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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, 05 November 15
Q2'16 INDO THERMAL COAL SWAP CONTRACT FOB INDONESIA FALLS TO $39.90/T
COALspot.com: Indonesian coal swap for delivery Q4 2015 declined month on month and week over week. Price of coal seen no improvements this past we ...
Thursday, 05 November 15
INFORMATION EXCHANGE GROUP'S LATAM MINING SECURITY SUMMIT 2016 - INTERNATIONAL CONFERENCE ON TECHNOLOGY SECURITY IN MINING
Press Release: LATAM Mining Security Summit 2016 is a carefully designed event that will bring together the leading stakeholders in the mining sect ...
Wednesday, 04 November 15
MARKET INSIGHT - CHRISTOPHER THOMAS WHITTY
Four companies dominate global iron ore production, namely; BHP Billiton, Vale, Rio Tinto, and Fortescue Metals Group. Together these companies con ...
Wednesday, 04 November 15
FOB RICHARDS BAY COAL SWAPS GAIN W-W AND M-M
COALspot.com: API4 FOB Richards Bay Coal swap for delivery Q4' 2015 gained week over week and month over month.
The Q4 swap was up US$ 1.4 ...
Tuesday, 03 November 15
API 5 FOB NEWCASTLE COAL SWAPS DECLINE CONTINUES
COALspot.com: API 5 FOB Newcastle Coal swap for Q4’ 2015 delivery slid $1.84 per ton (4.34%) month over month to US$ 40.54 per ton. The swap ...
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- Gujarat Mineral Development Corp Ltd - India
- Petron Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Energy Link Ltd, New Zealand
- International Coal Ventures Pvt Ltd - India
- Vedanta Resources Plc - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Miang Besar Coal Terminal - Indonesia
- Coastal Gujarat Power Limited - India
- Agrawal Coal Company - India
- Antam Resourcindo - Indonesia
- Barasentosa Lestari - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bharathi Cement Corporation - India
- Banpu Public Company Limited - Thailand
- Bayan Resources Tbk. - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Sarangani Energy Corporation, Philippines
- Africa Commodities Group - South Africa
- Port Waratah Coal Services - Australia
- Bukit Baiduri Energy - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- CIMB Investment Bank - Malaysia
- Kalimantan Lumbung Energi - Indonesia
- Meenaskhi Energy Private Limited - India
- ASAPP Information Group - India
- Attock Cement Pakistan Limited
- Toyota Tsusho Corporation, Japan
- Energy Development Corp, Philippines
- Ind-Barath Power Infra Limited - India
- Asmin Koalindo Tuhup - Indonesia
- CNBM International Corporation - China
- Jaiprakash Power Ventures ltd
- Parliament of New Zealand
- Wood Mackenzie - Singapore
- Thai Mozambique Logistica
- White Energy Company Limited
- Parry Sugars Refinery, India
- Pendopo Energi Batubara - Indonesia
- GMR Energy Limited - India
- Intertek Mineral Services - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- The Treasury - Australian Government
- Essar Steel Hazira Ltd - India
- Australian Commodity Traders Exchange
- Renaissance Capital - South Africa
- Straits Asia Resources Limited - Singapore
- South Luzon Thermal Energy Corporation
- Sinarmas Energy and Mining - Indonesia
- Borneo Indobara - Indonesia
- Riau Bara Harum - Indonesia
- Simpson Spence & Young - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Samtan Co., Ltd - South Korea
- Kohat Cement Company Ltd. - Pakistan
- Kumho Petrochemical, South Korea
- Indogreen Group - Indonesia
- Singapore Mercantile Exchange
- Rashtriya Ispat Nigam Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Sree Jayajothi Cements Limited - India
- MS Steel International - UAE
- Sical Logistics Limited - India
- Indian Oil Corporation Limited
- Gujarat Electricity Regulatory Commission - India
- Independent Power Producers Association of India
- Economic Council, Georgia
- Orica Australia Pty. Ltd.
