The Documentary Arrangements For On-Sale Of Vegetable Oil Cargoes In Split Quantities

In the maritime trade with vegetable oil cargoes, the commodity traders frequently source large parcels from a few suppliers on FOB terms for on-sale in smaller quantities on CIF terms.
The commodity traders have two options for the delivery of split parcels at destination.
The first option is to ask the carriers to replace the original Bills of Lading issued to the shippers with new Bills of Lading for the split parcels. This option can be taken into consideration only in case of cargoes carried along long voyages that allow the commodity traders sufficient time to obtain the original Bills of Lading before the vessel`s arrival at the discharge port.
The carriers asked to replace the original Bills of Lading with new Bills of Lading at the time of vessel`s fixture should take into consideration the duration of voyage from the loading port(s) to the discharge port(s), the time necessary for the payment of freight and release of Bills of Lading to the shippers, the time necessary for the circulation of Bills of Lading in the banking chain and presentation of Bills of Lading for cancellation.
Singapore law case Samsung Corporation v. Devon Industries Sdn Bhd¹ provides an example of how things go wrong. In that case a commodity trader, Devon Industries bought a number of parcels of Brazilian soyabean oil on FOB terms from different shippers for on-sale in smaller quantities to buyers in Bangladesh on CIF terms. For the carriage of soyabean oil cargoes from Brazil to Bangladesh, Devon Industries voyage chartered the vessel "Dolores".
The parcels of soyabean oil had been commingled on board the carrying vessel. The total weight of cargoes loaded on board was 10,500 metric tonnes. The claim was made by one of the shippers, Samsung Corp. which loaded a parcel of 1,000 metric tonnes on 13 May 1993 and a parcel of 1,500 on 15 May 1993.
The voyage charter party stipulated that Bills of Lading would be released to shippers only upon the payment of freight which was payable within 5 working days after loading. However, Devon Industries failed to pay the freight in due time, causing a delay of two weeks in the release of Charter Party Bills of Lading to the shippers, who received the Bills of Lading by early June 1993. These Bills of Lading were marked "freight collect".
In the meantime, on 24/25 May 1993 the shipowner`s agents in Singapore issued new Bills of Lading showing Devon Industries as shippers and "freight pre-paid". The cargo of 10,500 metric tonnes was split in 18 parcels, for each parcel being issued a different Bill of Lading. All the new 18 Bills of Lading were tendered for payment by Devon Industries to CIF buyers` banks between 26 May and 16 June 1993.
When Samsung Corp tendered the original Bills of Lading on 15 June 1993 for the 2,500 metric tonnes cargo, Devon Industries did not pay.
The Singapore High Court said that the practice of splitting up bulk cargoes of vegetable oils for on-sale as smaller parcels and issuance of Bills of Lading for such split parcels, so-called "global Bills of Lading", "is perfectly in order" provided the original Bills of Lading issued to the real shippers have been previously surrendered to shipowners for cancellation.
The second option is to surrender the original Bills of Lading before the vessel`s arrival at the discharge port and ask the vessel`s agents at the discharge port to issue ship`s delivery orders to each buyer for his parcel(s). A ship`s delivery order should contain the carrier`s undertaking to deliver the parcel of cargo to the company specified in the delivery order. Provided the ship`s delivery orders comply with the provisions of section 1(4) of the UK`s COGSA 1992, the ship`s delivery orders could allow the commodity traders to on-sale the split parcels in CFR and CIF sale contracts. This option is provided in the Clause 10 of FOSFA Contract No. 54 (FOSFA Contract For Vegetable and Marine Oil In Bulk - CIF Delivered Weight) and Clause 11 of FOSFA Contract No. 81 (FOSFA Contract For Palm and Palm Kernel Oil Products In Bulk - CIF Terms) with the requirement to be accompanied by "non-negotiable or photostat copy of the relative Bill/s of Lading if required by Buyers".
A ship`s delivery order will entitle a CIF buyer to demand delivery of the goods to which the document relates and to sue the carrier if the goods are damaged. In the event of delays in discharging the parcels of cargo caused by the shore tanks, each buyer shall be liable only for his pro rata share of demurrage based on how much the quantity of his individual parcel bears to the total quantity of cargo on board the vessel. The section 3(2) of COGSA 1992 stipulates that:

"Where the goods to which a ship`s delivery order relates form a part only of the goods to which the contract of carriage relates, the liabilities to which any person is subject by virtue of the operation of this section in relation to that order shall exclude liabilities in respect of any goods to which the order does not relate."

by Vlad Cioarec, International Trade Consultant

This article has been published in Commoditylaw`s Biofuels Trade Review Edition No. 3.

Endnotes:

1. [1996] 1 SLR 469; [1995] SGHC 246