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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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Monday, 09 November 15
CFR SOUTH CHINA THERMAL COAL SWAP FOR Q3' 16 CONTRACT DECLINED US$ 4 PER TON
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2016 delivery declined US$ 4.35 (9.03 %) per ton month over month.
A commodity swa ...
Monday, 09 November 15
INDIAN THERMAL COAL IMPORTS SURGED 18%; COKING COAL 6.31% DURING APRIL-OCTOBER: BUSINESS-STANDARD
Indian thermal coal imports surged 18% at the country's top 12 major ports to 55.90 million tonnes (MT) in the first seven months of the curren ...
Sunday, 08 November 15
THE FREIGHT MARKET KEEP DROPPING THIS WEEK - VISTAAR
COALspot.com: The freight market keep dropping this week.
The BDI down 12.48 percent week on week and closed at 631 points on 6 November 2015. ...
Sunday, 08 November 15
CAPESIZE FREIGHT RATES IN AUSTRALIA-CHINA ROUTES OVER 50% CHEAPER THAN BRAZIL-CHINA ROUTE - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
China’s mining and steel industries are facing tectonic shifts over the past couple of years, with the country’s limiting of coal use, ...
Friday, 06 November 15
COAL PRODUCTION IN THE U.S. FELL SHARPLY FOR THE WEEK ENDING OCTOBER 31
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 16.6 million shor ...
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- Bank of Tokyo Mitsubishi UFJ Ltd
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- Heidelberg Cement - Germany
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- Edison Trading Spa - Italy
- Vizag Seaport Private Limited - India
- Kepco SPC Power Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Billiton Holdings Pty Ltd - Australia
- Mjunction Services Limited - India
- Gujarat Electricity Regulatory Commission - India
- PowerSource Philippines DevCo
- Bukit Baiduri Energy - Indonesia
- Salva Resources Pvt Ltd - India
- VISA Power Limited - India
- Coalindo Energy - Indonesia
- Banpu Public Company Limited - Thailand
- Meenaskhi Energy Private Limited - India
- Holcim Trading Pte Ltd - Singapore
- Videocon Industries ltd - India
- Therma Luzon, Inc, Philippines
- Grasim Industreis Ltd - India
- Merrill Lynch Commodities Europe
- Ministry of Transport, Egypt
- Bukit Makmur.PT - Indonesia
- Deloitte Consulting - India
- TeaM Sual Corporation - Philippines
- Globalindo Alam Lestari - Indonesia
- Indonesian Coal Mining Association
- Posco Energy - South Korea
- Antam Resourcindo - Indonesia
- White Energy Company Limited
- Pendopo Energi Batubara - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Chamber of Mines of South Africa
- Commonwealth Bank - Australia
- Kobexindo Tractors - Indoneisa
- Bangladesh Power Developement Board
- Parliament of New Zealand
- Ind-Barath Power Infra Limited - India
- Riau Bara Harum - Indonesia
- Indika Energy - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Samtan Co., Ltd - South Korea
- IHS Mccloskey Coal Group - USA
- Standard Chartered Bank - UAE
- Sojitz Corporation - Japan
- SN Aboitiz Power Inc, Philippines
- Romanian Commodities Exchange
- Kohat Cement Company Ltd. - Pakistan
- Marubeni Corporation - India
- Renaissance Capital - South Africa
- Carbofer General Trading SA - India
- Timah Investasi Mineral - Indoneisa
- Minerals Council of Australia
- Energy Link Ltd, New Zealand
- Binh Thuan Hamico - Vietnam
- Oldendorff Carriers - Singapore
- Madhucon Powers Ltd - India
- The University of Queensland
- Central Electricity Authority - India
- Ambuja Cements Ltd - India
- Bhushan Steel Limited - India
- Thai Mozambique Logistica
- Orica Australia Pty. Ltd.
