Bahari Cakrawala Sebuku - Indonesia
- Salva Resources Pvt Ltd - India
- Attock Cement Pakistan Limited
- Banpu Public Company Limited - Thailand
- Port Waratah Coal Services - Australia
- Planning Commission, India
- Energy Link Ltd, New Zealand
- Bayan Resources Tbk. - Indonesia
- Jaiprakash Power Ventures ltd
- Cigading International Bulk Terminal - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Videocon Industries ltd - India
- Independent Power Producers Association of India
- Mercator Lines Limited - India
- Kapuas Tunggal Persada - Indonesia
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- Coastal Gujarat Power Limited - India
- Vizag Seaport Private Limited - India
- Antam Resourcindo - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Anglo American - United Kingdom
- Orica Australia Pty. Ltd.
- Petrochimia International Co. Ltd.- Taiwan
- Central Java Power - Indonesia
- Uttam Galva Steels Limited - India
- MS Steel International - UAE
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kideco Jaya Agung - Indonesia
- Indika Energy - Indonesia
- Vedanta Resources Plc - India
- Merrill Lynch Commodities Europe
- Posco Energy - South Korea
- The University of Queensland
- Aboitiz Power Corporation - Philippines
- Indogreen Group - Indonesia
- Wood Mackenzie - Singapore
- Romanian Commodities Exchange
- Pipit Mutiara Jaya. PT, Indonesia
- ASAPP Information Group - India
- Deloitte Consulting - India
- Sree Jayajothi Cements Limited - India
- Global Business Power Corporation, Philippines
- Thai Mozambique Logistica
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- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indonesian Coal Mining Association
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- Meenaskhi Energy Private Limited - India
- Global Green Power PLC Corporation, Philippines
- Australian Coal Association
- Marubeni Corporation - India
- Simpson Spence & Young - Indonesia
- Ceylon Electricity Board - Sri Lanka
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