The Shipping Law Blog
A Useful Guide to the World of Maritime Law

The Risks of Shipping Cargo Overseas

A reader recently got in touch with a problem related to the above, looking for some help. They, as a manufacturer of goods had received an order from an overseas company and shipped a batch of their product to a foreign country, in a container, with a container line. However, the buyer never paid for the goods and didn’t collect them either. The line was then claiming storage charges and they didn’t know what to do as the buyer wasn’t responding. 


Shipping lines will often charge this ‘container demurrage’ if goods are not collected and they must place them in storage. The cost can exceed the value of the goods in the container and you then risk the container being sold at a salvage auction to pay off the costs.

However, if your documents are all drawn up correctly you should not find yourself in the position where you have liability for these charges and no right to actually take possession of the goods. In giving some general advice on the matter to this reader I considered that a review of the processes at hand might be useful. The international transport of goods is risky, especially to new markets or customers, but often these new avenues of sales will open lucrative opportunities so it is all about minimising the risk. This can be done in four ways, as follows:

1. INCOTERMS
Ensure that your sales contract contains appropriate delivery terms. This can be easily achieved by selecting the correct INCOTERM (standard form international commercial terms drawn up by the International Chamber of Commerce) and using that in the Sales Contract. This determines who will do what and when the risk in the goods passes to the buyer.

You will probably want to just deliver the goods onto the ship in port (FOB) or may want to get them all the way to destination port in delivery country (CFR) or even direct to the buyer’s door (DDP). This avoids arguments about whether you have done what you should have done in respect of the transport of the goods.

2. PAYMENT TERMS
You should arrange payment terms that match the risk of default and value of goods involved. Rather than sending goods to a customer in a foreign country on 30 days invoice terms and then chasing someone you barely know for payment in a foreign country, you should use a Letter of Credit or similar system, whereby you can use respective banks to essentially swap the cargo documents (which will allow collection of the goods) for payment or a guarantee of payment.

This avoids the problem, especially in new business relationships, that a seller doesn’t want to release goods without payment and the buyer doesn’t want to give over money without having the goods. A common process is that the manufacturer brings the goods to port and puts them on the ship, the ship checks them and signs off a Bill of Lading confirming x goods received onboard the ship. The shipper gives the Bill of Lading to the bank, who then releases the funds from the buyer’s account and gives the buyer the Bill of Lading. They can then turn up at the discharge port and collect the goods.

3. CARGO CONTRACT
It is important to ship the goods on terms which allow the sales contract to be completed. For instance, if you send the goods off under a Sea Waybill (not negotiable) and the buyer doesn’t pay then you will have a problem, as the ship will only deliver them onto the named received. These Bills cannot be endorsed. Similarly, if someone pays you in advance and you ship on a non-negotiable Bill of Lading to the named buyer, this might cause a problem if they were planning on selling on the cargo (trading it) during transit, and endorsing over the Bills to another party. Making sure this is agreed in Sales Contract should avoid problems.

4. INSURANCE
Finally, as with everything, the best way to alleviate risk is to insure against it. If trading in new markets take out a form of export credit or trade credit insurance (protecting you against the buyer defaulting and leaving you with unwanted costs and losses). If shipping on, say, CFR terms, the buyer will arrange his own cargo insurance but you will arrange the transport and shipping of the goods. What can happen here is that you ship the goods and the buyer contacts you to say they are damaged, so refuses to pay for them or pays less than the contract price. You can’t claim the difference because the buyer has placed the cargo insurance and has the right to claim under that insurance. Of course they should then compensate you but this may not happen. There is a special type of cargo insurance – a Contingency (Seller’s Interest) Policy – you can take out to cover this risk.

A marine insurance broker will be able to advise on which coverage is most appropriate for your needs and whether individual voyage or annual policies would be more cost effective in your circumstances.


Image Credit: Time Caynes

Oil & Gas in the Falklands

 



Everyone will have noticed the increased tensions between the United Kingdom and Argentina recently in relation to the Falkland Islands (Islas Malvinas). First Britain was sending Prince William on a tour of duty there, then they were sending the new Royal Navy ship HMS “Dauntless”, and this week we heard that a whole Westminster committee is soon due to visit the Islands. Argentina has reported the UK to the United Nations for its ‘militarisation’ of the area and has, along with some of its neighbour states, blocked Falklands-flagged vessels from entering its ports.

Much has been made of the fact that this year signifies the 30th anniversary of the Falklands conflict and this has been cited as a possible cause of the ratcheting up of tensions in the region. However, it seems that the more likely cause is the dramatic change in the Islands’ value as an economic asset, after recent discoveries of generous oil deposits in the Isalnd’s waters.

In today’s Sunday Times (19 February 2012, Business Supplement, Page 2) they report new research from a City investment firm which shows that the Islands could generate a huge fortune from new oil finds currently beginning to be exploited / prospected by a number of firms: ‘THE Falkland Islands could eventually reap $ 177 billion (£ 122 billion) in tax and royalties from oil production … ‘ they report.

This figure represents almost $ 58 million income per head of population (currently pop. 3,100), an enormous income for the Islands where at present each resident pays an average of around $ 5,000 a year in taxes to the revenue (which is far exceeded by the cost to the UK of servicing and defending the islands).

Offshore Vessels

In the maritime industry today we often hear reference made to ‘Offshore Vessels’. So let’s look at  exactly what is meant by this, as vessels within this category are arguably more diverse in size, shape and operation than any other. 

     (Image Credit: Carl Tanzler)

Most people understand ‘Offshore’ in the maritime context to mean oil and gas rigs. However today it would be more accurate to describe it as the energy industries generally (encompassing both traditional oil and gas and new forms of energy generation at sea, like wave and windpower). Offshore vessels then include any vessels involved in these industries, as well as those involved in a few other very niche industries which occur entirely away from land (cable laying,  offshore dredging etc.).

Oil & Gas Vessels
Drillship
Semi-Sub
Rigs
Accommodation Vessels
Cargo Transporters
Platform Supply Vessels
AHTS
Guard Vessels / Patrol Boats
FPSO

Wind Farm Vessels
Construction
Engineer Supply

Other (Niche Offshore Industries)
Cable Layers
Pipe Layers
Offshore Dredging
Seismic Survey

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1. All content reserved copyright of theshippinglawblog.com 2015, unless stated otherwise. 2. Header image credit: Paul Gorbould, ‘Leader on Ice’ (Flickr). 3. This website is not intended to provide legal advice and is for interest only. The author does not guarantee the accuracy of any content and, as always, recommends that appropriate professional legal advice is sought by anyone requiring assistance with a shipping law problem. 4. If you have any ideas, recommendations or other queries in relation to the blog please e-mail me at webmaster@theshippinglawblog.com.