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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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Wednesday, 21 October 15
MARKET INSIGHT - TIMOS PAPADIMITRIOU
In today’s dry bulk market, both freight rates and asset prices are creating mixed feelings to seasoned ship owners, who tend to instinctivel ...
Wednesday, 21 October 15
INDONESIAN COAL MINER BUKIT ASAM POSTS POSITIVE PERFORMANCE DURING FIRST THREE QUARTERS OF 2015
COALspot.com: Indonesian publicly listed and state controlled coal miner PT. Bukit Asam has announced that, the company’s coal sales up 8 per ...
Wednesday, 21 October 15
LOWER DEMAND HIT Q1' 16 INDONESIA COAL SWAPS
COALspot.com: Indonesian coal swap for delivery Q4 2015 declined month on month and week over week.
The Q4 swap declined $ 1.88 (-4.71%) per t ...
Tuesday, 20 October 15
SHIPBROKER SEES CAPESIZE RATES EASILY REACHING $25,000/DAY BY YEAR-END : NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The future course of the dry bulk market has been troubling market participants for quite some time now, as the “elusive” freight rate ...
Tuesday, 20 October 15
FOB RICHARDS BAY COAL SWAPS SINK INTO RED THIS PAST WEEK
COALspot.com: API4 FOB Richards Bay Coal swap for delivery Q4' 2015 declined week over week and month over month.
The Q4 swap was down US$ ...
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- Anglo American - United Kingdom
- PowerSource Philippines DevCo
- Trasteel International SA, Italy
- Karaikal Port Pvt Ltd - India
- White Energy Company Limited
- Holcim Trading Pte Ltd - Singapore
- Star Paper Mills Limited - India
- Orica Australia Pty. Ltd.
- Heidelberg Cement - Germany
- Alfred C Toepfer International GmbH - Germany
- CIMB Investment Bank - Malaysia
- Petron Corporation, Philippines
- SMC Global Power, Philippines
- Mintek Dendrill Indonesia
- Kepco SPC Power Corporation, Philippines
- Central Electricity Authority - India
- Global Business Power Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Planning Commission, India
- Cement Manufacturers Association - India
- Port Waratah Coal Services - Australia
- Riau Bara Harum - Indonesia
- MS Steel International - UAE
- GAC Shipping (India) Pvt Ltd
- Iligan Light & Power Inc, Philippines
- Siam City Cement - Thailand
- Tamil Nadu electricity Board
- Electricity Authority, New Zealand
- Parry Sugars Refinery, India
- Romanian Commodities Exchange
- Price Waterhouse Coopers - Russia
- Interocean Group of Companies - India
- Jorong Barutama Greston.PT - Indonesia
- Jindal Steel & Power Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Energy Development Corp, Philippines
- Therma Luzon, Inc, Philippines
- Mercator Lines Limited - India
- Formosa Plastics Group - Taiwan
- Manunggal Multi Energi - Indonesia
- TeaM Sual Corporation - Philippines
- VISA Power Limited - India
- India Bulls Power Limited - India
- New Zealand Coal & Carbon
- Vijayanagar Sugar Pvt Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Barasentosa Lestari - Indonesia
- Timah Investasi Mineral - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Savvy Resources Ltd - HongKong
- Krishnapatnam Port Company Ltd. - India
- Semirara Mining and Power Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Directorate Of Revenue Intelligence - India
- Baramulti Group, Indonesia
- Eastern Energy - Thailand
- Ministry of Mines - Canada
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- McConnell Dowell - Australia
- Kartika Selabumi Mining - Indonesia
- Sree Jayajothi Cements Limited - India
- Independent Power Producers Association of India
- IHS Mccloskey Coal Group - USA
- Malabar Cements Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Coastal Gujarat Power Limited - India
- Economic Council, Georgia
- Singapore Mercantile Exchange
- Indogreen Group - Indonesia
- Minerals Council of Australia
- Larsen & Toubro Limited - India
- Salva Resources Pvt Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Aditya Birla Group - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Africa Commodities Group - South Africa
- Rashtriya Ispat Nigam Limited - India
- Kapuas Tunggal Persada - Indonesia
- Sojitz Corporation - Japan
- Jaiprakash Power Ventures ltd
- Videocon Industries ltd - India
- Rio Tinto Coal - Australia
- Bharathi Cement Corporation - India
- SN Aboitiz Power Inc, Philippines
- Samtan Co., Ltd - South Korea
- Asia Pacific Energy Resources Ventures Inc, Philippines
- PNOC Exploration Corporation - Philippines
- ICICI Bank Limited - India
- Meenaskhi Energy Private Limited - India
