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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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Thursday, 19 November 15
CHINA STEEL PRODUCTION CAPACITY TO PEAK IN 2016 - FITCH RATINGS
COALspot.com: Fitch Ratings today says that China's steel production capacity is likely to peak in 2016, with capacity elimination over the nex ...
Thursday, 19 November 15
Q3' 16 RICHARDS BAY COAL SWAP CLOSED 9% LOWER THAN Q1' 16 DELIVERY PRICE
COALspot.com: API4 FOB Richards Bay Coal swap for delivery Q1’ 2016 up week over week and month over month.
The Q1’ 2016 swa ...
Thursday, 19 November 15
RATES FOR CAPES KEPT MOVING SOUTH - INTERMODAL
COALspot.com: With the BDI currently standing at less than 30 points above the historical lows marked in February this year and with activity acros ...
Wednesday, 18 November 15
MARKET (SHIPPING) INSIGHT - THEODORE NTALAKOS
Supply VS Demand
According to data from the IMF, global growth for 2015 is projected at 3.1 percent, 0.3 percentage point lower than in 2014, ...
Tuesday, 17 November 15
KOMIPO INVITES BIDS FOR (SEMI) ANTHRACITE COAL FOR SEOCHEON POWER PLANT
COALspot.com: South Korean state-owned utility Korea Midland Power (KOMIPO) issued an new tender for 70,000 Metric Tons of (Semi) Anthracite for Ja ...
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- Directorate General of MIneral and Coal - Indonesia
- Ministry of Transport, Egypt
- Indo Tambangraya Megah - Indonesia
- IEA Clean Coal Centre - UK
- Meralco Power Generation, Philippines
- Georgia Ports Authority, United States
- Malabar Cements Ltd - India
- Oldendorff Carriers - Singapore
- Gujarat Mineral Development Corp Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Latin American Coal - Colombia
- Energy Development Corp, Philippines
- Kartika Selabumi Mining - Indonesia
- Directorate Of Revenue Intelligence - India
- Kepco SPC Power Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- Singapore Mercantile Exchange
- The Treasury - Australian Government
- Gujarat Sidhee Cement - India
- Petrochimia International Co. Ltd.- Taiwan
- Rashtriya Ispat Nigam Limited - India
- Riau Bara Harum - Indonesia
- Heidelberg Cement - Germany
- Leighton Contractors Pty Ltd - Australia
- Pendopo Energi Batubara - Indonesia
- Agrawal Coal Company - India
- Vedanta Resources Plc - India
- Indian Oil Corporation Limited
- Kohat Cement Company Ltd. - Pakistan
- Billiton Holdings Pty Ltd - Australia
- PetroVietnam Power Coal Import and Supply Company
- Indika Energy - Indonesia
- Ind-Barath Power Infra Limited - India
- Siam City Cement - Thailand
- Bukit Makmur.PT - Indonesia
- Ministry of Mines - Canada
- Petron Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Commonwealth Bank - Australia
- Tamil Nadu electricity Board
- GMR Energy Limited - India
- Videocon Industries ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Rio Tinto Coal - Australia
- Kapuas Tunggal Persada - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kumho Petrochemical, South Korea
- ICICI Bank Limited - India
- London Commodity Brokers - England
- Madhucon Powers Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Toyota Tsusho Corporation, Japan
- Antam Resourcindo - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- South Luzon Thermal Energy Corporation
- Global Green Power PLC Corporation, Philippines
- Altura Mining Limited, Indonesia
- Sarangani Energy Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- New Zealand Coal & Carbon
- Wood Mackenzie - Singapore
- Minerals Council of Australia
- Baramulti Group, Indonesia
- Lanco Infratech Ltd - India
- Indian Energy Exchange, India
- Bhushan Steel Limited - India
- Port Waratah Coal Services - Australia
- MS Steel International - UAE
- Orica Mining Services - Indonesia
- Metalloyd Limited - United Kingdom
- Orica Australia Pty. Ltd.
