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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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Thursday, 10 December 15
CANADIAN MINER TECK ANNOUNCES LNG HAUL TRUCK PILOT PROJECT
Teck Resources Limited is piloting the use of liquefied natural gas (LNG) as a fuel source in six haul trucks at its Fording River steelmakin ...
Thursday, 10 December 15
FOB RICHARDS BAY COAL Q3' 16 DELIVERY SWAP WAS CLOSED 7.27% PER TON LOWER COMPARED TO AVERAGE Q1' 16 DELIVERY PRICE
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, 09 December 15
U.S. COAL EXPORTS DECLINE IN 2015 DUE TO SLOWER GROWTH IN WORLD COAL DEMAND AND LOWER INTERNATIONAL COAL PRICES - EIA
COALspot.com: The slower growth in world coal demand and lower international coal prices have contributed to a decline in U.S. coal exports in 2015 ...
Wednesday, 09 December 15
DRY BULK EXPERIENCES THE PERFECT STORM - PANOS TSILINGIRIS
Dry bulk experiences the perfect storm as the slowing of demand predominantly because of China sat atop the exaggerated oversupply. The BDI broke t ...
Tuesday, 08 December 15
OPEC'S DECISION BODES WELL FOR THE TANKER MARKET: STRONG MIDDLE EAST CRUDE EXPORTS WILL CONTINUE - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
OPEC’s latest decision to keep up oil production is seen by shipbrokers as a further boost for the tanker market. At the end of last year OPE ...
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- Indika Energy - Indonesia
- White Energy Company Limited
- Binh Thuan Hamico - Vietnam
- Offshore Bulk Terminal Pte Ltd, Singapore
- Iligan Light & Power Inc, Philippines
- Orica Australia Pty. Ltd.
- Vedanta Resources Plc - India
- Karbindo Abesyapradhi - Indoneisa
- Karaikal Port Pvt Ltd - India
- Heidelberg Cement - Germany
- Parry Sugars Refinery, India
- Kapuas Tunggal Persada - Indonesia
- Kartika Selabumi Mining - Indonesia
- Ambuja Cements Ltd - India
- Kaltim Prima Coal - Indonesia
- Central Java Power - Indonesia
- Riau Bara Harum - Indonesia
- Savvy Resources Ltd - HongKong
- Bhoruka Overseas - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Energy Link Ltd, New Zealand
- Deloitte Consulting - India
- Aboitiz Power Corporation - Philippines
- Mercuria Energy - Indonesia
- Kobexindo Tractors - Indoneisa
- Lanco Infratech Ltd - India
- VISA Power Limited - India
- Directorate Of Revenue Intelligence - India
- Bayan Resources Tbk. - Indonesia
- Thai Mozambique Logistica
- Australian Commodity Traders Exchange
- Energy Development Corp, Philippines
- Dalmia Cement Bharat India
- Petron Corporation, Philippines
- Indian Energy Exchange, India
- Standard Chartered Bank - UAE
- Uttam Galva Steels Limited - India
- SMC Global Power, Philippines
- Banpu Public Company Limited - Thailand
- PNOC Exploration Corporation - Philippines
- Gujarat Electricity Regulatory Commission - India
- Electricity Generating Authority of Thailand
- Jaiprakash Power Ventures ltd
- Pendopo Energi Batubara - Indonesia
- Grasim Industreis Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Indo Tambangraya Megah - Indonesia
- Larsen & Toubro Limited - India
- Global Business Power Corporation, Philippines
- Bulk Trading Sa - Switzerland
- Neyveli Lignite Corporation Ltd, - India
- Tamil Nadu electricity Board
- Sinarmas Energy and Mining - Indonesia
- Edison Trading Spa - Italy
- London Commodity Brokers - England
- Sindya Power Generating Company Private Ltd
- India Bulls Power Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Makarim & Taira - Indonesia
- European Bulk Services B.V. - Netherlands
- Coastal Gujarat Power Limited - India
- Straits Asia Resources Limited - Singapore
- PowerSource Philippines DevCo
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Madhucon Powers Ltd - India
- The Treasury - Australian Government
- GVK Power & Infra Limited - India
- Georgia Ports Authority, United States
- Bhatia International Limited - India
- Africa Commodities Group - South Africa
- Global Green Power PLC Corporation, Philippines
- IEA Clean Coal Centre - UK
- Indonesian Coal Mining Association
- Petrochimia International Co. Ltd.- Taiwan
- Carbofer General Trading SA - India
- Xindia Steels Limited - India
- Singapore Mercantile Exchange
- Thiess Contractors Indonesia
- Bukit Makmur.PT - Indonesia
- Globalindo Alam Lestari - Indonesia
- Jindal Steel & Power Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Coalindo Energy - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- ASAPP Information Group - India
- ICICI Bank Limited - India
- Wood Mackenzie - Singapore
- Kumho Petrochemical, South Korea