- Antam Resourcindo - Indonesia
- Ind-Barath Power Infra Limited - India
- European Bulk Services B.V. - Netherlands
- The Treasury - Australian Government
- Intertek Mineral Services - Indonesia
- Banpu Public Company Limited - Thailand
- Mjunction Services Limited - India
- Commonwealth Bank - Australia
- Attock Cement Pakistan Limited
- Mercuria Energy - Indonesia
- Bukit Baiduri Energy - Indonesia
- Indian Energy Exchange, India
- OPG Power Generation Pvt Ltd - India
- Goldman Sachs - Singapore
- Petrochimia International Co. Ltd.- Taiwan
- Carbofer General Trading SA - India
- Binh Thuan Hamico - Vietnam
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kalimantan Lumbung Energi - Indonesia
- Edison Trading Spa - Italy
- Sindya Power Generating Company Private Ltd
- Global Coal Blending Company Limited - Australia
- Sarangani Energy Corporation, Philippines
- Thai Mozambique Logistica
- Parliament of New Zealand
- CNBM International Corporation - China
- Latin American Coal - Colombia
- Straits Asia Resources Limited - Singapore
- Aboitiz Power Corporation - Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Tata Chemicals Ltd - India
- Bhatia International Limited - India
- Georgia Ports Authority, United States
- Bhushan Steel Limited - India
- Indonesian Coal Mining Association
- South Luzon Thermal Energy Corporation
- Toyota Tsusho Corporation, Japan
- Deloitte Consulting - India
- PTC India Limited - India
- Dalmia Cement Bharat India
- Indo Tambangraya Megah - Indonesia
- Bangladesh Power Developement Board
- Sakthi Sugars Limited - India
- Indika Energy - Indonesia
- Madhucon Powers Ltd - India
- Wilmar Investment Holdings
- London Commodity Brokers - England
- Bhoruka Overseas - Indonesia
- ASAPP Information Group - India
- Ministry of Transport, Egypt
- Orica Mining Services - Indonesia
- Gujarat Sidhee Cement - India
- Altura Mining Limited, Indonesia
- Maharashtra Electricity Regulatory Commission - India
- AsiaOL BioFuels Corp., Philippines
- Renaissance Capital - South Africa
- SMG Consultants - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Billiton Holdings Pty Ltd - Australia
- Merrill Lynch Commodities Europe
- Australian Commodity Traders Exchange
- Cigading International Bulk Terminal - Indonesia
- Wood Mackenzie - Singapore
- Global Green Power PLC Corporation, Philippines
- Semirara Mining Corp, Philippines
- Uttam Galva Steels Limited - India
- Bulk Trading Sa - Switzerland
- Bukit Makmur.PT - Indonesia
- Thiess Contractors Indonesia
- GVK Power & Infra Limited - India
- Agrawal Coal Company - India
- Central Java Power - Indonesia
- Oldendorff Carriers - Singapore
- Pendopo Energi Batubara - Indonesia
- International Coal Ventures Pvt Ltd - India
- Makarim & Taira - Indonesia
- Siam City Cement PLC, Thailand
- Indian Oil Corporation Limited
- Ambuja Cements Ltd - India
- Standard Chartered Bank - UAE
- Medco Energi Mining Internasional
- IEA Clean Coal Centre - UK
- Marubeni Corporation - India
- Ministry of Finance - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- LBH Netherlands Bv - Netherlands
- Gujarat Mineral Development Corp Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Grasim Industreis Ltd - India
- Energy Link Ltd, New Zealand
- Metalloyd Limited - United Kingdom
- Posco Energy - South Korea
- Coalindo Energy - Indonesia
- The State Trading Corporation of India Ltd
- Sical Logistics Limited - India
- Australian Coal Association
- Chamber of Mines of South Africa
- Essar Steel Hazira Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Chettinad Cement Corporation Ltd - India
- Maheswari Brothers Coal Limited - India
- Power Finance Corporation Ltd., India
- Bayan Resources Tbk. - Indonesia
- San Jose City I Power Corp, Philippines
- The University of Queensland
- Vizag Seaport Private Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Electricity Generating Authority of Thailand
- Vedanta Resources Plc - India
- Kideco Jaya Agung - Indonesia
- GMR Energy Limited - India
- Gujarat Electricity Regulatory Commission - India
- Borneo Indobara - Indonesia
- Meralco Power Generation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Coal and Oil Company - UAE
- GN Power Mariveles Coal Plant, Philippines
- Kobexindo Tractors - Indoneisa
- Lanco Infratech Ltd - India
- Kumho Petrochemical, South Korea
- Ceylon Electricity Board - Sri Lanka
- Kaltim Prima Coal - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Xindia Steels Limited - India
- Eastern Coal Council - USA
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