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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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Friday, 13 November 15
WEAK CHINA POWER DEMAND DAMPENS COAL CONSUMPTION - FITCH
The weak growth in China's electricity consumption in 2015, together with increasing non-thermal power generation capacity are exerting more pr ...
Friday, 13 November 15
DRY BULK, IT IS HARD TO MAINTAIN AN OPTIMISTIC VIEW FOR THE NEXT COUPLE OF MONTHS - INTERMODAL
COALspot.com: The dry bulk owners looking for cover remained under pressure for size segments across the board. With Capes closing off the week as ...
Friday, 13 November 15
WEEKLY US COAL PRODUCTION DECLINES TO 16.5 MMST; SLIDE 14.9% Y-Y: EIA
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 16.5 million shor ...
Thursday, 12 November 15
FOREIGN COAL MINE ACQUISITION - STRATEGY VERSUS OPPORTUNITY FOR INDIAN UTILITIES - DIPESH DIPU
The acquisition market for thermal coal assets abroad is dull. Sellers of all hues are in the market; some are actively scouting for buyers while o ...
Thursday, 12 November 15
PORT OF NEWCASTLE'S COAL EXPORT VOLUME UP IN OCTOBER 2015
COALspot.com: The Port of Newcastle, Australia’s major trading ports and the world’s largest coal export port has shipped $1.254 billio ...
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- Bhoruka Overseas - Indonesia
- Gujarat Sidhee Cement - India
- SN Aboitiz Power Inc, Philippines
- Indian Energy Exchange, India
- Africa Commodities Group - South Africa
- Anglo American - United Kingdom
- Bhatia International Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Straits Asia Resources Limited - Singapore
- PetroVietnam Power Coal Import and Supply Company
- Kohat Cement Company Ltd. - Pakistan
- Coal and Oil Company - UAE
- Kartika Selabumi Mining - Indonesia
- Siam City Cement - Thailand
- Electricity Authority, New Zealand
- Marubeni Corporation - India
- Banpu Public Company Limited - Thailand
- Coalindo Energy - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Essar Steel Hazira Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Indika Energy - Indonesia
- Parry Sugars Refinery, India
- Jaiprakash Power Ventures ltd
- Semirara Mining Corp, Philippines
- Kepco SPC Power Corporation, Philippines
- Toyota Tsusho Corporation, Japan
- Asmin Koalindo Tuhup - Indonesia
- Ministry of Mines - Canada
- Bangladesh Power Developement Board
- Goldman Sachs - Singapore
- Eastern Coal Council - USA
- Mercuria Energy - Indonesia
- Binh Thuan Hamico - Vietnam
- Rashtriya Ispat Nigam Limited - India
- Tamil Nadu electricity Board
- Thai Mozambique Logistica
- Bukit Asam (Persero) Tbk - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- SMC Global Power, Philippines
- Orica Mining Services - Indonesia
- Heidelberg Cement - Germany
- European Bulk Services B.V. - Netherlands
- Metalloyd Limited - United Kingdom
- Ministry of Transport, Egypt
- Star Paper Mills Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Singapore Mercantile Exchange
- Billiton Holdings Pty Ltd - Australia
- Commonwealth Bank - Australia
- Tata Chemicals Ltd - India
- Maheswari Brothers Coal Limited - India
- Aboitiz Power Corporation - Philippines
- Orica Australia Pty. Ltd.
