ICC Digital Library Forum

IMO ISM CODE FOR CARGO SHIPS OVER 500 TONNES

We would like to draw members’ attention to the news column of DC Pro today (9th August 2002) by Mark Ford regarding the requirement of IMO International Safety Management Code for a cargo ship of over 500 tonnes in order to enable successful cargo insurance claims. This has an immense impact for the banks that issue or confirm DCs and those banks that negotiate drafts and documents under DC, all of them holding the goods represented by negotiable transport documents as a collateral for the finance facilities extended to their customers.

NO VALID CERTIFICATES, NO GO!

In fact in order to leave the harbour a master must submit many certificates (more than those required by a DC from say Bangladesh!) to the port authority of the port of loading, such as:

Certificate of Class
Cargo Ship Safety Radio Certificate,
Cargo Ship Safety Equipment Certificate,
Cargo Ship Safety Construction Certificate,
International Load Line Certificate,
International Oil Pollution Prevention Certificate,
So on and so forth

in order to get the permission to leave the harbour.

The master must submit an updated list of crews on board to ensure there are no stowaways. The purpose is to ensure that the cargo ship is safe and sound for the contemplated voyage or venture.

In Hong Kong, for example, the port authority people told T. O. that they use the binoculars to inspect the ships on the fragrant harbour (the meaning of Hong Kong) to check the proper conducts and behaviours of the crew. Sometimes they may have bonus – finding some unusually behaviours and that may lead to breaking the smuggling operations of drugs or other dutiable goods, such as cigarettes and alcohols.

WHO ISSUES CERTIFICATES?

So a certificate of seaworthiness is not something new. It was there before we were born. These certificates are issued by various inspection agencies known in the maritime trade as “Classification Societies”, to name a few,

Lloyds Registry of Shipping of UK,
Le Bureau Veritas of France,
Germanischer Lloyd of Germany,
Registro Italiano of Italy,
Nippon Kaiji Kyokai of Japan,
Det Norske Veritas of Norway and
American Bureau of Shipping of USA.

Now we have IMO (International Maritime Organisation) mandatory International Safety Management Code for cargo ships over 500 tonnes to warrant seaworthiness (which means BOTH the cargo ship and her crew are fit for the sea voyage contemplated). We do not wish to go into more depths to point out that seaworthiness may not be the same as cargoworthiness.

Now some intelligent members may ask:

“Since these cargo ships have so many certificates already from Lloyds Registry of Shipping, etc., then why need a duplication from IMO?”

“Does this mean that before the birth of IMO ISM Code, all managements of cargo ships are not safe?”

These are good questions that we cannot answer openly here to avoid the sensitive information attached to our answers. We can only discuss this in transport workshops for bankers and traders.

Jeremy, this is another good example to show you that bankers should try to learn and update themselves for the changing transport practices to protect the interest of their banks and their customers.

www.tolee.com

We also predict that the first DCs that incorporate IMO ISM code should be from those banks that issue DCs with lengths at least four or more pages. Experienced bankers and traders should know which countries we are talking about.

www.tolee.com

[edited 8/11/02 2:52:57 AM]

T.O.,

One needs to draw a distinction between what knowledge a banker:
1. Must have, and is entitled to apply, in order to determine facial compliance in accordance with sub-Article 13a and, given my location, English law, and:
2. What knowledge it is useful for a credit banker to have where (s)he is carrying out some other function, e.g. providing assistance to an applicant in drafting a credit to meet the terms of an underlying contract/the applicant’s particular requirements or in drafting a credit where the bank is issuing the credit against security of the goods (‘trade finance’).

I agree in the case of 2. above, keeping abreast of developments in the transport industry is indeed useful, if not necessary, for a credit banker and certainly I have no objection to it. However, it would be a mistake to assume, for example, that:
A. All bank documentary credit departments provide assistance to applicants in drafting credits (other than pointing out any obvious technical -from a credits perspective- deficiencies in completed application forms);
B. All banks that have credit operations provide trade finance.

Certainly, for my own bank, I do not see this new development as being of any practical significance.

Jeremy

Jeremy,

TWO TIERS OF STAFF IN THE SAME DEPARTMENT WON'T WORK OUT AS INTENDED

You consider that for document examination, there is no need to update knowledge of other trade practice. But for providing trade finance services, including assisting the applicant to draft the DC terms and conditions, you admit that updated knowledge of transport and insurance practices is necessary.

We consider these opinions too idealistic and theoretical. They won't work in the practical word. We have two reasons for this:

(1) For cost savings in a highly competitive banking arena, it is not possible for a bank to keep two tiers of staff, one tier who knows the trade practice of other trades (trade finance department) and one who doesn't (document examination department).

Can a banker refuse to provide trade finance advisory services to an applicant or his boss and says:"Sorry! Go get this from another banker. I am not the right person for this job." He would lose his job just for this reason!

(2) Similarly if you are the head of bills department, can you give the same reply ("Sorry I don't know")? As the head of the department you have to know everything. Otherwise you will be replaced with the one who knows.

So in the textbooks your suggestion may work but not in the banks that squeece theri staff for more productivity.

www.tolee.com

[edited 8/12/02 7:12:50 PM]

T.O.

