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Letter of Indemnity – Container Carriers

Jagan - April 26, 2020 - 0 comments

  1. Due to the present lockdown’s in many jurisdictions, there have been many requests made to Container Carriers (“CC”) to release cargo’s without presentation of Original Bills of Lading  (“Bs/L”) given that the documents are still in transit due to courier issues. Instead of the Original Bs/L, the cargo interests are willing to provide a Letter of Indemnity (“LOI”) / Bank Guarantee till such time the Original Bs/L is surrendered. We had earlier written on the issues related to release of cargo against a letter of indemnity/bank guarantee and also spoken on the same topic. We are revisiting this topic, but our intention is not to repeat what we have stated earlier. In the new world which we all are entering into and perhaps the lockdown is a catalyst, we anticipate the increased use of electronic platforms / processes for the various documents / information flows. This would in turn lead to the increased use of LOI’s being provided to the CC’s by the cargo interests.
  2. The increased use of electronic systems in the document flows would be for the following:
    1. Remote printing of Bs/L and Delivery Orders
    2. Electronic Bs/L & Electronic Delivery Orders
    3. Electronic LOI’s instead of being provided in paper.If paper documents are still being used, then release of cargo without presentation of Original Bs/L, Change of destination and Switch Bills of Lading would continue to require the cargo interests to provide LOI’s to the CC to facilitate such transactions.
  3. We understand that cargo interests and their banks frequently negotiate the addition and / or deletion of some clauses of the LOI’s wordings to be provided to the CC’s and for which the CC’s consider this on a case to case basis. Given that there are obvious risks and administrative issues for individually negotiating the wordings of the LOI’s, we would suggest the use of standardized LOI wordings (which could perhaps become an industry standard). This will not only ameliorate the risks to the CC’s but also assist to reduce the administrative requirement to vet each and every request. Hence, we would suggest that CC’s seek assistance from the various national associations (such as Singapore Shipowners Association, Singapore Logistics Association, etc.) which they are a member of and / or their liability insurers to create specific standardized LOI wordings for use.
  4. We had earlier suggested that the wordings reccomended by IG P&I Clubs could be used by CC’s with suitable amendments for the release of cargo without original Bills of Ladings. We have also reviewed some of the LOI’s used by various CC’s and note that most of them provide for the use of English Law and Jurisdiction (as is also provided in the IG P&I Club LOI wordings). We would however prefer that CC’s relook at this clause (Law and Jurisdiction) as this may impede the easy enforcement of such LOI’s should this be necessary against the provider of the LOI’s. Additionally, if there is a potential for delays in the court processes, CC’s should then consider the use of an arbitration clause provided that it (arbitration) is easily enforceable. We would therefore suggest that the LOI’s provided to CC’s should be more crafted to the specific jurisdiction where it would need to be enforced rather than having a “one size fits all” which is generally the case now.
  5. LOI’s to facilitate use of electronic processes (EB/L’s and ED/O’s) would also be a given and should be included in the processes and with the administrative costs hopefully being provided for. However, release of cargo against a LOI/BG in the absence of the original Bills of Lading would not only put the CC’s on risk for at least the value of the cargo but also lead them to incur administrative costs maintaining a process till the OB/L’s have been surrendered to ameliorate the attendant risks. Given that costs are being incurred by CC’s, we believe that it would be in order for them to charge for these costs, if they are not already doing so, at least on a cost recovery basis, so that they are not out of pocket. In this regard, we do understand that some CC’s do charge their clients for use of a LOI/BG to release cargo in the absence of an Original Bills of Lading.
  6. To conclude, it would be best if CC’s
    1. approach their associations/liability insurers to assist in the creation of standardised wordings
    2. consider LOI wordings depending on the jurisdictions where they may need to be enforced
    3. consider charging for the use of LOI’s at least on the basis of costs recovery.

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