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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, 22 November 15
INDONESIA TO INDIA FREIGHT RATES TO REMAIN DULL NEXT WEEK
COALspot.com: The BDI was down to historical lows closing at 498 points which is down by almost 95.77 per cent compared to 11,800 points in 2008.
...
Sunday, 22 November 15
INDIA COULD PROVIDE SILVER LINING FOR SHIPPING INDUSTRY - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The rise of India as a global player in the shipping market could be just a couple of years away, as the country has the potential to become a seco ...
Friday, 20 November 15
U.S. COAL PRODUCTION FOR THE WEEK ENDING NOVEMBER '14; NO CHANGE FROM LAST WEEK
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 16.5 million shor ...
Friday, 20 November 15
NO IMPROVEMENT SEEN IN NEAR-TERM COAL DEMAND; SWAPS CLOSE LOWER
COALspot.com: Indonesian coal swap for delivery Q1 2016 declined month on month and flat on week over week. Price of coal seen no improvements this ...
Friday, 20 November 15
CHANGING CRUDE SUPPLY TRENDS MAY HELP EUROPEAN REFINERS - FITCH RATINGS
COALspot.com: Changes in global oil supply trends, including high Russian production, the expected renewal of Iranian heavy crude exports and the p ...
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- SN Aboitiz Power Inc, Philippines
- Standard Chartered Bank - UAE
- TNB Fuel Sdn Bhd - Malaysia
- Makarim & Taira - Indonesia
- Carbofer General Trading SA - India
- Kartika Selabumi Mining - Indonesia
- Bukit Makmur.PT - Indonesia
- Riau Bara Harum - Indonesia
- Grasim Industreis Ltd - India
- Formosa Plastics Group - Taiwan
- Global Green Power PLC Corporation, Philippines
- Ministry of Transport, Egypt
- Electricity Generating Authority of Thailand
- Thai Mozambique Logistica
- Bukit Baiduri Energy - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- McConnell Dowell - Australia
- Madhucon Powers Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Billiton Holdings Pty Ltd - Australia
- India Bulls Power Limited - India
- Meralco Power Generation, Philippines
- Jaiprakash Power Ventures ltd
- SMG Consultants - Indonesia
- Medco Energi Mining Internasional
- Holcim Trading Pte Ltd - Singapore
- Indogreen Group - Indonesia
- LBH Netherlands Bv - Netherlands
- Aboitiz Power Corporation - Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Straits Asia Resources Limited - Singapore
- Petron Corporation, Philippines
- Australian Coal Association
- Leighton Contractors Pty Ltd - Australia
- Electricity Authority, New Zealand
- Eastern Coal Council - USA
- Merrill Lynch Commodities Europe
- Mintek Dendrill Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- The University of Queensland
- Goldman Sachs - Singapore
- PNOC Exploration Corporation - Philippines
- Orica Australia Pty. Ltd.
- Binh Thuan Hamico - Vietnam
- Bulk Trading Sa - Switzerland
- Altura Mining Limited, Indonesia
- Heidelberg Cement - Germany
- CIMB Investment Bank - Malaysia
- New Zealand Coal & Carbon
- Jindal Steel & Power Ltd - India
- Global Business Power Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Bhoruka Overseas - Indonesia
- Global Coal Blending Company Limited - Australia
- Therma Luzon, Inc, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Kalimantan Lumbung Energi - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Pipit Mutiara Jaya. PT, Indonesia
- Meenaskhi Energy Private Limited - India
- Posco Energy - South Korea
- Xindia Steels Limited - India
- Kobexindo Tractors - Indoneisa
- Timah Investasi Mineral - Indoneisa
- Krishnapatnam Port Company Ltd. - India
- AsiaOL BioFuels Corp., Philippines
- Tamil Nadu electricity Board
- Bukit Asam (Persero) Tbk - Indonesia
- Vedanta Resources Plc - India
- Commonwealth Bank - Australia
- Simpson Spence & Young - Indonesia
- Bangladesh Power Developement Board
- Indika Energy - Indonesia
- Essar Steel Hazira Ltd - India
- Siam City Cement PLC, Thailand
- Manunggal Multi Energi - Indonesia
- Baramulti Group, Indonesia
- Bayan Resources Tbk. - Indonesia
- PTC India Limited - India
- Toyota Tsusho Corporation, Japan
- Orica Mining Services - Indonesia
- International Coal Ventures Pvt Ltd - India
- Mercator Lines Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Bahari Cakrawala Sebuku - Indonesia
- Borneo Indobara - Indonesia
- Banpu Public Company Limited - Thailand
- PowerSource Philippines DevCo
- IHS Mccloskey Coal Group - USA
- Coal and Oil Company - UAE
