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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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Wednesday, 25 November 15
INDIA'S POWER GENERATORS FACE LOW, FALLING UTILISATION RATE - FITCH
COAlspot.com: Fitch Ratings says in a new report that the utilisation rate of India's thermal power generation capacity continued to decline in ...
Wednesday, 25 November 15
BIG CHINESE COPPER PROCESSORS DEFEND MARGINS THROUGH R&D, SAYS FITCH
Large Chinese copper processors are focusing on higher value-added products and investing in R&D to enhance their technical know-how to maintai ...
Wednesday, 25 November 15
BIMCO LAUNCHES ANTI-CORRUPTION CLAUSE FOR SHIPPING CONTRACTS WORLDWIDE
COALspot.com: BIMCO, is the world’s largest international shipping association, with 2,200 members in around 130 countries, has now launched ...
Wednesday, 25 November 15
TANKER MARKET INSIGHT - GEORGE VASTARDIS
We have already noticed obvious signs of activity mainly West of Suez, which are currently driving the clean MR market to higher levels. Over the p ...
Tuesday, 24 November 15
COAL SUPPLY PRESSURE PUTS INDONESIAN HBA IN FREE FALL
The coal industry is slowly recognizing that, the current coal price level is not a decrease in price, but a change in pricing to corresp ...
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- Dalmia Cement Bharat India
- Wilmar Investment Holdings
- Bangladesh Power Developement Board
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- Australian Commodity Traders Exchange
- Anglo American - United Kingdom
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- Iligan Light & Power Inc, Philippines
- The University of Queensland
- ASAPP Information Group - India
- Standard Chartered Bank - UAE
- Timah Investasi Mineral - Indoneisa
- Petron Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- GAC Shipping (India) Pvt Ltd
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- Price Waterhouse Coopers - Russia
- Renaissance Capital - South Africa
- Merrill Lynch Commodities Europe
- Bahari Cakrawala Sebuku - Indonesia
- Bhatia International Limited - India
- Maheswari Brothers Coal Limited - India
- Metalloyd Limited - United Kingdom
- Goldman Sachs - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Mjunction Services Limited - India
- Binh Thuan Hamico - Vietnam
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- Australian Coal Association
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- Kepco SPC Power Corporation, Philippines
- Star Paper Mills Limited - India
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- Sindya Power Generating Company Private Ltd
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- Ministry of Finance - Indonesia
- Planning Commission, India
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- South Luzon Thermal Energy Corporation
- Bayan Resources Tbk. - Indonesia
- Power Finance Corporation Ltd., India
- Georgia Ports Authority, United States
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- Antam Resourcindo - Indonesia
- Baramulti Group, Indonesia
- GMR Energy Limited - India
- Sakthi Sugars Limited - India
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- Vedanta Resources Plc - India
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- Billiton Holdings Pty Ltd - Australia
- Independent Power Producers Association of India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Meralco Power Generation, Philippines
- Essar Steel Hazira Ltd - India
- GVK Power & Infra Limited - India
- Coal and Oil Company - UAE
- Medco Energi Mining Internasional
- Dong Bac Coal Mineral Investment Coporation - Vietnam
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- Kobexindo Tractors - Indoneisa
- Semirara Mining Corp, Philippines
- PTC India Limited - India
- Attock Cement Pakistan Limited
- Ceylon Electricity Board - Sri Lanka
- Karaikal Port Pvt Ltd - India
- Mercator Lines Limited - India
- Ambuja Cements Ltd - India
- Port Waratah Coal Services - Australia
- Leighton Contractors Pty Ltd - Australia
- Maharashtra Electricity Regulatory Commission - India
- Central Java Power - Indonesia
- Bukit Makmur.PT - Indonesia
- Sojitz Corporation - Japan
- Eastern Coal Council - USA
- Banpu Public Company Limited - Thailand
- Borneo Indobara - Indonesia
- Global Business Power Corporation, Philippines
- Coastal Gujarat Power Limited - India
- TeaM Sual Corporation - Philippines
- Lanco Infratech Ltd - India
- Marubeni Corporation - India