- Electricity Generating Authority of Thailand
- SMG Consultants - Indonesia
- The University of Queensland
- Kobexindo Tractors - Indoneisa
- Star Paper Mills Limited - India
- TeaM Sual Corporation - Philippines
- Coal and Oil Company - UAE
- Indo Tambangraya Megah - Indonesia
- Mjunction Services Limited - India
- Ministry of Finance - Indonesia
- Chamber of Mines of South Africa
- Kideco Jaya Agung - Indonesia
- Romanian Commodities Exchange
- Georgia Ports Authority, United States
- Ministry of Transport, Egypt
- TNB Fuel Sdn Bhd - Malaysia
- Baramulti Group, Indonesia
- Kapuas Tunggal Persada - Indonesia
- Commonwealth Bank - Australia
- Anglo American - United Kingdom
- Neyveli Lignite Corporation Ltd, - India
- Bhoruka Overseas - Indonesia
- Semirara Mining Corp, Philippines
- San Jose City I Power Corp, Philippines
- Kepco SPC Power Corporation, Philippines
- Gujarat Sidhee Cement - India
- Leighton Contractors Pty Ltd - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- ICICI Bank Limited - India
- Siam City Cement - Thailand
- Lanco Infratech Ltd - India
- Marubeni Corporation - India
- Pipit Mutiara Jaya. PT, Indonesia
- Salva Resources Pvt Ltd - India
- New Zealand Coal & Carbon
- SMC Global Power, Philippines
- Chettinad Cement Corporation Ltd - India
- Aditya Birla Group - India
- Deloitte Consulting - India
- Planning Commission, India
- Grasim Industreis Ltd - India
- Bhatia International Limited - India
- McConnell Dowell - Australia
- Goldman Sachs - Singapore
- Sakthi Sugars Limited - India
- Videocon Industries ltd - India
- Rio Tinto Coal - Australia
- Global Business Power Corporation, Philippines
- Bangladesh Power Developement Board
- European Bulk Services B.V. - Netherlands
- Thiess Contractors Indonesia
- Xindia Steels Limited - India
- Oldendorff Carriers - Singapore
- Metalloyd Limited - United Kingdom
- Wilmar Investment Holdings
- Savvy Resources Ltd - HongKong
- India Bulls Power Limited - India
- Iligan Light & Power Inc, Philippines
- Medco Energi Mining Internasional
- Merrill Lynch Commodities Europe
- Price Waterhouse Coopers - Russia
- Madhucon Powers Ltd - India
- Altura Mining Limited, Indonesia
- Bulk Trading Sa - Switzerland
- London Commodity Brokers - England
- Timah Investasi Mineral - Indoneisa
- Formosa Plastics Group - Taiwan
- Latin American Coal - Colombia
- Edison Trading Spa - Italy
- Bhushan Steel Limited - India
- PowerSource Philippines DevCo
- Karbindo Abesyapradhi - Indoneisa
- Electricity Authority, New Zealand
- PNOC Exploration Corporation - Philippines
- Jindal Steel & Power Ltd - India
- Cement Manufacturers Association - India
- Dalmia Cement Bharat India
- Mercuria Energy - Indonesia
- Larsen & Toubro Limited - India
- Sindya Power Generating Company Private Ltd
- VISA Power Limited - India
- Malabar Cements Ltd - India
- PTC India Limited - India
- Indika Energy - Indonesia
- Globalindo Alam Lestari - Indonesia
- Coalindo Energy - Indonesia
- Orica Mining Services - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Vizag Seaport Private Limited - India
- The State Trading Corporation of India Ltd
- Carbofer General Trading SA - India
- Eastern Coal Council - USA
- Australian Coal Association
- Alfred C Toepfer International GmbH - Germany
- Bahari Cakrawala Sebuku - Indonesia
- Kaltim Prima Coal - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Semirara Mining and Power Corporation, Philippines
- IHS Mccloskey Coal Group - USA
- Karaikal Port Pvt Ltd - India
- Meralco Power Generation, Philippines
- GAC Shipping (India) Pvt Ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Tata Chemicals Ltd - India
- Maheswari Brothers Coal Limited - India
- Siam City Cement PLC, Thailand
- AsiaOL BioFuels Corp., Philippines
- OPG Power Generation Pvt Ltd - India
- Tamil Nadu electricity Board
- Makarim & Taira - Indonesia
- Power Finance Corporation Ltd., India
- Manunggal Multi Energi - Indonesia
- Global Coal Blending Company Limited - Australia
- Global Green Power PLC Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- Ministry of Mines - Canada
- Therma Luzon, Inc, Philippines
- Indonesian Coal Mining Association
- Interocean Group of Companies - India
- Binh Thuan Hamico - Vietnam
- Uttam Galva Steels Limited - India
- Standard Chartered Bank - UAE
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Directorate General of MIneral and Coal - Indonesia
- Indian Energy Exchange, India
- Trasteel International SA, Italy
- Mintek Dendrill Indonesia
- Holcim Trading Pte Ltd - Singapore
- LBH Netherlands Bv - Netherlands
- SN Aboitiz Power Inc, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Directorate Of Revenue Intelligence - India
- IEA Clean Coal Centre - UK
- Mercator Lines Limited - India
- Minerals Council of Australia
- Central Java Power - Indonesia
- Central Electricity Authority - India
- Heidelberg Cement - Germany
- GVK Power & Infra Limited - India
- Ambuja Cements Ltd - India
- Aboitiz Power Corporation - Philippines
- Eastern Energy - Thailand
- Posco Energy - South Korea
- PetroVietnam Power Coal Import and Supply Company
- Bukit Makmur.PT - Indonesia
- Sojitz Corporation - Japan
- Krishnapatnam Port Company Ltd. - India
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