- Agrawal Coal Company - India
- SMG Consultants - Indonesia
- Dalmia Cement Bharat India
- Kapuas Tunggal Persada - Indonesia
- Coal and Oil Company - UAE
- GMR Energy Limited - India
- Metalloyd Limited - United Kingdom
- Jorong Barutama Greston.PT - Indonesia
- Siam City Cement PLC, Thailand
- Leighton Contractors Pty Ltd - Australia
- Thiess Contractors Indonesia
- Goldman Sachs - Singapore
- Rashtriya Ispat Nigam Limited - India
- Attock Cement Pakistan Limited
- India Bulls Power Limited - India
- ICICI Bank Limited - India
- London Commodity Brokers - England
- Rio Tinto Coal - Australia
- Sical Logistics Limited - India
- Manunggal Multi Energi - Indonesia
- The Treasury - Australian Government
- Lanco Infratech Ltd - India
- Eastern Coal Council - USA
- Neyveli Lignite Corporation Ltd, - India
- Uttam Galva Steels Limited - India
- European Bulk Services B.V. - Netherlands
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Medco Energi Mining Internasional
- Asmin Koalindo Tuhup - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Price Waterhouse Coopers - Russia
- Georgia Ports Authority, United States
- Cigading International Bulk Terminal - Indonesia
- Tamil Nadu electricity Board
- Bulk Trading Sa - Switzerland
- Africa Commodities Group - South Africa
- Simpson Spence & Young - Indonesia
- LBH Netherlands Bv - Netherlands
- Maheswari Brothers Coal Limited - India
- Economic Council, Georgia
- Karbindo Abesyapradhi - Indoneisa
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Star Paper Mills Limited - India
- Mintek Dendrill Indonesia
- Siam City Cement - Thailand
- Wilmar Investment Holdings
- Altura Mining Limited, Indonesia
- Savvy Resources Ltd - HongKong
- Electricity Authority, New Zealand
- Planning Commission, India
- Electricity Generating Authority of Thailand
- Sinarmas Energy and Mining - Indonesia
- PTC India Limited - India
- Bhoruka Overseas - Indonesia
- The State Trading Corporation of India Ltd
- Maharashtra Electricity Regulatory Commission - India
- GVK Power & Infra Limited - India
- Barasentosa Lestari - Indonesia
- Sakthi Sugars Limited - India
- MS Steel International - UAE
- Sree Jayajothi Cements Limited - India
- Ministry of Mines - Canada
- Singapore Mercantile Exchange
- Gujarat Mineral Development Corp Ltd - India
- Gujarat Sidhee Cement - India
- Alfred C Toepfer International GmbH - Germany
- Kalimantan Lumbung Energi - Indonesia
- Indian Energy Exchange, India
- Parry Sugars Refinery, India
- Port Waratah Coal Services - Australia
- Mercuria Energy - Indonesia
- Malabar Cements Ltd - India
- ASAPP Information Group - India
- Australian Commodity Traders Exchange
- Kaltim Prima Coal - Indonesia
- OPG Power Generation Pvt Ltd - India
- International Coal Ventures Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Orica Mining Services - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Kumho Petrochemical, South Korea
- Jaiprakash Power Ventures ltd
- Bayan Resources Tbk. - Indonesia
- Eastern Energy - Thailand
- Directorate Of Revenue Intelligence - India
- Interocean Group of Companies - India
- Power Finance Corporation Ltd., India
- Independent Power Producers Association of India
- Energy Development Corp, Philippines
- IEA Clean Coal Centre - UK
- Borneo Indobara - Indonesia
- Sarangani Energy Corporation, Philippines
- Central Java Power - Indonesia
- Semirara Mining Corp, Philippines
- Sindya Power Generating Company Private Ltd
- Ceylon Electricity Board - Sri Lanka
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indian Oil Corporation Limited
- Aditya Birla Group - India
- Global Coal Blending Company Limited - Australia
- Aboitiz Power Corporation - Philippines
- McConnell Dowell - Australia
- Ministry of Finance - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Larsen & Toubro Limited - India
- Indogreen Group - Indonesia
- Trasteel International SA, Italy
- Krishnapatnam Port Company Ltd. - India
- Indo Tambangraya Megah - Indonesia
- Wood Mackenzie - Singapore
- South Luzon Thermal Energy Corporation
- Iligan Light & Power Inc, Philippines
- New Zealand Coal & Carbon
- Anglo American - United Kingdom
- Jindal Steel & Power Ltd - India
- Makarim & Taira - Indonesia
- Intertek Mineral Services - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Chettinad Cement Corporation Ltd - India
- Toyota Tsusho Corporation, Japan
- Bhatia International Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- GAC Shipping (India) Pvt Ltd
- AsiaOL BioFuels Corp., Philippines
- CNBM International Corporation - China
- Semirara Mining and Power Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Coastal Gujarat Power Limited - India
- Meralco Power Generation, Philippines
- Vedanta Resources Plc - India
- PNOC Exploration Corporation - Philippines
- SMC Global Power, Philippines
- Bharathi Cement Corporation - India
- Petron Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Global Business Power Corporation, Philippines
- Baramulti Group, Indonesia
- Formosa Plastics Group - Taiwan
- Australian Coal Association
- Miang Besar Coal Terminal - Indonesia
- Tata Chemicals Ltd - India
- Straits Asia Resources Limited - Singapore
- CIMB Investment Bank - Malaysia
- Kartika Selabumi Mining - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Kideco Jaya Agung - Indonesia
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