- India Bulls Power Limited - India
- Thai Mozambique Logistica
- MS Steel International - UAE
- Bharathi Cement Corporation - India
- Karbindo Abesyapradhi - Indoneisa
- LBH Netherlands Bv - Netherlands
- Meenaskhi Energy Private Limited - India
- Latin American Coal - Colombia
- VISA Power Limited - India
- Commonwealth Bank - Australia
- Pendopo Energi Batubara - Indonesia
- Energy Link Ltd, New Zealand
- Indian Energy Exchange, India
- London Commodity Brokers - England
- Salva Resources Pvt Ltd - India
- Kaltim Prima Coal - Indonesia
- Parliament of New Zealand
- Siam City Cement PLC, Thailand
- CIMB Investment Bank - Malaysia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Singapore Mercantile Exchange
- Alfred C Toepfer International GmbH - Germany
- Africa Commodities Group - South Africa
- Vizag Seaport Private Limited - India
- Intertek Mineral Services - Indonesia
- Jaiprakash Power Ventures ltd
- Romanian Commodities Exchange
- Global Green Power PLC Corporation, Philippines
- Trasteel International SA, Italy
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Rio Tinto Coal - Australia
- Ministry of Mines - Canada
- Directorate Of Revenue Intelligence - India
- Agrawal Coal Company - India
- Bulk Trading Sa - Switzerland
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bukit Baiduri Energy - Indonesia
- Bhushan Steel Limited - India
- Straits Asia Resources Limited - Singapore
- Electricity Authority, New Zealand
- TNB Fuel Sdn Bhd - Malaysia
- Makarim & Taira - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Tamil Nadu electricity Board
- IEA Clean Coal Centre - UK
- Edison Trading Spa - Italy
- Chettinad Cement Corporation Ltd - India
- Sical Logistics Limited - India
- Madhucon Powers Ltd - India
- Jindal Steel & Power Ltd - India
- Electricity Generating Authority of Thailand
- San Jose City I Power Corp, Philippines
- Posco Energy - South Korea
- Orica Australia Pty. Ltd.
- SMC Global Power, Philippines
- Indonesian Coal Mining Association
- Therma Luzon, Inc, Philippines
- Energy Development Corp, Philippines
- Kideco Jaya Agung - Indonesia
- Barasentosa Lestari - Indonesia
- Malabar Cements Ltd - India
- International Coal Ventures Pvt Ltd - India
- OPG Power Generation Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Samtan Co., Ltd - South Korea
- Sree Jayajothi Cements Limited - India
- Indian Oil Corporation Limited
- The Treasury - Australian Government
- Mintek Dendrill Indonesia
- Economic Council, Georgia
- AsiaOL BioFuels Corp., Philippines
- Xindia Steels Limited - India
- Aboitiz Power Corporation - Philippines
- New Zealand Coal & Carbon
- Directorate General of MIneral and Coal - Indonesia
- McConnell Dowell - Australia
- Ind-Barath Power Infra Limited - India
- Kapuas Tunggal Persada - Indonesia
- Eastern Energy - Thailand
- Altura Mining Limited, Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Simpson Spence & Young - Indonesia
- CNBM International Corporation - China
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Semirara Mining and Power Corporation, Philippines
- Central Electricity Authority - India
- SN Aboitiz Power Inc, Philippines
- IHS Mccloskey Coal Group - USA
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- Minerals Council of Australia
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- Petrochimia International Co. Ltd.- Taiwan
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- The State Trading Corporation of India Ltd
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- PowerSource Philippines DevCo
- Cigading International Bulk Terminal - Indonesia
- Gujarat Sidhee Cement - India
- White Energy Company Limited
- Kalimantan Lumbung Energi - Indonesia
- Tata Chemicals Ltd - India
- Heidelberg Cement - Germany
- Manunggal Multi Energi - Indonesia
- Coalindo Energy - Indonesia
- Thiess Contractors Indonesia
- European Bulk Services B.V. - Netherlands
- Gujarat Mineral Development Corp Ltd - India
- Krishnapatnam Port Company Ltd. - India
- SMG Consultants - Indonesia
- Larsen & Toubro Limited - India
- Interocean Group of Companies - India
- Miang Besar Coal Terminal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Deloitte Consulting - India
- Rashtriya Ispat Nigam Limited - India
- Kumho Petrochemical, South Korea
- Sarangani Energy Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Sinarmas Energy and Mining - Indonesia
- Orica Mining Services - Indonesia
- Savvy Resources Ltd - HongKong
- Chamber of Mines of South Africa
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