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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, 16 December 15
FOB RICHARDS BAY COAL SWAP SLUMP 5.5% FROM LAST MONTH
COALspot.com: API4 FOB Richards Bay Coal swap for delivery Q1’ 2016 decline month over month and week over week.
The Q1’ 2016 &nbs ...
Wednesday, 16 December 15
MARKET INSIGHT - KATERINA RESTIS
On Friday 4th of December the meeting of OPEC was held in Vienna, Austria. Since its last meeting, oil and product stock levels have continued to r ...
Tuesday, 15 December 15
THE GOVERNMENT DECLARED THERMAL COAL BENCHMARK PRICE CRASHING ONCE AGAIN
COALspot.com: Low coal demand and excess supplies sent Indonesian benchmark coal price down to below 2009 level. HBA has slumped by 1.69% mo ...
Tuesday, 15 December 15
API 5 FOB NEWCASTLE COAL SWAP FIRM W-W; WEAK M-M
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2016 delivery slid $.13 per ton (0.35%) month over month to US$ 37.07 per ton. The swap w ...
Monday, 14 December 15
5000 GAR CS (I) COAL INDEX DECLINE US$ 0.04 PER TON W-O-W
COALspot.com: The 5000 GAR CS (i) coal index decline US$ 0.04 per ton (-0.10 %) week over week.
According to the CS (i) coal (system generated ...
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- Parry Sugars Refinery, India
- Sinarmas Energy and Mining - Indonesia
- Carbofer General Trading SA - India
- Bharathi Cement Corporation - India
- Antam Resourcindo - Indonesia
- Orica Australia Pty. Ltd.
- Siam City Cement - Thailand
- Kaltim Prima Coal - Indonesia
- Merrill Lynch Commodities Europe
- Pipit Mutiara Jaya. PT, Indonesia
- Energy Development Corp, Philippines
- Coal and Oil Company - UAE
- Interocean Group of Companies - India
- Mjunction Services Limited - India
- Gujarat Sidhee Cement - India
- Neyveli Lignite Corporation Ltd, - India
- Orica Mining Services - Indonesia
- Bhatia International Limited - India
- LBH Netherlands Bv - Netherlands
- Minerals Council of Australia
- Oldendorff Carriers - Singapore
- Billiton Holdings Pty Ltd - Australia
- Heidelberg Cement - Germany
- Mercuria Energy - Indonesia
- Straits Asia Resources Limited - Singapore
- Wilmar Investment Holdings
- McConnell Dowell - Australia
- Grasim Industreis Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Vedanta Resources Plc - India
- Thai Mozambique Logistica
- ASAPP Information Group - India
- Videocon Industries ltd - India
- Metalloyd Limited - United Kingdom
- Posco Energy - South Korea
- Savvy Resources Ltd - HongKong
- Cigading International Bulk Terminal - Indonesia
- IHS Mccloskey Coal Group - USA
- GMR Energy Limited - India
- Uttam Galva Steels Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Therma Luzon, Inc, Philippines
- London Commodity Brokers - England
- Port Waratah Coal Services - Australia
- Indian Energy Exchange, India
- Singapore Mercantile Exchange
- Star Paper Mills Limited - India
- Karbindo Abesyapradhi - Indoneisa
- CNBM International Corporation - China
- Directorate Of Revenue Intelligence - India
- Baramulti Group, Indonesia
- India Bulls Power Limited - India
- Deloitte Consulting - India
- Coalindo Energy - Indonesia
- Ambuja Cements Ltd - India
- Simpson Spence & Young - Indonesia
- Ministry of Transport, Egypt
- Madhucon Powers Ltd - India
- Lanco Infratech Ltd - India
- Meenaskhi Energy Private Limited - India
- European Bulk Services B.V. - Netherlands
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sindya Power Generating Company Private Ltd
- Jindal Steel & Power Ltd - India
- Agrawal Coal Company - India
- SMG Consultants - Indonesia
- SN Aboitiz Power Inc, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Asia Pacific Energy Resources Ventures Inc, Philippines
- CIMB Investment Bank - Malaysia
- Formosa Plastics Group - Taiwan
- Vizag Seaport Private Limited - India
- Manunggal Multi Energi - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Altura Mining Limited, Indonesia
- Gujarat Electricity Regulatory Commission - India
- Alfred C Toepfer International GmbH - Germany
- Iligan Light & Power Inc, Philippines
- VISA Power Limited - India
- Bhoruka Overseas - Indonesia
- Timah Investasi Mineral - Indoneisa
- ICICI Bank Limited - India
- Pendopo Energi Batubara - Indonesia
- Tamil Nadu electricity Board
- TNB Fuel Sdn Bhd - Malaysia
- Parliament of New Zealand
- White Energy Company Limited
- Xindia Steels Limited - India
- Eastern Energy - Thailand
- Bayan Resources Tbk. - Indonesia