- Attock Cement Pakistan Limited
- Kepco SPC Power Corporation, Philippines
- London Commodity Brokers - England
- Maheswari Brothers Coal Limited - India
- Iligan Light & Power Inc, Philippines
- Samtan Co., Ltd - South Korea
- Oldendorff Carriers - Singapore
- Sojitz Corporation - Japan
- Kumho Petrochemical, South Korea
- South Luzon Thermal Energy Corporation
- MS Steel International - UAE
- Sindya Power Generating Company Private Ltd
- Larsen & Toubro Limited - India
- GMR Energy Limited - India
- Georgia Ports Authority, United States
- Semirara Mining Corp, Philippines
- Tata Chemicals Ltd - India
- CNBM International Corporation - China
- Savvy Resources Ltd - HongKong
- Renaissance Capital - South Africa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Directorate General of MIneral and Coal - Indonesia
- Siam City Cement - Thailand
- Australian Commodity Traders Exchange
- TeaM Sual Corporation - Philippines
- Asmin Koalindo Tuhup - Indonesia
- Intertek Mineral Services - Indonesia
- Edison Trading Spa - Italy
- Kohat Cement Company Ltd. - Pakistan
- Gujarat Mineral Development Corp Ltd - India
- Sical Logistics Limited - India
- Sakthi Sugars Limited - India
- Ministry of Finance - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Rio Tinto Coal - Australia
- Energy Development Corp, Philippines
- Aditya Birla Group - India
- Star Paper Mills Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Alfred C Toepfer International GmbH - Germany
- Chamber of Mines of South Africa
- Deloitte Consulting - India
- Bharathi Cement Corporation - India
- European Bulk Services B.V. - Netherlands
- Indian Energy Exchange, India
- Mercuria Energy - Indonesia
- Interocean Group of Companies - India
- GVK Power & Infra Limited - India
- Singapore Mercantile Exchange
- Malabar Cements Ltd - India
- The State Trading Corporation of India Ltd
- Jorong Barutama Greston.PT - Indonesia
- Chettinad Cement Corporation Ltd - India
- OPG Power Generation Pvt Ltd - India
- Anglo American - United Kingdom
- Africa Commodities Group - South Africa
- Globalindo Alam Lestari - Indonesia
- Planning Commission, India
- Dalmia Cement Bharat India
- Mjunction Services Limited - India
- Marubeni Corporation - India
- Kaltim Prima Coal - Indonesia
- Ambuja Cements Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kideco Jaya Agung - Indonesia
- Ministry of Mines - Canada
- VISA Power Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Agrawal Coal Company - India
- Salva Resources Pvt Ltd - India
- Lanco Infratech Ltd - India
- Sree Jayajothi Cements Limited - India
- Indo Tambangraya Megah - Indonesia
- ASAPP Information Group - India
- IEA Clean Coal Centre - UK
- Price Waterhouse Coopers - Russia
- Kapuas Tunggal Persada - Indonesia
- Eastern Energy - Thailand
- Coastal Gujarat Power Limited - India
- Ceylon Electricity Board - Sri Lanka
- Wood Mackenzie - Singapore
- SMC Global Power, Philippines
- Central Java Power - Indonesia
- Latin American Coal - Colombia
- Gujarat Sidhee Cement - India
- Bhushan Steel Limited - India
- Economic Council, Georgia
- Metalloyd Limited - United Kingdom
- Bhatia International Limited - India
- San Jose City I Power Corp, Philippines
- Pendopo Energi Batubara - Indonesia
- Parry Sugars Refinery, India
- Cement Manufacturers Association - India
- Indian Oil Corporation Limited
- Karaikal Port Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Thiess Contractors Indonesia
- Port Waratah Coal Services - Australia
- Parliament of New Zealand
- White Energy Company Limited
- Wilmar Investment Holdings
- Trasteel International SA, Italy
- Miang Besar Coal Terminal - Indonesia
- Indonesian Coal Mining Association
- Power Finance Corporation Ltd., India
- Central Electricity Authority - India
- ICICI Bank Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Coalindo Energy - Indonesia
- Barasentosa Lestari - Indonesia
- Directorate Of Revenue Intelligence - India
- The Treasury - Australian Government
- GAC Shipping (India) Pvt Ltd
- Sinarmas Energy and Mining - Indonesia
- Uttam Galva Steels Limited - India
- Rashtriya Ispat Nigam Limited - India
- Antam Resourcindo - Indonesia
- Videocon Industries ltd - India
- Minerals Council of Australia
- Vizag Seaport Private Limited - India
- Romanian Commodities Exchange
- Independent Power Producers Association of India
- Energy Link Ltd, New Zealand
- Sarangani Energy Corporation, Philippines
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