- Kobexindo Tractors - Indoneisa
- Wood Mackenzie - Singapore
- Maharashtra Electricity Regulatory Commission - India
- Attock Cement Pakistan Limited
- The University of Queensland
- Kumho Petrochemical, South Korea
- Wilmar Investment Holdings
- Georgia Ports Authority, United States
- Simpson Spence & Young - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Indian Oil Corporation Limited
- LBH Netherlands Bv - Netherlands
- McConnell Dowell - Australia
- ICICI Bank Limited - India
- Meenaskhi Energy Private Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Latin American Coal - Colombia
- Rio Tinto Coal - Australia
- PTC India Limited - India
- Iligan Light & Power Inc, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Global Business Power Corporation, Philippines
- VISA Power Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Power Finance Corporation Ltd., India
- Central Java Power - Indonesia
- IHS Mccloskey Coal Group - USA
- Vedanta Resources Plc - India
- Manunggal Multi Energi - Indonesia
- Cement Manufacturers Association - India
- Uttam Galva Steels Limited - India
- Sindya Power Generating Company Private Ltd
- PNOC Exploration Corporation - Philippines
- Electricity Generating Authority of Thailand
- Mintek Dendrill Indonesia
- Alfred C Toepfer International GmbH - Germany
- Barasentosa Lestari - Indonesia
- GVK Power & Infra Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Trasteel International SA, Italy
- Pipit Mutiara Jaya. PT, Indonesia
- Pendopo Energi Batubara - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sinarmas Energy and Mining - Indonesia
- Sakthi Sugars Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Karaikal Port Pvt Ltd - India
- Australian Coal Association
- San Jose City I Power Corp, Philippines
- Directorate General of MIneral and Coal - Indonesia
- OPG Power Generation Pvt Ltd - India
- Medco Energi Mining Internasional
- The State Trading Corporation of India Ltd
- Ambuja Cements Ltd - India
- Merrill Lynch Commodities Europe
- Global Coal Blending Company Limited - Australia
- Sical Logistics Limited - India
- White Energy Company Limited
- Timah Investasi Mineral - Indoneisa
- Bulk Trading Sa - Switzerland
- Kapuas Tunggal Persada - Indonesia
- Samtan Co., Ltd - South Korea
- IEA Clean Coal Centre - UK
- Grasim Industreis Ltd - India
- Edison Trading Spa - Italy
- Madhucon Powers Ltd - India
- Lanco Infratech Ltd - India
- Renaissance Capital - South Africa
- Jindal Steel & Power Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Leighton Contractors Pty Ltd - Australia
- Indogreen Group - Indonesia
- Petron Corporation, Philippines
- Posco Energy - South Korea
- Riau Bara Harum - Indonesia
- Intertek Mineral Services - Indonesia
- Bukit Baiduri Energy - Indonesia
- GAC Shipping (India) Pvt Ltd
- CNBM International Corporation - China
- Ind-Barath Power Infra Limited - India
- Globalindo Alam Lestari - Indonesia
- Planning Commission, India
- Salva Resources Pvt Ltd - India
- Standard Chartered Bank - UAE
- Price Waterhouse Coopers - Russia
- Antam Resourcindo - Indonesia
- Ministry of Finance - Indonesia
- Bukit Makmur.PT - Indonesia
- Mjunction Services Limited - India
- Economic Council, Georgia
- Sojitz Corporation - Japan
- Savvy Resources Ltd - HongKong
- Kalimantan Lumbung Energi - Indonesia
- Meralco Power Generation, Philippines
- Vizag Seaport Private Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Videocon Industries ltd - India
- Directorate Of Revenue Intelligence - India
- Oldendorff Carriers - Singapore
- Central Electricity Authority - India
- Bharathi Cement Corporation - India
- Kaltim Prima Coal - Indonesia
- Agrawal Coal Company - India
- Mercator Lines Limited - India
- Altura Mining Limited, Indonesia
- South Luzon Thermal Energy Corporation
- Siam City Cement PLC, Thailand
- Makarim & Taira - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kideco Jaya Agung - Indonesia
- Minerals Council of Australia
- Carbofer General Trading SA - India
- PowerSource Philippines DevCo
- ASAPP Information Group - India
- AsiaOL BioFuels Corp., Philippines
- The Treasury - Australian Government
- Indonesian Coal Mining Association
- MS Steel International - UAE
- Gujarat Electricity Regulatory Commission - India
- CIMB Investment Bank - Malaysia
- Thiess Contractors Indonesia
- Independent Power Producers Association of India
- Chamber of Mines of South Africa
- Sree Jayajothi Cements Limited - India
- Aditya Birla Group - India
- Holcim Trading Pte Ltd - Singapore
- Bayan Resources Tbk. - Indonesia
- Sarangani Energy Corporation, Philippines
- International Coal Ventures Pvt Ltd - India
- Dalmia Cement Bharat India
- GMR Energy Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Energy Development Corp, Philippines
- TeaM Sual Corporation - Philippines
- Formosa Plastics Group - Taiwan
- New Zealand Coal & Carbon
- Global Green Power PLC Corporation, Philippines
- Energy Link Ltd, New Zealand
- Krishnapatnam Port Company Ltd. - India
- Therma Luzon, Inc, Philippines
- Parliament of New Zealand
- Coastal Gujarat Power Limited - India
- London Commodity Brokers - England
- Chettinad Cement Corporation Ltd - India
- Interocean Group of Companies - India
- SMG Consultants - Indonesia
- Deloitte Consulting - India
- Romanian Commodities Exchange
- Borneo Indobara - Indonesia
- Australian Commodity Traders Exchange
- Bhushan Steel Limited - India
- Port Waratah Coal Services - Australia
- India Bulls Power Limited - India
- Malabar Cements Ltd - India
- Eastern Energy - Thailand
- Semirara Mining and Power Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Larsen & Toubro Limited - India
- Baramulti Group, Indonesia
- Xindia Steels Limited - India
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