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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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Tuesday, 20 October 15
API 5 FOB NEWCASTLE COAL SWAP CLOSED NEGATIVE
COALspot.com: API 5 FOB Newcastle Coal swap for Q4’ 2015 delivery decreased $1.23 per ton (2.86%) month over month to US$ 41.80 per ton. The ...
Monday, 19 October 15
RUSSIA MAJOR COAL MINER KRU CUTS 4.5 MLN T/YR "UNPROFITABLE" EURO SALES - JACQUELINE HOLMES
COALspot.com: Kuzbassrazrezugol (KRU), one of Russia's largest producers of high-quality coal, plans to cut its coal exports in 2016 by about 4 ...
Monday, 19 October 15
CFR SOUTH CHINA COAL SWAP CLOSED AT $48.68 PER TON
COALspot.com: API 8 CFR South China Coal swap for 4Q’ 2015 delivery down just US cents 55 (1.12 %) per ton month over month.
A commodity ...
Monday, 19 October 15
KOMIPO SEEKS 1.28 MILLION T/Y COAL FOR DEC 2015 - Q2 2016
COALspot.com: South Korean state-owned utility Korea Midland Power (KOMIPO) issued an new tender for 1,280,000 Metric Tons (MT) of minimum 4,600 kc ...
Sunday, 18 October 15
THE BDI AND OTHER INDICES CLOSED OFF ON NEGATIVE NOTE THIS FRIDAY
COALspot.com: The BDI closed off on negative note this Friday compared to previous Friday's closing.
The BDI closed this Friday (16 Octobe ...
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- Samtan Co., Ltd - South Korea
- Videocon Industries ltd - India
- Riau Bara Harum - Indonesia
- Ambuja Cements Ltd - India
- Essar Steel Hazira Ltd - India
- Makarim & Taira - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Agrawal Coal Company - India
- Gujarat Sidhee Cement - India
- Power Finance Corporation Ltd., India
- Edison Trading Spa - Italy
- Semirara Mining Corp, Philippines
- AsiaOL BioFuels Corp., Philippines
- Electricity Generating Authority of Thailand
- CNBM International Corporation - China
- Lanco Infratech Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- Borneo Indobara - Indonesia
- Tamil Nadu electricity Board
- Sojitz Corporation - Japan
- Billiton Holdings Pty Ltd - Australia
- Orica Mining Services - Indonesia
- Mercuria Energy - Indonesia
- Kobexindo Tractors - Indoneisa
- IHS Mccloskey Coal Group - USA
- LBH Netherlands Bv - Netherlands
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Anglo American - United Kingdom
- Jorong Barutama Greston.PT - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Global Coal Blending Company Limited - Australia
- Malabar Cements Ltd - India
- Star Paper Mills Limited - India
- Straits Asia Resources Limited - Singapore
- Dalmia Cement Bharat India
- Binh Thuan Hamico - Vietnam
- Gujarat Electricity Regulatory Commission - India
- South Luzon Thermal Energy Corporation
- Independent Power Producers Association of India
- Eastern Coal Council - USA
- SMG Consultants - Indonesia
- European Bulk Services B.V. - Netherlands
- Timah Investasi Mineral - Indoneisa
- Mjunction Services Limited - India
- PNOC Exploration Corporation - Philippines
- Iligan Light & Power Inc, Philippines
- Coalindo Energy - Indonesia
- Wood Mackenzie - Singapore
- Barasentosa Lestari - Indonesia
- Goldman Sachs - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Bukit Baiduri Energy - Indonesia
- Directorate Of Revenue Intelligence - India
- Sindya Power Generating Company Private Ltd
- Central Electricity Authority - India
- Thiess Contractors Indonesia
- VISA Power Limited - India
- India Bulls Power Limited - India
- Ministry of Mines - Canada
- Deloitte Consulting - India
- Formosa Plastics Group - Taiwan
- Offshore Bulk Terminal Pte Ltd, Singapore
- Maheswari Brothers Coal Limited - India
- OPG Power Generation Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Manunggal Multi Energi - Indonesia
- Indian Energy Exchange, India
- Ind-Barath Power Infra Limited - India
- Electricity Authority, New Zealand
- Ceylon Electricity Board - Sri Lanka
- Bhushan Steel Limited - India
- CIMB Investment Bank - Malaysia
- SN Aboitiz Power Inc, Philippines
- The Treasury - Australian Government
- Economic Council, Georgia
- Bhoruka Overseas - Indonesia
- Africa Commodities Group - South Africa
- GMR Energy Limited - India
- Vizag Seaport Private Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Georgia Ports Authority, United States
- Australian Commodity Traders Exchange
- Neyveli Lignite Corporation Ltd, - India
- Indika Energy - Indonesia
- Metalloyd Limited - United Kingdom
- Chamber of Mines of South Africa
- Savvy Resources Ltd - HongKong
- Planning Commission, India