I disagree with your statement that a head of department must know everything. Larger banks may split their DC Dept. staff into specialist geographic areas. The manager may not be as knowledgeable on a given area as some of his staff, but he should know who to turn to for this knowledge. He may also have access to a legal Dept. within the bank. In this case he should know when to seek such advice. If he needs advice on Marine Insurance, the bank may have a broker who can provide this, but expert specialist information on insurance is unlikely to come from within the bank and likewise information on transport documentation. This does not necessarily indicate a difficulty for the manager, if he knows where to get the information, and more importantly, if he recognises the limit of his or his bank's knowledge on the subject.

Laurence

Laurence,

We agree that the manager may seek specialist knowledge on insurance and transport, as well as knowledge on other specialized fields, such as ¡§commodity desk¡¨ and ¡§China trade desk¡¨ in the bills department. Your point is understood and agreed.

WE ARE TALKING ABOUT DIFFERENT LEVELS OF KNOWLEDGE, THE BASIC AND THE SPECIALISED

Now let us clarify our viewpoint. When we say that the manager who is in charge of the bills department, (¡§however named¡¨ in his title, V.P., senior V.P., director, assistant director or manger), should know the basics in other trades as well as the changing practices. Before he is promoted to this supervisory position, he should have worked in different desks, as planned by the human resources development programme, to acquire an overall knowledge and experience on different desks and fields.

So we are talking about things that he should know. However, it is difficult to draw the line on the scope of these knowledge and experience. Beyond that he has to turn to specialists, experts or consultants as he has his own limits. That is why some banks refer to us their difficult-to-determine discrepancies, mostly about transport and insurance in the retainer package.

Take Jeremy for example, he knows law. So he can handle legal issues raised by his subordinates in the routine work within his own department, where he is the head. But when he meets some very technical legal issues, he then realises that he is not a lawyer and his legal knowledge has its limits. So Jeremy would refer to a legal counsel, whether internal or external, for advice.

Now we hope you understand that both you and we are right in our respective views.

www.tolee.com

[edited 8/14/02 4:52:46 PM]

T.O.,

For the sake of accuracy I would mention that:

1. I am not the head of any department, nor located in a ‘processing’ area (but a risk management and advisory area). The number of ‘subordinates’ I have is two.
2. Indeed it is the case that if I have any doubts, prudence suggests it or rules require it, I will refer to our internal lawyers.

Incidentally, in my experience, apart from a small number of major ‘city’ firms, most lawyers (around the world) seem to have a rather poor understanding of matters documentary.

Jeremy

Jeremy,

We could not have agreed more with your statement quoted below:

QUOTE

Incidentally, in my experience, apart from a small number of major ‘city’ firms, most lawyers (around the world) seem to have a rather poor understanding of matters documentary.

UNQUOTE

WHY SOME IN-HOUSE LAWYERS WON’T HELP

Some bankers grumble to us that due to internal rules and procedures, when they have problems and disputes in DC, they have to go to the in-house lawyers first. But most of the time the in-house lawyers cannot give any real help. Then external legal counsel may be recommended by the in-house lawyers.

The in-house lawyers, when asked why they cannot offer effective solutions, also grumble to us.

“Hey, T. O., before I joint this bank, I was working in a law firm. I only need to work on patient rights, which is my specialty. I do not have to take care of other laws, as they will be handled by other lawyers who are experts on those respective fields. When I joint this bank, I have to take care of everything. And I am not a super man.

My specialty is patent rights and nothing else. So I have to find out the answer from the reference books or to consult other lawyers whom I know as I have an obligation to provide answers to questions whether I know them or not. And if I am not luck, I have to provide some sort of answer anyway within a short time frame. So I would play safe and tell the enquirers not to do anything. That explains why they start calling me “Dr. No.”. For one reason, that is however good for me. This nickname can reduce the number of consultations and I can be more relaxed”

SOME EXTERNAL LAWYERS MAY GIVE OUT-DATED OPINIONS

Some (not all) of the city firm lawyers may give opinions but mostly out-dated ones, as they don’t keep updated with the latest ICC Banking Commission decisions. The worst thing we have experienced is that when the beneficiaries or negotiating banks finally come to us for rescue, the problem and disputes become more complicated due to missing the best opportunity to do the right things. So we have to work harder and more time would be spent. And customers start grumbling the costs. This is A never ending story. That is why to end up the time sheet disputes; we quote a lump sum package for peace of mind for us and our customers.

It is glad to see that some old customers will get smarter next time they have disputes. They will come to us first secretly to do the right things first. They will follow the in-house rules and procedures just for formality and they don’t trust them much. In this way they can save a lot of time and money.

www.tolee.com

[edited 8/14/02 5:32:44 PM]

T.O.,

Just in case you've taken my remarks the wrong way, I should stress they were only intended to apply to external lawyers.

Jeremy

Regarding the “never ending dispute” what knowledge a documentary credit banker should have on international trade and related industries, which seems to be the penetrating issue in all DC PRO FORUM discussions, I entirely agree with Jeremy.

I have found above comments re. experience with external/internal lawers as interesting. My experience is very similar. With very limited exceptions with graduated lawers, who work in operational departments (so actually not practising law) or very limited number of internal lawers with life time experience with L/Cs issues, my experience was always quite negative.

Pavel Andrle