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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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Monday, 14 December 15
CFR SOUTH CHINA COAL SWAP IS STILL SLIDING
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2016 delivery declined US$ 0.93(2.18%) per ton month over month.
A commodity swap ...
Sunday, 13 December 15
THE LOW VESSEL DEMANDS PUSHED DOWN BALTIC DRY INDEX FURTHER DOWN
COALspot.com: The low vessel demand across nearly all vessel sizes pushed the Baltic Exchange’s main sea freight index further down in this F ...
Sunday, 13 December 15
DRY BULK RATES KEEP ON FALLING AS LOW VESSEL DEMAND IS STILL THE NORM - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The dry bulk market nowadays is in an endless downward spiral, which as it turns out is unable to recover, at least as long as the current balance ...
Friday, 11 December 15
US COAL PRODUCTION UP 7.7% IN WEEK ENDED DECEMBER 5, 2015
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 16.1 million shor ...
Thursday, 10 December 15
LIENING CARGO - WHICH LIEN CLAUSE APPLIES TO THE BILL OF LADING? : WIKBORG REIN | HELLENIC SHIPPING NEWS
KNOWLEDGE TO ELEVATE
In a dry bulk market where a charterer is not paying freight or hire, its counterparty is often left to consider whether ...
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- Aboitiz Power Corporation - Philippines
- Indika Energy - Indonesia
- Savvy Resources Ltd - HongKong
- Bhoruka Overseas - Indonesia
- Lanco Infratech Ltd - India
- Kartika Selabumi Mining - Indonesia
- Ambuja Cements Ltd - India
- CNBM International Corporation - China
- Orica Mining Services - Indonesia
- CIMB Investment Bank - Malaysia
- Meralco Power Generation, Philippines
- Tamil Nadu electricity Board
- Uttam Galva Steels Limited - India
- IEA Clean Coal Centre - UK
- Essar Steel Hazira Ltd - India
- Eastern Coal Council - USA
- Global Green Power PLC Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Ministry of Mines - Canada
- Larsen & Toubro Limited - India
- Leighton Contractors Pty Ltd - Australia
- Georgia Ports Authority, United States
- Latin American Coal - Colombia
- Ind-Barath Power Infra Limited - India
- Antam Resourcindo - Indonesia
- Economic Council, Georgia
- Romanian Commodities Exchange
- Jaiprakash Power Ventures ltd
- Metalloyd Limited - United Kingdom
- Rashtriya Ispat Nigam Limited - India
- Bukit Makmur.PT - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- TeaM Sual Corporation - Philippines
- Directorate Of Revenue Intelligence - India
- Posco Energy - South Korea
- Heidelberg Cement - Germany
- Iligan Light & Power Inc, Philippines
- Africa Commodities Group - South Africa
- Bulk Trading Sa - Switzerland
- Parry Sugars Refinery, India
- VISA Power Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Merrill Lynch Commodities Europe
- ASAPP Information Group - India
- Cement Manufacturers Association - India
- Edison Trading Spa - Italy
- The Treasury - Australian Government
- GAC Shipping (India) Pvt Ltd
- Singapore Mercantile Exchange
- New Zealand Coal & Carbon
- Port Waratah Coal Services - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Mercator Lines Limited - India
- Marubeni Corporation - India
- Binh Thuan Hamico - Vietnam
- LBH Netherlands Bv - Netherlands
- Eastern Energy - Thailand
- Global Business Power Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Siam City Cement PLC, Thailand
- Globalindo Alam Lestari - Indonesia
- Billiton Holdings Pty Ltd - Australia
- South Luzon Thermal Energy Corporation
- Karaikal Port Pvt Ltd - India
- Australian Coal Association
- Indian Oil Corporation Limited
- Semirara Mining Corp, Philippines
- Oldendorff Carriers - Singapore
- Madhucon Powers Ltd - India
- Barasentosa Lestari - Indonesia
- Videocon Industries ltd - India
- Siam City Cement - Thailand
- Riau Bara Harum - Indonesia
- The State Trading Corporation of India Ltd
- Indian Energy Exchange, India
- Central Electricity Authority - India
- Independent Power Producers Association of India
- Ministry of Finance - Indonesia
- Sarangani Energy Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- Global Coal Blending Company Limited - Australia
- Simpson Spence & Young - Indonesia
- San Jose City I Power Corp, Philippines
- Salva Resources Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- Vijayanagar Sugar Pvt Ltd - India
- Attock Cement Pakistan Limited
- Bhatia International Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Sree Jayajothi Cements Limited - India
