By David Gambrel
With respect to shipment by sea does a coal shipper really know when or where its obligations end? If not, coal transporters should get the latest copies of Incoterms and Guide to Incoterms from ICC Publishing S.A. and read them before the first ship is chartered. They must learn where shipping obligations end.
This is not a short course on shipping terms, but a commentary on a much-ignored part of the charterer’s responsibilities: the discharge port. If one discovers that obligations do not end until their cargo crosses the ship’s rail, it would be wise to prepare for what might happen. A few illustrations are given to illustrate two basic tenets of chartering vessels to carry coal to a customer: know the discharge port and hire an agent in that discharge port who clearly has no conflict of interest with respect to the shipment.
A Genteel European Terminal with No Problems, Why Bother?
An executive might argue that they are not going to spend $5,000 or $10,000 to send a transportation manager to some foreign country. First though, they should ask themselves if they are prepared to spend many times that amount of money on discharge demurrage or ship damage claims, or if they are prepared for that yet-undefined money trap. If they are smart, the coal shipper is on the next plane.
It is reasonable to argue there should be no problems in a mild-mannered country like Denmark, but it is precisely here that the coal shipper is often dealing not with one country, but with at least two if it should have to arbitrate a dispute. The second country is represented by the ownership of the vessel, which may be different than the discharge port.
Consider, for instance, a coal company that had contracted to supply coal to a Danish utility on a CIF basis. The transportation manager travels to the location to inspect the coal terminal and to hire an agent to oversee the discharging of the vessels. The coal transporter did not arrive before the first shipload of coal was loaded, but as it was being unloaded in Denmark.
Shortly after being introduced, the terminal manager produces a round chunk of concrete about the size of a bowling ball. He said they had just unloaded it from the coal shippers’ vessel along with the coal. With the terminal manager sitting across his desk, the transportation manager called his mine manager, told him what had happened, and got his guarantee it would not happen again. In the terminal manager’s eyes this act established the coal company’s intent to correct problems quickly.
Shortly thereafter, a Danish agent was hired to look after the coal company’s affairs during unloading activities. The transportation manager naively thought there was not much he could do for the coal company except act as a point man in case more foreign material was found in the coal. The transportation manager thought it was important to have him act in that role, because the customer could see the company cared enough to have a representative there ready to call in case of problems. The agent, however, was far more valuable than simply being around for the terminal manager to see.
During the discharge of another shipment the agent phoned to inform the transportation manager about what was happening. The vessel’s master claimed the terminal had damaged one of the ship’s holds with its unloading equipment. He said they would be seeking compensation from both the terminal and the coal operator. The coal operator’s agent said he had inspected the hold damage, and it was rusted from previous damage. The transportation manager instructed the agent to tell the master that the coal operator knew the damage was old and his claim fraudulent. The vessel’s master chose to withdraw his claim rather than face the coal operator in the International Court of Arbitration.
The shipper’s agent at the discharge terminal serves at least two critical functions: He is the shipper’s representative with respect to the discharging operation and the eyes and ears of the shipper with respect to events that may cost the shipper money. Agents can also help coal shippers avoid discharge demurrage, but another variable enters the mix when the agent is not 100% devoted to the client.
Demurrage Situations & Conflicted Agents
If a country has terminals so configured that only a local shipping company has the right type of ships, coal operators should beware. The charterers have no choice but to select from one of their local shipping companies when they wish to charter vessels.
Shortly after arriving in Italy, a transportation manager asked to see the terminal that was causing the need for specially-designed (narrower than usual) vessels. The coal operators’ agent conducted a tour of the terminal, which appeared normal in every respect except one: the unloading boom
was shorter than usual. When asked about lengthening the boom, the agent began to give the manager the runaround, not a good sign.
The agent had introduced the manager to one of his friends at lunch. It turned out later his friend was part owner in a steel plant that used the same terminal for its coal imports as this coal operator would use for its power plant imports. The transportation manager was uncomfortable, but not enough to act on it.
When the first shipload of coal reached the terminal, the coal operator was notified the “notice of readiness” had been tendered and accepted. Everything appeared to be in order. A few weeks later, he received a bill for about $70,000 in demurrage. He immediately called his agent and asked what had happened and was told another vessel had actually reached the terminal first, which conflicted with what he had been told earlier. The transportation manager demanded to see the “statement of facts,” which he reluctantly sent, written in a foreign language.
The transportation manager’s vessel had been held at anchorage so another coal ship could be brought around it, headed for the steel plant. His agent explained the utility would pay the cost, and would never know what had happened. It quickly became clear the agent was doubly conflicted. He was working with the shipping company to profit his friend that owned the steel company. The coal operator refused to go along with the scam and asked for a “statement of facts” for every future shipment.
A New Business “Opportunity” Abroad
Another coal company once had an “opportunity” to bid on a large coal supply contract to a Caribbean island utility, but it knew nothing about the utility or its terminal. The transportation manager was sent to check on both. The utility’s coal buyer described how to get to the terminal, but would not bother to take him there. It turned out there was nothing resembling an actual terminal, but simply a seaside location where cranes unloaded vessels with questionable cargo. He also noticed that the hotel air-conditioning went off every day at about 4 p.m., and hundreds of diesel-operated home generators would begin polluting the air of the city.
The next morning he went to the American Embassy and related his concerns to the commercial officer. She said everything was related to the fact that the government was not paying its bills. The utility couldn’t even pay the state-owned oil company for its fuel oil and it had cut off shipments. Another coal company had also cut off shipments.
The decision was obvious: doing any business with that country would be the beginning of many unwanted problems and aggravation. He called headquarters and recommended they “no bid” the deal. The executives agreed. The economic conditions that led to the decision continued to fester in that island nation.
It would be unwise for a coal transporter to simply sit in an office and expect others to handle the business. More than one career has ended when chartered vessels start racking up charges for demurrage and other problems. Several trips abroad might be required to understand new or unproven customers, even if they have well-known names. For those charged with the responsibility of chartering vessels and making foreign coal deliveries go smoothly, they must inspect the foreign discharge ports. No one else will do it for them, and they will be blamed if things go badly, especially if they were unprepared to avoid it.
Gambrel is president of Logisticon, a coal transportation consultancy. (E-mail: email@example.com)