- Merrill Lynch Commodities Europe
- Agrawal Coal Company - India
- Economic Council, Georgia
- GN Power Mariveles Coal Plant, Philippines
- Holcim Trading Pte Ltd - Singapore
- Mercator Lines Limited - India
- Australian Coal Association
- The University of Queensland
- Toyota Tsusho Corporation, Japan
- CNBM International Corporation - China
- Kalimantan Lumbung Energi - Indonesia
- MS Steel International - UAE
- Leighton Contractors Pty Ltd - Australia
- San Jose City I Power Corp, Philippines
- Mjunction Services Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Attock Cement Pakistan Limited
- Samtan Co., Ltd - South Korea
- Interocean Group of Companies - India
- Sakthi Sugars Limited - India
- Romanian Commodities Exchange
- Ceylon Electricity Board - Sri Lanka
- Bhushan Steel Limited - India
- Sarangani Energy Corporation, Philippines
- Latin American Coal - Colombia
- Bangladesh Power Developement Board
- Orica Mining Services - Indonesia
- Malabar Cements Ltd - India
- Formosa Plastics Group - Taiwan
- Miang Besar Coal Terminal - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Siam City Cement - Thailand
- Rashtriya Ispat Nigam Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Gujarat Sidhee Cement - India
- TeaM Sual Corporation - Philippines
- Renaissance Capital - South Africa
- OPG Power Generation Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Maheswari Brothers Coal Limited - India
- Parliament of New Zealand
- AsiaOL BioFuels Corp., Philippines
- Oldendorff Carriers - Singapore
- Goldman Sachs - Singapore
- GAC Shipping (India) Pvt Ltd
- The State Trading Corporation of India Ltd
- Borneo Indobara - Indonesia
- Eastern Coal Council - USA
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Medco Energi Mining Internasional
- Jorong Barutama Greston.PT - Indonesia
- LBH Netherlands Bv - Netherlands
- PTC India Limited - India
- Electricity Authority, New Zealand
- Ind-Barath Power Infra Limited - India
- Rio Tinto Coal - Australia
- Indian Oil Corporation Limited
- Anglo American - United Kingdom
- Maharashtra Electricity Regulatory Commission - India
- Videocon Industries ltd - India
- Essar Steel Hazira Ltd - India
- Aditya Birla Group - India
- Altura Mining Limited, Indonesia
- IHS Mccloskey Coal Group - USA
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- International Coal Ventures Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Indogreen Group - Indonesia
- Trasteel International SA, Italy
- Sical Logistics Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Minerals Council of Australia
- Timah Investasi Mineral - Indoneisa
- South Luzon Thermal Energy Corporation
- McConnell Dowell - Australia
- Vizag Seaport Private Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Kepco SPC Power Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Commonwealth Bank - Australia
- Price Waterhouse Coopers - Russia
- Directorate General of MIneral and Coal - Indonesia
- New Zealand Coal & Carbon
- CIMB Investment Bank - Malaysia
- Chettinad Cement Corporation Ltd - India
- Bharathi Cement Corporation - India
- Bukit Asam (Persero) Tbk - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Marubeni Corporation - India
- Antam Resourcindo - Indonesia
- Chamber of Mines of South Africa
- Eastern Energy - Thailand
- Mintek Dendrill Indonesia
- Cigading International Bulk Terminal - Indonesia
- Semirara Mining Corp, Philippines
- Meenaskhi Energy Private Limited - India
- Posco Energy - South Korea
- GMR Energy Limited - India
- Power Finance Corporation Ltd., India
- Global Coal Blending Company Limited - Australia
- Wilmar Investment Holdings
- Billiton Holdings Pty Ltd - Australia
- Baramulti Group, Indonesia
- SMG Consultants - Indonesia
- Ministry of Finance - Indonesia
- Therma Luzon, Inc, Philippines
- Meralco Power Generation, Philippines
- Tata Chemicals Ltd - India
- Independent Power Producers Association of India
- Metalloyd Limited - United Kingdom
- Bukit Baiduri Energy - Indonesia
- Intertek Mineral Services - Indonesia
- Cement Manufacturers Association - India
- Sree Jayajothi Cements Limited - India
- Siam City Cement PLC, Thailand
- Central Electricity Authority - India
- Ministry of Mines - Canada
- Alfred C Toepfer International GmbH - Germany
- Barasentosa Lestari - Indonesia
- Star Paper Mills Limited - India
- Sojitz Corporation - Japan
- Ministry of Transport, Egypt
- Coal and Oil Company - UAE
- SN Aboitiz Power Inc, Philippines
- Kideco Jaya Agung - Indonesia
- Salva Resources Pvt Ltd - India
- Planning Commission, India
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