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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, 30 October 15
INDONESIA'S COAL EXPORTS DROP ON LOW PRICES - THE JAKARTA POST
Indonesia's coal exports significantly dropped in the first nine months of the year as coal companies continued to suffer from low prices in ad ...
Friday, 30 October 15
CHINESE MINERAL IMPORTS: MOVING ON FROM INDONESIA? - CLARKSONS
China has accounted for almost 90% of global imports of nickel ore and bauxite in recent years and was therefore heavily hit by the Indonesian mine ...
Friday, 30 October 15
COAL PRODUCTION IN THE UNITED STATES INCREASED THIS WEEK - EIA
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 17.5 million shor ...
Thursday, 29 October 15
IRAN'S RETURN TO OIL MARKETS WILL HAVE TEMPERED IMPACT FOR THE TANKER SHIPPING INDUSTRY - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
While many analysts appear to be fearful of a potential incremental rise in tanker ships’ supply, as a result of the imminent return of Iran ...
Thursday, 29 October 15
Q2' 16 FOB INDONESIA COAL SWAP CLOSED US$ 37.40 PER TON; DECLINED 5.56 PER CENT M-M
COALspot.com: Indonesian coal swap for delivery Q4 2015 declined month on month and week over week.
The Q4 swap declined $ 2.13 (-5.34%) per t ...
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- Posco Energy - South Korea
- Port Waratah Coal Services - Australia
- Heidelberg Cement - Germany
- Savvy Resources Ltd - HongKong
- LBH Netherlands Bv - Netherlands
- Merrill Lynch Commodities Europe
- Cement Manufacturers Association - India
- Bhoruka Overseas - Indonesia
- Star Paper Mills Limited - India
- Price Waterhouse Coopers - Russia
- Attock Cement Pakistan Limited
- Sree Jayajothi Cements Limited - India
- New Zealand Coal & Carbon
- Indo Tambangraya Megah - Indonesia
- Videocon Industries ltd - India
- Holcim Trading Pte Ltd - Singapore
- Globalindo Alam Lestari - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Tamil Nadu electricity Board
- PTC India Limited - India
- Xindia Steels Limited - India
- Thai Mozambique Logistica
- Bukit Baiduri Energy - Indonesia
- Meralco Power Generation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Electricity Authority, New Zealand
- Planning Commission, India
- London Commodity Brokers - England
- Borneo Indobara - Indonesia
- Larsen & Toubro Limited - India
- Siam City Cement - Thailand
- Karaikal Port Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- Antam Resourcindo - Indonesia
- Intertek Mineral Services - Indonesia
- Coalindo Energy - Indonesia
- PowerSource Philippines DevCo
- Jindal Steel & Power Ltd - India
- Bharathi Cement Corporation - India
- Ministry of Mines - Canada
- Billiton Holdings Pty Ltd - Australia
- Edison Trading Spa - Italy
- Meenaskhi Energy Private Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- GMR Energy Limited - India
- Gujarat Electricity Regulatory Commission - India
- Energy Link Ltd, New Zealand
- Wood Mackenzie - Singapore
- Jaiprakash Power Ventures ltd
- Vedanta Resources Plc - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kartika Selabumi Mining - Indonesia
- Orica Australia Pty. Ltd.
- The State Trading Corporation of India Ltd
- GN Power Mariveles Coal Plant, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Australian Coal Association
- Coastal Gujarat Power Limited - India
- Agrawal Coal Company - India
- Kapuas Tunggal Persada - Indonesia
- Chettinad Cement Corporation Ltd - India
- Thiess Contractors Indonesia
- European Bulk Services B.V. - Netherlands
- San Jose City I Power Corp, Philippines
- Central Java Power - Indonesia
- GAC Shipping (India) Pvt Ltd
- Bukit Asam (Persero) Tbk - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Samtan Co., Ltd - South Korea
- Australian Commodity Traders Exchange
- Parliament of New Zealand
- Eastern Coal Council - USA
- Uttam Galva Steels Limited - India
- McConnell Dowell - Australia
- Goldman Sachs - Singapore
- Kobexindo Tractors - Indoneisa
- Grasim Industreis Ltd - India
- Bhushan Steel Limited - India
- Ind-Barath Power Infra Limited - India
- Kaltim Prima Coal - Indonesia
- Aboitiz Power Corporation - Philippines
- Romanian Commodities Exchange
- Global Green Power PLC Corporation, Philippines
- Indika Energy - Indonesia
- Indian Oil Corporation Limited
- The University of Queensland
- Dalmia Cement Bharat India
- Sarangani Energy Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Sojitz Corporation - Japan
- Latin American Coal - Colombia
- India Bulls Power Limited - India