- Semirara Mining Corp, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bukit Baiduri Energy - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Electricity Authority, New Zealand
- Rashtriya Ispat Nigam Limited - India
- Renaissance Capital - South Africa
- OPG Power Generation Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Independent Power Producers Association of India
- Barasentosa Lestari - Indonesia
- Attock Cement Pakistan Limited
- Goldman Sachs - Singapore
- San Jose City I Power Corp, Philippines
- PNOC Exploration Corporation - Philippines
- Leighton Contractors Pty Ltd - Australia
- Meralco Power Generation, Philippines
- Maheswari Brothers Coal Limited - India
- Coastal Gujarat Power Limited - India
- Australian Coal Association
- Globalindo Alam Lestari - Indonesia
- Chettinad Cement Corporation Ltd - India
- PTC India Limited - India
- Kumho Petrochemical, South Korea
- Georgia Ports Authority, United States
- Rio Tinto Coal - Australia
- TeaM Sual Corporation - Philippines
- International Coal Ventures Pvt Ltd - India
- Sakthi Sugars Limited - India
- Aboitiz Power Corporation - Philippines
- Semirara Mining and Power Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Bhushan Steel Limited - India
- Commonwealth Bank - Australia
- The University of Queensland
- Petrochimia International Co. Ltd.- Taiwan
- New Zealand Coal & Carbon
- SMC Global Power, Philippines
- Global Coal Blending Company Limited - Australia
- Price Waterhouse Coopers - Russia
- Banpu Public Company Limited - Thailand
- Sical Logistics Limited - India
- Makarim & Taira - Indonesia
- Standard Chartered Bank - UAE
- Australian Commodity Traders Exchange
- PowerSource Philippines DevCo
- Bukit Makmur.PT - Indonesia
- Latin American Coal - Colombia
- IEA Clean Coal Centre - UK
- Edison Trading Spa - Italy
- Offshore Bulk Terminal Pte Ltd, Singapore
- Medco Energi Mining Internasional
- Ministry of Finance - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sojitz Corporation - Japan
- Bangladesh Power Developement Board
- Kepco SPC Power Corporation, Philippines
- Power Finance Corporation Ltd., India
- GAC Shipping (India) Pvt Ltd
- Trasteel International SA, Italy
- Kohat Cement Company Ltd. - Pakistan
- Sarangani Energy Corporation, Philippines
- Ministry of Mines - Canada
- Africa Commodities Group - South Africa
- Karaikal Port Pvt Ltd - India
- Indogreen Group - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Ind-Barath Power Infra Limited - India
- MS Steel International - UAE
- Bukit Asam (Persero) Tbk - Indonesia
- Central Java Power - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Directorate General of MIneral and Coal - Indonesia
- Petron Corporation, Philippines
- Toyota Tsusho Corporation, Japan
- Indonesian Coal Mining Association
- Riau Bara Harum - Indonesia
- Eastern Coal Council - USA
- Miang Besar Coal Terminal - Indonesia
- Malabar Cements Ltd - India
- Aditya Birla Group - India
- South Luzon Thermal Energy Corporation
- Wood Mackenzie - Singapore
- Sree Jayajothi Cements Limited - India
- Marubeni Corporation - India
- Thiess Contractors Indonesia
- Energy Link Ltd, New Zealand
- Kideco Jaya Agung - Indonesia
- Mercator Lines Limited - India
- Borneo Indobara - Indonesia
- Anglo American - United Kingdom
- Bulk Trading Sa - Switzerland
- Romanian Commodities Exchange
- Maharashtra Electricity Regulatory Commission - India
- Cement Manufacturers Association - India
- Planning Commission, India
- Dalmia Cement Bharat India
- Central Electricity Authority - India
- Indo Tambangraya Megah - Indonesia
- Global Green Power PLC Corporation, Philippines
- Chamber of Mines of South Africa
- GVK Power & Infra Limited - India
- Kobexindo Tractors - Indoneisa
- The Treasury - Australian Government
- Asmin Koalindo Tuhup - Indonesia
- Jaiprakash Power Ventures ltd
- Samtan Co., Ltd - South Korea
- The State Trading Corporation of India Ltd
- Kartika Selabumi Mining - Indonesia
- Binh Thuan Hamico - Vietnam
- Tata Chemicals Ltd - India
- Salva Resources Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Indika Energy - Indonesia
- Economic Council, Georgia
- Mintek Dendrill Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Larsen & Toubro Limited - India
- Essar Steel Hazira Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Indian Oil Corporation Limited
- Global Business Power Corporation, Philippines
- Electricity Generating Authority of Thailand
- Siam City Cement PLC, Thailand
- Intertek Mineral Services - Indonesia
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