- Attock Cement Pakistan Limited
- Toyota Tsusho Corporation, Japan
- Siam City Cement - Thailand
- TeaM Sual Corporation - Philippines
- Grasim Industreis Ltd - India
- San Jose City I Power Corp, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Parliament of New Zealand
- Gujarat Mineral Development Corp Ltd - India
- Indo Tambangraya Megah - Indonesia
- Kartika Selabumi Mining - Indonesia
- Medco Energi Mining Internasional
- Bulk Trading Sa - Switzerland
- Eastern Energy - Thailand
- Petrochimia International Co. Ltd.- Taiwan
- Karaikal Port Pvt Ltd - India
- Petron Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Trasteel International SA, Italy
- Minerals Council of Australia
- Marubeni Corporation - India
- Indogreen Group - Indonesia
- Krishnapatnam Port Company Ltd. - India
- GVK Power & Infra Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Intertek Mineral Services - Indonesia
- Oldendorff Carriers - Singapore
- ICICI Bank Limited - India
- Jindal Steel & Power Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Vijayanagar Sugar Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Xindia Steels Limited - India
- Pendopo Energi Batubara - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Altura Mining Limited, Indonesia
- Baramulti Group, Indonesia
- Jaiprakash Power Ventures ltd
- GN Power Mariveles Coal Plant, Philippines
- White Energy Company Limited
- Aditya Birla Group - India
- Chettinad Cement Corporation Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Kepco SPC Power Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Coal and Oil Company - UAE
- Commonwealth Bank - Australia
- Larsen & Toubro Limited - India
- PTC India Limited - India
- Leighton Contractors Pty Ltd - Australia
- Semirara Mining and Power Corporation, Philippines
- Tata Chemicals Ltd - India
- Indian Oil Corporation Limited
- Heidelberg Cement - Germany
- Kaltim Prima Coal - Indonesia
- The State Trading Corporation of India Ltd
- Renaissance Capital - South Africa
- Banpu Public Company Limited - Thailand
- Australian Coal Association
- Cement Manufacturers Association - India
- Latin American Coal - Colombia
- Thai Mozambique Logistica
- Sinarmas Energy and Mining - Indonesia
- New Zealand Coal & Carbon
- Ministry of Transport, Egypt
- Interocean Group of Companies - India
- IEA Clean Coal Centre - UK
- Therma Luzon, Inc, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Indonesian Coal Mining Association
- Romanian Commodities Exchange
- Kumho Petrochemical, South Korea
- Aboitiz Power Corporation - Philippines
- ASAPP Information Group - India
- Bahari Cakrawala Sebuku - Indonesia
- Merrill Lynch Commodities Europe
- Salva Resources Pvt Ltd - India
- The University of Queensland
- Karbindo Abesyapradhi - Indoneisa
- Siam City Cement PLC, Thailand
- Antam Resourcindo - Indonesia
- Carbofer General Trading SA - India
- Bangladesh Power Developement Board
- Bhatia International Limited - India
- Cigading International Bulk Terminal - Indonesia
- Global Business Power Corporation, Philippines
- Rio Tinto Coal - Australia
- Energy Development Corp, Philippines
- Wilmar Investment Holdings
- Uttam Galva Steels Limited - India
- Meralco Power Generation, Philippines
- McConnell Dowell - Australia
- Singapore Mercantile Exchange
- Globalindo Alam Lestari - Indonesia
- MS Steel International - UAE
- Standard Chartered Bank - UAE
- Kalimantan Lumbung Energi - Indonesia
- Ministry of Finance - Indonesia
- Vedanta Resources Plc - India
- Orica Australia Pty. Ltd.
- Bukit Makmur.PT - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Global Green Power PLC Corporation, Philippines
- Price Waterhouse Coopers - Russia
- SMC Global Power, Philippines
- Mercator Lines Limited - India
- Kapuas Tunggal Persada - Indonesia
- Coastal Gujarat Power Limited - India
- Mintek Dendrill Indonesia
- Meenaskhi Energy Private Limited - India
- Bharathi Cement Corporation - India
- Central Java Power - Indonesia
- Sarangani Energy Corporation, Philippines
- Madhucon Powers Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Energy Link Ltd, New Zealand
- PowerSource Philippines DevCo
- GAC Shipping (India) Pvt Ltd
- Posco Energy - South Korea
- London Commodity Brokers - England
- International Coal Ventures Pvt Ltd - India
- Sakthi Sugars Limited - India
- Parry Sugars Refinery, India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Maharashtra Electricity Regulatory Commission - India
- Sical Logistics Limited - India
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