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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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Tuesday, 08 December 15
Q1' 16 API 5 FOB NEWCASTLE COAL SWAP CLOSED AT $ 36.73 A TON; 1.73% HIGHER COMPARED TO Q3' 16 PRICE
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2016 delivery slid $1.47 per ton (3.85%) month over month to US$ 36.73 per ton. The swap ...
Tuesday, 08 December 15
HOW TO MITIGATE LEGAL RISKS WHEN PURCHASING BUNKERS - LESSONS LEARNED FROM THE OW BUNKER COLLAPSE - THE SWEDISH CLUB
KNOWLEDGE TO ELEVATE
About a year has passed since OW Bunker & Trading A/S filed for bankruptcy. The collapse shows that there are signifi ...
Monday, 07 December 15
5000 GAR CS (I) COAL INDEX REMAIN THE SAME OVER LAST WEEK
COALspot.com: The 5000 GAR CS (i) coal index remain the same over last week.
According to the CS (i) coal (system generated) index, the CS 50 ...
Monday, 07 December 15
COAL DEMAND IN 2016 FAILS TO SUPPORT PRICES; CFR SOUTH CHINA COAL SWAPS SEEN AT $US 42 A TON
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2016 delivery declined US$ 1.70 (3.88%) per ton month over month.
A commodity swap ...
Sunday, 06 December 15
THE BDI DECLINED BY 3.09 PERCENT TO 563 POINTS ON 4 DECEMBER
COALspot.com: The BDI declined by 3.09 percent to 563 points on 4 December 2015.
The Cape index was also declined by 10.01 percent to 890 poin ...
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- Anglo American - United Kingdom
- Neyveli Lignite Corporation Ltd, - India
- Chettinad Cement Corporation Ltd - India
- Directorate Of Revenue Intelligence - India
- Makarim & Taira - Indonesia
- Pendopo Energi Batubara - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Maharashtra Electricity Regulatory Commission - India
- Bhatia International Limited - India
- Maheswari Brothers Coal Limited - India
- Wood Mackenzie - Singapore
- Ministry of Finance - Indonesia
- European Bulk Services B.V. - Netherlands
- Kideco Jaya Agung - Indonesia
- Iligan Light & Power Inc, Philippines
- Ministry of Mines - Canada
- GAC Shipping (India) Pvt Ltd
- Sinarmas Energy and Mining - Indonesia
- Essar Steel Hazira Ltd - India
- SMC Global Power, Philippines
- TeaM Sual Corporation - Philippines
- Ceylon Electricity Board - Sri Lanka
- PowerSource Philippines DevCo
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Romanian Commodities Exchange
- The Treasury - Australian Government
- Dalmia Cement Bharat India
- Coastal Gujarat Power Limited - India
- Global Business Power Corporation, Philippines
- Orica Mining Services - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Mintek Dendrill Indonesia
- Gujarat Sidhee Cement - India
- Petrochimia International Co. Ltd.- Taiwan
- Madhucon Powers Ltd - India
- Thiess Contractors Indonesia
- Bukit Baiduri Energy - Indonesia
- PTC India Limited - India
- Goldman Sachs - Singapore
- Bayan Resources Tbk. - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Xindia Steels Limited - India
- Port Waratah Coal Services - Australia
- Binh Thuan Hamico - Vietnam
- Sical Logistics Limited - India
- Commonwealth Bank - Australia
- Vizag Seaport Private Limited - India
- Sarangani Energy Corporation, Philippines
- IHS Mccloskey Coal Group - USA
- Heidelberg Cement - Germany
- India Bulls Power Limited - India
- Indonesian Coal Mining Association
- Minerals Council of Australia
- Global Green Power PLC Corporation, Philippines
- Vedanta Resources Plc - India
- Mercuria Energy - Indonesia
- Meralco Power Generation, Philippines
- Petron Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Power Finance Corporation Ltd., India
- GN Power Mariveles Coal Plant, Philippines
- Sindya Power Generating Company Private Ltd
- Planning Commission, India
- Meenaskhi Energy Private Limited - India
- Cigading International Bulk Terminal - Indonesia
- Standard Chartered Bank - UAE
- Baramulti Group, Indonesia
- Merrill Lynch Commodities Europe
- Economic Council, Georgia
- Pipit Mutiara Jaya. PT, Indonesia
- Billiton Holdings Pty Ltd - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indian Energy Exchange, India
- Sojitz Corporation - Japan
- Wilmar Investment Holdings
- Attock Cement Pakistan Limited
- Intertek Mineral Services - Indonesia
- Tata Chemicals Ltd - India
- South Luzon Thermal Energy Corporation
- Kohat Cement Company Ltd. - Pakistan
- Trasteel International SA, Italy
- Medco Energi Mining Internasional
- Antam Resourcindo - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Altura Mining Limited, Indonesia
- Aboitiz Power Corporation - Philippines
