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Higher E-bill of lading penetration leads to lower Letter of Indemnity proviso in global maritime trade

To the proverbial question on ‘Will the use of E-bills help?’ UK P&I club has responded in affirmative by saying that increased use of electronic bills of lading has reduced the risks involved in loading and discharging of cargo in the international trade.  In contrast to paper bills of lading, the risk of an E-bill not being available at the discharge port to enable cargo discharge is, on the contrary, remote, and the parties who have embraced electronic bills have commented that as a consequence, the number of LOIs issued has dropped dramatically, the club has said.

Seamless KYC of importers

This being the case, the risks of mis-delivery are greatly reduced. The “closed” nature of electronic bill of lading systems also assists in establishing the identity of a party taking delivery of the cargo.    The practice of delivery of cargo without presentation of original bills of lading is very familiar, and so far as paper bills of lading are concerned, is here to stay. However, mis-delivery claims do arise which must be dealt with without support of insurance as well as with the uncertainty of whether an LOI will effectively protect the shipowner in the event of claim. It is therefore crucial that Owners remain vigilant with their procedures for delivery of cargo as well as with regards to Charterparty clauses and LOI wording. If in doubt, Members should seek advice from the Club.

It is common in a lot of trades, whether bulk or oil, to accept a Letter of Indemnity (“LOI”) for non-production of bills of lading. Although it is commonly accepted in many trades, the consequences of non-performance can be extremely serious for Members.  P&I cover is prejudiced if cargo is delivered against an LOI and claims arise where the cargo is mis-delivered.  It is absolutely essential that Members get the wording of the LOI right and ensure that proper procedures are in place to demonstrate compliance with the LOI.  Members must also actively weigh up the counter party risk of accepting an LOI. An LOI is only as secure as the party providing it.  The Zagora is the most recent English High Court case which considers the issues arising from the non production of an original bill of lading

Delivery of cargo without presentation of an original bill of lading, although not recommended, is a reality of international trade. Delays in the documentary chain, and onward sales of the cargo while it is in transit, often means that original bills are not available when the ship reaches the discharge port. When this occurs, the carrier invariably agrees to deliver the cargo in consideration of receiving a Letter of Indemnity (LOI) from their charterer/ receiver. In many cases, a delivery of cargo in this way will proceed without incident. However, whilst the practice is familiar, familiarity can sometimes lead to complacency. It is therefore important to remember the risks involved in such operations and to act cautiously in order to minimise risks to shipowning interests. Risk Focus There are four main risks associated with delivery of cargo without presentation of original bills of lading.

 


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