Storage and Throughput Agreements
Are scheduling obligations clearly set out? Must the terminal accept your vessel on time? Is the storage operator liable for any resulting demurrage or idle time? Are loss and shrinkage ratios acceptable? A well negotiated agreement can make the difference between a profitable trade and critical losses
One storage agreement typically will support the flow of goods under several sale-purchase contracts and, accordingly, may affect a number of trades.
Let us first consider the term ‘throughput agreement’, which is often used in the commodites industry. This type of contract typically requires the customer to us a facility (a warehouse, tankage or a silo) for a certain quantity of product. If the client underutilises the facility, there is usually a separate fee payable. The term ‘throughput agreement’ is more often used by reference to the oil trade.
Next, we should note a distinction between ‘in-land’ warehouses and port terminals. The role of in-land warehouses will differ: these can serve as ‘ex-works’ facilities operated by producers or as accumulation points, blending facilities or for transhipment.
Typically, there is less standardisation among in-land warehouses and their agreements will vary to a considerable degree. In-land warehouse operators may be willing to consider making pro-customer amendments. By contrast, port terminals usually have templates with little scope for pro-customer amendments.
When it comes to port terminals, an item to consider is whether the warehouse is bonded (meaning that the goods can be stored without paying import taxes). A bonded warehouse may be of great help in arranging sales to smaller importers.
Next, one should consider the type of the warehouse document (to be) issued by the warehouse for the deposited goods.
Often the nature of the warehouse certficiate will have an effect on the rights of the customer against the warehouse.
For example, some jurisdictions draw a distinction between warehouse receipts and warrants. Typically a warehouse receipt is no more than evidence of delivery to the warehouse; whilst a warehouse warrant may of itself (irrespective of the storage agreement) give the holder the right to demand re-delivery from the warehouse.
Storage contracts are often prescriptive on determination of quality and quantity of the (re)delivered goods. Those provisions will be heavily weighted in favour of the warehouse. Yet, a scenario where a discrepancy between warehouse weights and receiver’s weights arise is not at all uncommon.
With reference to commingled storage (which is the normal case for many commodities), it is easy to see how one client’s cargo can be contaminated by another client’s cargo. For example, relatively recently such contamination has been alledged to occur with reference to petrol delivered to Nigeria on MT Nord Gainer. This may present a complex set of legal questions as to liability: whether liability is fault-based for any of the parties involved (including the terminal) and whether there are any grounds for tortious liability among the users of the terminal. In addition, where the client desires some type of inventory financing, commingled storage may prevent the lenders from taking security, with the resulting increase in the interest rate or outright inability to finance goods in storage. Accordingly, where possible, customers may prefer to negotiate segregated storage with the warehouse.
Depending on the contractual agreement, the liability of the warehouse for quantity, quality discrepancies, misdeliveries, loss of product can be either limited or excluded. At times, the agreements impose strict time bars and onerous evidential requirements. Naturally, these types of provisions must be carefully understood, and, if possible, negotiated.
