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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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Sunday, 06 December 15
DRY BULK MARKET ON REVERSE MODE, SET TO BREAK NEW ALL-TIME LOWS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The dry bulk market has been the negative “star” of the shipping industry for quite some time. In fact if it wasn’t for the boomi ...
Sunday, 06 December 15
DESPITE TEMPTING NEWBUILDING PRICES, CONTRACTING IN DRY BULK REMAINS LOW - BIMCO
The current newbuilding prices for dry bulk ships has dropped so much that they just passed the lows of 2012 heading downwards and are now at the l ...
Friday, 04 December 15
FOB INDONESIA COAL SWAPS ARE ALMOST FLAT OVER WEAK DEMAND
COALspot.com: Indonesian coal swaps for delivery Q1 2016 declined month on month and rose slightly week over week. Coal prices seen very margi ...
Friday, 04 December 15
COAL PRODUCTION IN THE U.S. FOR W/E NOVEMBER 28TH FELL SLIGHTLY FROM THE PREVIOUS WEEK
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 15.0 million shor ...
Friday, 04 December 15
MINING OUTLOOK WEAKENS FURTHER ON FALLING CHINESE DEMAND - FITCH
COALspot.com: Fitch Ratings' outlook for the global mining sector in 2016 is firmly negative, reflecting our view that Chinese demand will cont ...
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- Bharathi Cement Corporation - India
- Mintek Dendrill Indonesia
- Global Coal Blending Company Limited - Australia
- India Bulls Power Limited - India
- White Energy Company Limited
- MS Steel International - UAE
- Vedanta Resources Plc - India
- Port Waratah Coal Services - Australia
- Sakthi Sugars Limited - India
- Agrawal Coal Company - India
- Bulk Trading Sa - Switzerland
- Directorate Of Revenue Intelligence - India
- Essar Steel Hazira Ltd - India
- Eastern Coal Council - USA
- CNBM International Corporation - China
- Billiton Holdings Pty Ltd - Australia
- Marubeni Corporation - India
- Larsen & Toubro Limited - India
- Kartika Selabumi Mining - Indonesia
- London Commodity Brokers - England
- AsiaOL BioFuels Corp., Philippines
- Independent Power Producers Association of India
- Leighton Contractors Pty Ltd - Australia
- PowerSource Philippines DevCo
- Rashtriya Ispat Nigam Limited - India
- San Jose City I Power Corp, Philippines
- Bukit Makmur.PT - Indonesia
- Siam City Cement - Thailand
- Straits Asia Resources Limited - Singapore
- Banpu Public Company Limited - Thailand
- Ministry of Finance - Indonesia
- Kumho Petrochemical, South Korea
- Chettinad Cement Corporation Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Mercator Lines Limited - India
- Malabar Cements Ltd - India
- Intertek Mineral Services - Indonesia
- IEA Clean Coal Centre - UK
- Offshore Bulk Terminal Pte Ltd, Singapore
- Star Paper Mills Limited - India
- Ministry of Mines - Canada
- The University of Queensland
- Videocon Industries ltd - India
- SMC Global Power, Philippines
- CIMB Investment Bank - Malaysia
- GAC Shipping (India) Pvt Ltd
- Simpson Spence & Young - Indonesia
- Ministry of Transport, Egypt
- Australian Commodity Traders Exchange
- Chamber of Mines of South Africa
- Barasentosa Lestari - Indonesia
- Binh Thuan Hamico - Vietnam
- Salva Resources Pvt Ltd - India
- Africa Commodities Group - South Africa
- Singapore Mercantile Exchange
- Madhucon Powers Ltd - India
- Electricity Authority, New Zealand
- Rio Tinto Coal - Australia
- GMR Energy Limited - India
- Miang Besar Coal Terminal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Orica Mining Services - Indonesia
- Price Waterhouse Coopers - Russia
- Bangladesh Power Developement Board
- Bhushan Steel Limited - India
- Siam City Cement PLC, Thailand
- SMG Consultants - Indonesia
- Metalloyd Limited - United Kingdom
- Orica Australia Pty. Ltd.
