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. According to the Club, there are four main risks associated with delivery of cargo without presentation of original bills of lading:
- Mis-delivery of cargo,
- Insurance cover: liabilities arising as a consequence of mis-delivery are not covered under all P&I Club rules unless the Directors of the club in question otherwise agree,
- It is not certain whether the LOI will in fact respond in the event of a mis-delivery claim,
- Concerns about the creditworthiness of the party providing the LOI.
The Club notes the following key issues:
- 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 operators get the wording of the LOI right and ensure that proper procedures are in place to demonstrate compliance with the LOI
- Operators must also actively weigh up the counter party risk of accepting an LOI. An LOI is only as secure as the party providing it.
As it is understood, it is very important for owners to be very meticulous regarding their procedures of delivering cargo. 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.
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