- Coalindo Energy - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Formosa Plastics Group - Taiwan
- Bukit Asam (Persero) Tbk - Indonesia
- Maheswari Brothers Coal Limited - India
- Sical Logistics Limited - India
- Bayan Resources Tbk. - Indonesia
- Thiess Contractors Indonesia
- Miang Besar Coal Terminal - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kumho Petrochemical, South Korea
- Malabar Cements Ltd - India
- International Coal Ventures Pvt Ltd - India
- Toyota Tsusho Corporation, Japan
- Parliament of New Zealand
- Petron Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Manunggal Multi Energi - Indonesia
- Bangladesh Power Developement Board
- Alfred C Toepfer International GmbH - Germany
- Ministry of Transport, Egypt
- London Commodity Brokers - England
- Petrochimia International Co. Ltd.- Taiwan
- Australian Commodity Traders Exchange
- IHS Mccloskey Coal Group - USA
- Krishnapatnam Port Company Ltd. - India
- The University of Queensland
- Asia Pacific Energy Resources Ventures Inc, Philippines
- MS Steel International - UAE
- Star Paper Mills Limited - India
- PTC India Limited - India
- Makarim & Taira - Indonesia
- Indogreen Group - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Jindal Steel & Power Ltd - India
- Coastal Gujarat Power Limited - India
- Energy Development Corp, Philippines
- GVK Power & Infra Limited - India
- SMG Consultants - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Power Finance Corporation Ltd., India
- Trasteel International SA, Italy
- Commonwealth Bank - Australia
- Xindia Steels Limited - India
- McConnell Dowell - Australia
- Aditya Birla Group - India
- Standard Chartered Bank - UAE
- Vizag Seaport Private Limited - India
- Bhushan Steel Limited - India
- GMR Energy Limited - India
- Kaltim Prima Coal - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Agrawal Coal Company - India
- Baramulti Group, Indonesia
- Goldman Sachs - Singapore
- Renaissance Capital - South Africa
- GN Power Mariveles Coal Plant, Philippines
- Gujarat Electricity Regulatory Commission - India
- Chamber of Mines of South Africa
- Kobexindo Tractors - Indoneisa
- Borneo Indobara - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Wilmar Investment Holdings
- India Bulls Power Limited - India
- Gujarat Sidhee Cement - India
- Thai Mozambique Logistica
- Electricity Generating Authority of Thailand
- Indonesian Coal Mining Association
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Mercuria Energy - Indonesia
- Energy Link Ltd, New Zealand
- Maharashtra Electricity Regulatory Commission - India
- Bharathi Cement Corporation - India
- Kepco SPC Power Corporation, Philippines
- Banpu Public Company Limited - Thailand
- Medco Energi Mining Internasional
- Rio Tinto Coal - Australia
- PowerSource Philippines DevCo
- Karbindo Abesyapradhi - Indoneisa
- Sinarmas Energy and Mining - Indonesia
- OPG Power Generation Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Directorate General of MIneral and Coal - Indonesia
- European Bulk Services B.V. - Netherlands
- Sakthi Sugars Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Anglo American - United Kingdom
- SMC Global Power, Philippines
- Grasim Industreis Ltd - India
- Chettinad Cement Corporation Ltd - India
- Electricity Authority, New Zealand
- Kideco Jaya Agung - Indonesia
- Meenaskhi Energy Private Limited - India
- Coal and Oil Company - UAE
- PNOC Exploration Corporation - Philippines
- Central Java Power - Indonesia
- Tata Chemicals Ltd - India
- SN Aboitiz Power Inc, Philippines
- Interocean Group of Companies - India
- White Energy Company Limited
- Dalmia Cement Bharat India
- Vedanta Resources Plc - India
- Asmin Koalindo Tuhup - Indonesia
- ICICI Bank Limited - India
- Cigading International Bulk Terminal - Indonesia
- Indo Tambangraya Megah - Indonesia
- Sindya Power Generating Company Private Ltd
- Samtan Co., Ltd - South Korea
- Minerals Council of Australia
- Intertek Mineral Services - Indonesia
- Pendopo Energi Batubara - Indonesia
- Carbofer General Trading SA - India
- Sojitz Corporation - Japan
- Mjunction Services Limited - India
- Mintek Dendrill Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Therma Luzon, Inc, Philippines
- Bukit Baiduri Energy - Indonesia
- Deloitte Consulting - India
- Wood Mackenzie - Singapore
- Orica Australia Pty. Ltd.
- Straits Asia Resources Limited - Singapore
- Planning Commission, India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
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