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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, 01 December 15
TANKERS VERSUS BULKERS - JUST PLAYING CATCH UP? - CLARKSONS
It’s now more than a year since the tanker market took off. In mid-2014 tanker earnings picked up and since then have been in the $30-$40,000 ...
Monday, 30 November 15
ASSOCARBONI LOOKS AT COAL FROM A DIFFERENT ANGLE
ASSOCARBONI is in favour of an international mechanism to provide financial support to countries building high efficiency low emission coal plants. ...
Monday, 30 November 15
CS 5000 GAR COAL INDEX FIRM D-O-D; WEAK W-O-W
COALspot.com: The 5000 GAR CS (i) coal index up slightly day over day.
According to the system generated index, the CS 50 (5000 GAR coal) was ...
Monday, 30 November 15
CFR SOUTH CHINA COAL SWAPS REMAINED UNCHANGED FROM LAST WEEK
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2016 delivery declined US$ 4.50 (9.78%) per ton month over month.
A commodity swap ...
Sunday, 29 November 15
CAPE INDEX SURGES 383 POINTS WEEK OVER WEEK, BOOSTS BALTIC DRY INDEX
COALspot.com: The Baltic Dry Index, a measure of shipping rates, fell to 498 points on 20 November and touched a 30-year low, but on 27 November th ...
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- McConnell Dowell - Australia
- Xindia Steels Limited - India
- PowerSource Philippines DevCo
- Bhoruka Overseas - Indonesia
- Mintek Dendrill Indonesia
- Sindya Power Generating Company Private Ltd
- Petrochimia International Co. Ltd.- Taiwan
- ASAPP Information Group - India
- Bangladesh Power Developement Board
- Coalindo Energy - Indonesia
- Indogreen Group - Indonesia
- Deloitte Consulting - India
- Standard Chartered Bank - UAE
- Meralco Power Generation, Philippines
- Siam City Cement - Thailand
- Kartika Selabumi Mining - Indonesia
- Mercuria Energy - Indonesia
- CNBM International Corporation - China
- Mercator Lines Limited - India
- Grasim Industreis Ltd - India
- Altura Mining Limited, Indonesia
- Leighton Contractors Pty Ltd - Australia
- White Energy Company Limited
- Medco Energi Mining Internasional
- Manunggal Multi Energi - Indonesia
- Chettinad Cement Corporation Ltd - India
- Bharathi Cement Corporation - India
- Gujarat Sidhee Cement - India
- Planning Commission, India
- South Luzon Thermal Energy Corporation
- GMR Energy Limited - India
- Meenaskhi Energy Private Limited - India
- Independent Power Producers Association of India
- IHS Mccloskey Coal Group - USA
- Bayan Resources Tbk. - Indonesia
- India Bulls Power Limited - India
- Merrill Lynch Commodities Europe
- Simpson Spence & Young - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Heidelberg Cement - Germany
- International Coal Ventures Pvt Ltd - India
- Interocean Group of Companies - India
- Karbindo Abesyapradhi - Indoneisa
- Samtan Co., Ltd - South Korea
- Sree Jayajothi Cements Limited - India
- Savvy Resources Ltd - HongKong
- SN Aboitiz Power Inc, Philippines
- Goldman Sachs - Singapore
- Straits Asia Resources Limited - Singapore
- Eastern Energy - Thailand
- Makarim & Taira - Indonesia
- Bhatia International Limited - India
- Bhushan Steel Limited - India
- Star Paper Mills Limited - India
- Agrawal Coal Company - India
- The Treasury - Australian Government
- Vizag Seaport Private Limited - India
- Holcim Trading Pte Ltd - Singapore
- Globalindo Alam Lestari - Indonesia
- Timah Investasi Mineral - Indoneisa
- Directorate Of Revenue Intelligence - India
- Oldendorff Carriers - Singapore
- Georgia Ports Authority, United States
- Karaikal Port Pvt Ltd - India
- Wood Mackenzie - Singapore
- Kalimantan Lumbung Energi - Indonesia
- Carbofer General Trading SA - India
- Romanian Commodities Exchange
- Orica Australia Pty. Ltd.