- Alfred C Toepfer International GmbH - Germany
- Borneo Indobara - Indonesia
- Africa Commodities Group - South Africa
- Bhatia International Limited - India
- Manunggal Multi Energi - Indonesia
- Power Finance Corporation Ltd., India
- IHS Mccloskey Coal Group - USA
- Sindya Power Generating Company Private Ltd
- Kaltim Prima Coal - Indonesia
- Marubeni Corporation - India
- Central Electricity Authority - India
- Chamber of Mines of South Africa
- Krishnapatnam Port Company Ltd. - India
- Global Business Power Corporation, Philippines
- Eastern Energy - Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sical Logistics Limited - India
- Intertek Mineral Services - Indonesia
- Meenaskhi Energy Private Limited - India
- Medco Energi Mining Internasional
- Maheswari Brothers Coal Limited - India
- Straits Asia Resources Limited - Singapore
- Central Java Power - Indonesia
- Renaissance Capital - South Africa
- Semirara Mining and Power Corporation, Philippines
- Deloitte Consulting - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Electricity Authority, New Zealand
- The University of Queensland
- Cigading International Bulk Terminal - Indonesia
- Chettinad Cement Corporation Ltd - India
- Bukit Baiduri Energy - Indonesia
- Uttam Galva Steels Limited - India
- Electricity Generating Authority of Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- Parliament of New Zealand
- Timah Investasi Mineral - Indoneisa
- Therma Luzon, Inc, Philippines
- Siam City Cement PLC, Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Jorong Barutama Greston.PT - Indonesia
- Australian Coal Association
- Thai Mozambique Logistica
- CNBM International Corporation - China
- TeaM Sual Corporation - Philippines
- Price Waterhouse Coopers - Russia
- Maharashtra Electricity Regulatory Commission - India
- Sojitz Corporation - Japan
- Vizag Seaport Private Limited - India
- Energy Link Ltd, New Zealand
- Attock Cement Pakistan Limited
- Globalindo Alam Lestari - Indonesia
- Jindal Steel & Power Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Essar Steel Hazira Ltd - India
- Ambuja Cements Ltd - India
- Global Coal Blending Company Limited - Australia
- Simpson Spence & Young - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- Miang Besar Coal Terminal - Indonesia
- Mercuria Energy - Indonesia
- Semirara Mining Corp, Philippines
- McConnell Dowell - Australia
- Anglo American - United Kingdom
- VISA Power Limited - India
- ASAPP Information Group - India
- Tata Chemicals Ltd - India
- Ministry of Finance - Indonesia
- Posco Energy - South Korea
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Parry Sugars Refinery, India
- Kobexindo Tractors - Indoneisa
- SMG Consultants - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indogreen Group - Indonesia
- Makarim & Taira - Indonesia
- Economic Council, Georgia
- Cement Manufacturers Association - India
- Interocean Group of Companies - India
- Bulk Trading Sa - Switzerland
- Merrill Lynch Commodities Europe
- GAC Shipping (India) Pvt Ltd
- India Bulls Power Limited - India
- Bayan Resources Tbk. - Indonesia
- Standard Chartered Bank - UAE
- Salva Resources Pvt Ltd - India
- Independent Power Producers Association of India
- Edison Trading Spa - Italy
- White Energy Company Limited
- Coalindo Energy - Indonesia
- Mjunction Services Limited - India
- Indonesian Coal Mining Association
- Savvy Resources Ltd - HongKong
- Sakthi Sugars Limited - India
- Dalmia Cement Bharat India
- Sinarmas Energy and Mining - Indonesia
- GVK Power & Infra Limited - India
- Trasteel International SA, Italy
- Australian Commodity Traders Exchange
- Planning Commission, India
- Formosa Plastics Group - Taiwan
- Eastern Coal Council - USA
- Mercator Lines Limited - India
- LBH Netherlands Bv - Netherlands
- European Bulk Services B.V. - Netherlands
- PTC India Limited - India
- San Jose City I Power Corp, Philippines
- SN Aboitiz Power Inc, Philippines
- Thiess Contractors Indonesia
- SMC Global Power, Philippines
- Iligan Light & Power Inc, Philippines
- Mintek Dendrill Indonesia
- Coal and Oil Company - UAE
- Wilmar Investment Holdings
- Bhoruka Overseas - Indonesia
- Aditya Birla Group - India
- International Coal Ventures Pvt Ltd - India
- Jaiprakash Power Ventures ltd
- The State Trading Corporation of India Ltd
- Gujarat Electricity Regulatory Commission - India
- Barasentosa Lestari - Indonesia
- Star Paper Mills Limited - India
- Larsen & Toubro Limited - India
- Romanian Commodities Exchange
- TNB Fuel Sdn Bhd - Malaysia
- Banpu Public Company Limited - Thailand
- CIMB Investment Bank - Malaysia
- Samtan Co., Ltd - South Korea
- Sree Jayajothi Cements Limited - India
- Bharathi Cement Corporation - India
- Bangladesh Power Developement Board
- Karaikal Port Pvt Ltd - India
- PNOC Exploration Corporation - Philippines
- Asmin Koalindo Tuhup - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Kideco Jaya Agung - Indonesia
- Coastal Gujarat Power Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Carbofer General Trading SA - India
- Aboitiz Power Corporation - Philippines
- Xindia Steels Limited - India
- Goldman Sachs - Singapore
- PowerSource Philippines DevCo
- Grasim Industreis Ltd - India
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