- Uttam Galva Steels Limited - India
- Lanco Infratech Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- New Zealand Coal & Carbon
- Anglo American - United Kingdom
- Global Business Power Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Aboitiz Power Corporation - Philippines
- Gujarat Electricity Regulatory Commission - India
- Indian Energy Exchange, India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Indogreen Group - Indonesia
- Coastal Gujarat Power Limited - India
- Wilmar Investment Holdings
- Samtan Co., Ltd - South Korea
- Aditya Birla Group - India
- Makarim & Taira - Indonesia
- Globalindo Alam Lestari - Indonesia
- Tamil Nadu electricity Board
- Kideco Jaya Agung - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sarangani Energy Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- PTC India Limited - India
- Krishnapatnam Port Company Ltd. - India
- Grasim Industreis Ltd - India
- Savvy Resources Ltd - HongKong
- Coalindo Energy - Indonesia
- Goldman Sachs - Singapore
- Coal and Oil Company - UAE
- Medco Energi Mining Internasional
- ICICI Bank Limited - India
- Planning Commission, India
- Minerals Council of Australia
- Renaissance Capital - South Africa
- Xindia Steels Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- LBH Netherlands Bv - Netherlands
- Ambuja Cements Ltd - India
- Mercuria Energy - Indonesia
- Vizag Seaport Private Limited - India
- Kapuas Tunggal Persada - Indonesia
- Tata Chemicals Ltd - India
- Ind-Barath Power Infra Limited - India
- GVK Power & Infra Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Power Finance Corporation Ltd., India
- Vijayanagar Sugar Pvt Ltd - India
- Semirara Mining Corp, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Jindal Steel & Power Ltd - India
- Bhatia International Limited - India
- Alfred C Toepfer International GmbH - Germany
- Pendopo Energi Batubara - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Romanian Commodities Exchange
- Standard Chartered Bank - UAE
- Petron Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Maheswari Brothers Coal Limited - India
- Central Electricity Authority - India
- Karbindo Abesyapradhi - Indoneisa
- Electricity Generating Authority of Thailand
- Cement Manufacturers Association - India
- Global Green Power PLC Corporation, Philippines
- Mjunction Services Limited - India
- Karaikal Port Pvt Ltd - India
- Kaltim Prima Coal - Indonesia
- Edison Trading Spa - Italy
- Timah Investasi Mineral - Indoneisa
- Sindya Power Generating Company Private Ltd
- Australian Coal Association
- Kepco SPC Power Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Meralco Power Generation, Philippines
- Sree Jayajothi Cements Limited - India
- Attock Cement Pakistan Limited
- Deloitte Consulting - India
- Gujarat Sidhee Cement - India
- Asmin Koalindo Tuhup - Indonesia
- Georgia Ports Authority, United States
- SN Aboitiz Power Inc, Philippines
- Iligan Light & Power Inc, Philippines
- Ceylon Electricity Board - Sri Lanka
- Bayan Resources Tbk. - Indonesia
- Kobexindo Tractors - Indoneisa
- The State Trading Corporation of India Ltd
- Bukit Baiduri Energy - Indonesia
- Borneo Indobara - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Thiess Contractors Indonesia
- Toyota Tsusho Corporation, Japan
- Eastern Energy - Thailand
- McConnell Dowell - Australia
- Posco Energy - South Korea
- Therma Luzon, Inc, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Formosa Plastics Group - Taiwan
- Thai Mozambique Logistica
- Directorate General of MIneral and Coal - Indonesia
- Bhoruka Overseas - Indonesia
- Dalmia Cement Bharat India
- Trasteel International SA, Italy
- Maharashtra Electricity Regulatory Commission - India
- VISA Power Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Baramulti Group, Indonesia
- Altura Mining Limited, Indonesia
- The Treasury - Australian Government
- TNB Fuel Sdn Bhd - Malaysia
- Meenaskhi Energy Private Limited - India
- IHS Mccloskey Coal Group - USA
- Heidelberg Cement - Germany
- Kalimantan Lumbung Energi - Indonesia
- Indonesian Coal Mining Association
- Pipit Mutiara Jaya. PT, Indonesia
- Antam Resourcindo - Indonesia
- Latin American Coal - Colombia
- Indian Oil Corporation Limited
- Sojitz Corporation - Japan
- Holcim Trading Pte Ltd - Singapore
- Manunggal Multi Energi - Indonesia
- Oldendorff Carriers - Singapore
- Wood Mackenzie - Singapore
- Sical Logistics Limited - India
- Riau Bara Harum - Indonesia
- Jaiprakash Power Ventures ltd
- Energy Development Corp, Philippines
- Carbofer General Trading SA - India
- ASAPP Information Group - India
- Merrill Lynch Commodities Europe
- Parliament of New Zealand
- Commonwealth Bank - Australia
- TeaM Sual Corporation - Philippines
- Parry Sugars Refinery, India
- Economic Council, Georgia
- PNOC Exploration Corporation - Philippines
- Central Java Power - Indonesia
- International Coal Ventures Pvt Ltd - India
- Indika Energy - Indonesia
- Energy Link Ltd, New Zealand
- Interocean Group of Companies - India
- Sinarmas Energy and Mining - Indonesia
- European Bulk Services B.V. - Netherlands
- Semirara Mining and Power Corporation, Philippines
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