- Uttam Galva Steels Limited - India
- Indika Energy - Indonesia
- Aditya Birla Group - India
- Madhucon Powers Ltd - India
- Marubeni Corporation - India
- Vedanta Resources Plc - India
- CIMB Investment Bank - Malaysia
- Salva Resources Pvt Ltd - India
- Australian Coal Association
- Essar Steel Hazira Ltd - India
- Economic Council, Georgia
- Orica Mining Services - Indonesia
- Mjunction Services Limited - India
- Indian Oil Corporation Limited
- Parliament of New Zealand
- Iligan Light & Power Inc, Philippines
- London Commodity Brokers - England
- Ambuja Cements Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Larsen & Toubro Limited - India
- Jaiprakash Power Ventures ltd
- SMG Consultants - Indonesia
- Malabar Cements Ltd - India
- OPG Power Generation Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Global Business Power Corporation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Sical Logistics Limited - India
- Semirara Mining Corp, Philippines
- Sarangani Energy Corporation, Philippines
- Billiton Holdings Pty Ltd - Australia
- Kideco Jaya Agung - Indonesia
- Latin American Coal - Colombia
- San Jose City I Power Corp, Philippines
- Petron Corporation, Philippines
- Minerals Council of Australia
- Bukit Baiduri Energy - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Singapore Mercantile Exchange
- Cigading International Bulk Terminal - Indonesia
- Toyota Tsusho Corporation, Japan
- Thai Mozambique Logistica
- Siam City Cement PLC, Thailand
- Anglo American - United Kingdom
- Edison Trading Spa - Italy
- Pendopo Energi Batubara - Indonesia
- Port Waratah Coal Services - Australia
- Kaltim Prima Coal - Indonesia
- Miang Besar Coal Terminal - Indonesia
- TeaM Sual Corporation - Philippines
- Kohat Cement Company Ltd. - Pakistan
- Eastern Coal Council - USA
- Gujarat Electricity Regulatory Commission - India
- PetroVietnam Power Coal Import and Supply Company
- Ministry of Finance - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Posco Energy - South Korea
- GVK Power & Infra Limited - India
- Metalloyd Limited - United Kingdom
- Sinarmas Energy and Mining - Indonesia
- Rio Tinto Coal - Australia
- Energy Link Ltd, New Zealand
- AsiaOL BioFuels Corp., Philippines
- Coastal Gujarat Power Limited - India
- Central Java Power - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Alfred C Toepfer International GmbH - Germany
- New Zealand Coal & Carbon
- Indo Tambangraya Megah - Indonesia
- Intertek Mineral Services - Indonesia
- Australian Commodity Traders Exchange
- Sojitz Corporation - Japan
- Africa Commodities Group - South Africa
- Gujarat Mineral Development Corp Ltd - India
- LBH Netherlands Bv - Netherlands
- Price Waterhouse Coopers - Russia
- SMC Global Power, Philippines
- Rashtriya Ispat Nigam Limited - India
- Central Electricity Authority - India
- Tamil Nadu electricity Board
- Offshore Bulk Terminal Pte Ltd, Singapore
- Power Finance Corporation Ltd., India
- Coal and Oil Company - UAE
- Dalmia Cement Bharat India
- PNOC Exploration Corporation - Philippines
- Jindal Steel & Power Ltd - India
- Trasteel International SA, Italy
- Ind-Barath Power Infra Limited - India
- The State Trading Corporation of India Ltd
- Chamber of Mines of South Africa
- PTC India Limited - India
- Banpu Public Company Limited - Thailand
- Binh Thuan Hamico - Vietnam
- Kepco SPC Power Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Parry Sugars Refinery, India
- MS Steel International - UAE
- Bulk Trading Sa - Switzerland
- Asmin Koalindo Tuhup - Indonesia
- Ministry of Mines - Canada
- Energy Development Corp, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Aboitiz Power Corporation - Philippines
- Kapuas Tunggal Persada - Indonesia
- Attock Cement Pakistan Limited
- Videocon Industries ltd - India
- Formosa Plastics Group - Taiwan
- Borneo Indobara - Indonesia
- Tata Chemicals Ltd - India
- Commonwealth Bank - Australia
- Lanco Infratech Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Electricity Authority, New Zealand
- Global Green Power PLC Corporation, Philippines
- Sakthi Sugars Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Indian Energy Exchange, India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Barasentosa Lestari - Indonesia
- The University of Queensland
- Vijayanagar Sugar Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
- Thiess Contractors Indonesia
- Indonesian Coal Mining Association
- Riau Bara Harum - Indonesia
- Global Coal Blending Company Limited - Australia
- Krishnapatnam Port Company Ltd. - India
- Electricity Generating Authority of Thailand
- Kumho Petrochemical, South Korea
- European Bulk Services B.V. - Netherlands
- IEA Clean Coal Centre - UK
- VISA Power Limited - India
- Cement Manufacturers Association - India
- Pipit Mutiara Jaya. PT, Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Baramulti Group, Indonesia
- Renaissance Capital - South Africa
- ICICI Bank Limited - India
- Maheswari Brothers Coal Limited - India
- Directorate General of MIneral and Coal - Indonesia
- GAC Shipping (India) Pvt Ltd
- Antam Resourcindo - Indonesia
- Ministry of Transport, Egypt
- Wilmar Investment Holdings
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