- Kumho Petrochemical, South Korea
- Sical Logistics Limited - India
- Semirara Mining and Power Corporation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Maharashtra Electricity Regulatory Commission - India
- TNB Fuel Sdn Bhd - Malaysia
- Ministry of Finance - Indonesia
- Deloitte Consulting - India
- Independent Power Producers Association of India
- Metalloyd Limited - United Kingdom
- Global Business Power Corporation, Philippines
- Vizag Seaport Private Limited - India
- Straits Asia Resources Limited - Singapore
- Riau Bara Harum - Indonesia
- Commonwealth Bank - Australia
- Minerals Council of Australia
- International Coal Ventures Pvt Ltd - India
- Interocean Group of Companies - India
- Madhucon Powers Ltd - India
- Anglo American - United Kingdom
- Kideco Jaya Agung - Indonesia
- MS Steel International - UAE
- Lanco Infratech Ltd - India
- Parry Sugars Refinery, India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kalimantan Lumbung Energi - Indonesia
- ASAPP Information Group - India
- Bahari Cakrawala Sebuku - Indonesia
- Central Electricity Authority - India
- Mjunction Services Limited - India
- Alfred C Toepfer International GmbH - Germany
- CIMB Investment Bank - Malaysia
- OPG Power Generation Pvt Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Binh Thuan Hamico - Vietnam
- Economic Council, Georgia
- SMC Global Power, Philippines
- The Treasury - Australian Government
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Maheswari Brothers Coal Limited - India
- Rio Tinto Coal - Australia
- Leighton Contractors Pty Ltd - Australia
- Eastern Energy - Thailand
- Bulk Trading Sa - Switzerland
- Sakthi Sugars Limited - India
- Iligan Light & Power Inc, Philippines
- Chamber of Mines of South Africa
- Timah Investasi Mineral - Indoneisa
- Mercuria Energy - Indonesia
- Manunggal Multi Energi - Indonesia
- PNOC Exploration Corporation - Philippines
- Petron Corporation, Philippines
- IEA Clean Coal Centre - UK
- Trasteel International SA, Italy
- Indonesian Coal Mining Association
- Cigading International Bulk Terminal - Indonesia
- Essar Steel Hazira Ltd - India
- Salva Resources Pvt Ltd - India
- Pendopo Energi Batubara - Indonesia
- Malabar Cements Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Makarim & Taira - Indonesia
- Medco Energi Mining Internasional
- Sindya Power Generating Company Private Ltd
- Petrochimia International Co. Ltd.- Taiwan
- Ceylon Electricity Board - Sri Lanka
- Baramulti Group, Indonesia
- Siam City Cement PLC, Thailand
- VISA Power Limited - India
- Directorate Of Revenue Intelligence - India
- Neyveli Lignite Corporation Ltd, - India
- South Luzon Thermal Energy Corporation
- Mercator Lines Limited - India
- Coal and Oil Company - UAE
- Indogreen Group - Indonesia
- Formosa Plastics Group - Taiwan
- SMG Consultants - Indonesia
- Indian Energy Exchange, India
- Energy Development Corp, Philippines
- Mintek Dendrill Indonesia
- AsiaOL BioFuels Corp., Philippines
- Therma Luzon, Inc, Philippines
- Gujarat Mineral Development Corp Ltd - India
- GVK Power & Infra Limited - India
- Bayan Resources Tbk. - Indonesia
- Georgia Ports Authority, United States
- Bukit Makmur.PT - Indonesia
- Simpson Spence & Young - Indonesia
- Africa Commodities Group - South Africa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Marubeni Corporation - India
- Ambuja Cements Ltd - India
- Kepco SPC Power Corporation, Philippines
- ICICI Bank Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Orica Mining Services - Indonesia
- Standard Chartered Bank - UAE
- Wilmar Investment Holdings
- Power Finance Corporation Ltd., India
- Carbofer General Trading SA - India
- Tata Chemicals Ltd - India
- Ministry of Transport, Egypt
- SN Aboitiz Power Inc, Philippines
- Bhatia International Limited - India
- Electricity Generating Authority of Thailand
- CNBM International Corporation - China
- Semirara Mining Corp, Philippines
- Oldendorff Carriers - Singapore
- Barasentosa Lestari - Indonesia
- Singapore Mercantile Exchange
- Karbindo Abesyapradhi - Indoneisa
- Banpu Public Company Limited - Thailand
- White Energy Company Limited
- Gujarat Sidhee Cement - India
- Aditya Birla Group - India
- Altura Mining Limited, Indonesia
- Bangladesh Power Developement Board
- Toyota Tsusho Corporation, Japan
- TeaM Sual Corporation - Philippines
- Renaissance Capital - South Africa
- Directorate General of MIneral and Coal - Indonesia
- Global Coal Blending Company Limited - Australia
- Krishnapatnam Port Company Ltd. - India
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