- Bhushan Steel Limited - India
- Gujarat Electricity Regulatory Commission - India
- GVK Power & Infra Limited - India
- Parliament of New Zealand
- Semirara Mining Corp, Philippines
- Timah Investasi Mineral - Indoneisa
- Asmin Koalindo Tuhup - Indonesia
- PNOC Exploration Corporation - Philippines
- SN Aboitiz Power Inc, Philippines
- The University of Queensland
- LBH Netherlands Bv - Netherlands
- CNBM International Corporation - China
- Borneo Indobara - Indonesia
- Eastern Energy - Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indika Energy - Indonesia
- Indogreen Group - Indonesia
- Rashtriya Ispat Nigam Limited - India
- The State Trading Corporation of India Ltd
- Salva Resources Pvt Ltd - India
- Interocean Group of Companies - India
- Kaltim Prima Coal - Indonesia
- Parry Sugars Refinery, India
- Vijayanagar Sugar Pvt Ltd - India
- Uttam Galva Steels Limited - India
- Toyota Tsusho Corporation, Japan
- International Coal Ventures Pvt Ltd - India
- Tamil Nadu electricity Board
- Oldendorff Carriers - Singapore
- Karbindo Abesyapradhi - Indoneisa
- CIMB Investment Bank - Malaysia
- Australian Commodity Traders Exchange
- Eastern Coal Council - USA
- Indo Tambangraya Megah - Indonesia
- Deloitte Consulting - India
- Holcim Trading Pte Ltd - Singapore
- Independent Power Producers Association of India
- Kepco SPC Power Corporation, Philippines
- Electricity Generating Authority of Thailand
- Star Paper Mills Limited - India
- Ind-Barath Power Infra Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Coalindo Energy - Indonesia
- Lanco Infratech Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Ambuja Cements Ltd - India
- San Jose City I Power Corp, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- ASAPP Information Group - India
- Mjunction Services Limited - India
- Edison Trading Spa - Italy
- Therma Luzon, Inc, Philippines
- Manunggal Multi Energi - Indonesia
- Sree Jayajothi Cements Limited - India
- Globalindo Alam Lestari - Indonesia
- Global Coal Blending Company Limited - Australia
- Bulk Trading Sa - Switzerland
- Rio Tinto Coal - Australia
- Thai Mozambique Logistica
- Directorate General of MIneral and Coal - Indonesia
- Bangladesh Power Developement Board
- New Zealand Coal & Carbon
- Mercator Lines Limited - India
- McConnell Dowell - Australia
- Africa Commodities Group - South Africa
- Bahari Cakrawala Sebuku - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Riau Bara Harum - Indonesia
- Savvy Resources Ltd - HongKong
- Central Electricity Authority - India
- White Energy Company Limited
- Coal and Oil Company - UAE
- Electricity Authority, New Zealand
- Videocon Industries ltd - India
- Carbofer General Trading SA - India
- Orica Australia Pty. Ltd.
- Siam City Cement - Thailand
- Samtan Co., Ltd - South Korea
- Latin American Coal - Colombia
- Price Waterhouse Coopers - Russia
- Bukit Asam (Persero) Tbk - Indonesia
- Kumho Petrochemical, South Korea
- Bharathi Cement Corporation - India
- London Commodity Brokers - England
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Ministry of Transport, Egypt
- Banpu Public Company Limited - Thailand
- SMG Consultants - Indonesia
- Singapore Mercantile Exchange
- Kobexindo Tractors - Indoneisa
- Chamber of Mines of South Africa
- ICICI Bank Limited - India
- Miang Besar Coal Terminal - Indonesia
- IEA Clean Coal Centre - UK
- Australian Coal Association
- Bukit Makmur.PT - Indonesia
- Aditya Birla Group - India
- Georgia Ports Authority, United States
- GMR Energy Limited - India
- Larsen & Toubro Limited - India
- Indian Oil Corporation Limited
- Kalimantan Lumbung Energi - Indonesia
- Jaiprakash Power Ventures ltd
- Semirara Mining and Power Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- Cement Manufacturers Association - India
- VISA Power Limited - India
- Kartika Selabumi Mining - Indonesia
- Simpson Spence & Young - Indonesia
- Marubeni Corporation - India
- Bhoruka Overseas - Indonesia
- Straits Asia Resources Limited - Singapore
- MS Steel International - UAE
- Posco Energy - South Korea
- Barasentosa Lestari - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Sakthi Sugars Limited - India
- Energy Development Corp, Philippines
- Agrawal Coal Company - India
- Jindal Steel & Power Ltd - India
- Malabar Cements Ltd - India
- Grasim Industreis Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Renaissance Capital - South Africa
- Central Java Power - Indonesia
- Formosa Plastics Group - Taiwan
- Energy Link Ltd, New Zealand
- Siam City Cement PLC, Thailand
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