On Friday November 24, 2023, at the Hotel Splendide Royal in Lugano, the Lugano Commodity Trading Association and Alma Impact AG held an event to discuss sustainability as a critical issue to the future of the Commodity Trading Sector. More precisely, to discuss the opportunities and the challenges that will arise in the coming years and the foreseeable impact on the demand and the operations, in the light of the “Carbon Border Adjustment Mechanism” law, a tax on imported carbon intensive products (cement, iron, steel, aluminium, fertilisers, electricity and hydrogen) recently introduced by European Union to avoid carbon leakage.

A heartfelt thanks goes to the speakers: Dominique Bruggmann from E&Y, Rumi Jahani from CarbonChain, and Simone Knobloch from Valcambi and to the moderator of the roundtable, the journalist Dimitri Loringett. This conference was also the last module of the ‘Certified Commodity Trading Specialist’ course recognized by the SAQ Swiss Association for Quality.

Press review

Materie prime, ecco la tassa UE per ridurre le emissioni (Corriere del Ticino – November 25, 2023)

CCTS program

Certified Commodity Trading Specialist (CCTS) – LCTA (2023 edition)

2024 dates and program to come soon.

On 23-24 June 2022, after the forced hiatus due to the pandemic, the Global Commodities Conference 2022 took place at the LAC in Lugano (Lugano Arte e Cultura). This is an international event organised by the Lugano Commodity Trading Association (LCTA) and supported by the following sponsors: Allianz, Banca Stato, Chamber of Commerce of the Canton of Ticino, Coeclerici, EY, Flame, HFW, Propeller Club – Port of Lugano, Swiss Trading and Shipping Association (STSA), Ticino Welcome and Zug Commodities Association (ZCA).

The event, which was attended by more than 250 guests, confirmed itself as one of the leading industry meetings with the participation of international trade experts, commodity traders, banking institutions and various other service providers. It is important to note that due to the pandemic, it was decided to invite above all local speakers with ties to Swiss trading hubs.

At the opening evening on 23 June, LCTA Vice President Roberto Grassi interviewed the well-known journalist Antonio Caprarica. With a speech entitled ‘Commodity Trading – the challenging geopolitical landscape’, the special guest stimulated the audience’s interest by referring to his diverse and enriching experiences in journalism in various parts of the world.

On 24 June, on the other hand, the day was opened by Matthew Bryza, US Ambassador, who gave his views on the current geopolitical situation with a focus on the conflict in Ukraine.

The day was then divided into three parts.

The first, entitled “Shipping and Logistic: Are we still sailing stormy waters?”; the moderator Michel’Angelo Piccinini (President, Propeller Club Port of Lugano) focused attention on the current dynamics of shipping after the difficult years of the pandemic, which have led to a limited supply of ships, an excessive increase in maritime freight rates, reduced activity of shipyards, and in general management difficulties related to covid19.

Among the speakers were:

Harris Antoniou, Founder & Managing Director, Neptune Maritime Leasing Ltd

Gemma Carbone, Business Development Executive, Ifchor

Andrea Organista D’Amato, Principal & Chartering Manager, Armator Shipping

In the second, ‘Compliance and sustainability in war and resource shortage times’, the focus was on the current geopolitical situation in order to understand the functioning of various trading and financial activities in this complex and volatile environment characterised by international sanctions.

Speakers included:

Sarah Hunt, Partner, HFW

Taylor Konkin, Head of Commodity Trading Audit EY Geneva

Deia Markova, Head of Trade Commodity Finance, SGCIB

Thomas Patrick, CFO, DITH.

This panel was moderated by Pietro Poretti, Director Economic Development Division, City of Lugano, who captured the most relevant and interesting aspects.

Finally, with the third panel, entitled ‘Commodities shortage and global economy’, the conference took a more global slant on the supply of raw materials.

Speakers included:

Marco Arrighini, Head of Southern Region, Allianz Trade Switzerland

Matija Barudzija, CEO, ENET Energy SA

Marco Galimberti, CEO, DP Trade SA

James May, Director Strategy, DITH

The panel was expertly moderated by Florence Schurch, Secretary General, STSA

With around 250 participants over the two days and with several outstanding speakers and moderators, the event was stimulating and offered participants excellent opportunities to exchange, compare and network expertise.

Given the appreciation of GCC 2022, the organisers are already thinking about the next edition.

On the occasion of the official visit to the City of Lugano of H.E. Wang Shihting, Ambassador of the People’s Republic of China in Switzerland, the President of the Lugano Commodity Trading Association (LCTA) Matteo Somaini had the opportunity to present the commodity trading sector active in Lugano, listing also the various commodities traded with China.

This exchange has made it possible to create long-lasting professional ties and important collaboration.

Article by Georges Hardegger, Account Executive Marine, International Trade, Logistics and Fine Art, IBC Insurance Broking and Consulting Lugano and Zürich

“Ever Given” or better “Never Get” indemnities for the delay in the global trade?

A few weeks ago everyone was talking about a giant of the seas carrying approximately 18’000 TEU, blocking hundreds of ships from traversing the Suez Canal, leaving (not only) the insurance market breathless and disrupting the world trade. A tremendous number of companies, various industries, ports and infrastructure across the globe are directly or indirectly affected by that event and therefore suffers financial losses.

What’s happened?

The “Ever Given” (about 400 meters in length, roughly the height of the Empire State Building) was caught in a sandstorm while crossing the Suez Canal, the crew was unable to steer the ship which deviates and stuck into the border of the Suez Canal.

Who is responsible?

Two SCA (Suez Canal Authority) official maritime pilots were on board at the time of the incident.  They were in charge to command the ship, taking over from the regular crew and the captain. Independent experts argue that their role is often a mere presence and the captain has the final responsibility. The Egyptians authorities are supporting obviously this understanding of the facts; the ship-owner is blaming obviously the sandstorm. Independent observers might suggest a combination of the causes. By the way . . . the Suez Canal’s own policies suggest it’s not to blame, even if its pilots were at the helm of a ship that ran aground.

The rescue

The 224,000-ton vessel, immobilized on March 23 within the Suez Canal was dislodged on March 29 by the force of several rescue teams with 14 tugboats and multiple dredgers at high tide. On Apr. 13, the “Ever Given” has been immobilized again: this time however by the chains of the Egyptian justice. It was seized by a court in Ismailia after a request of the SCA for compensations estimated initially at USD 916m, including lost revenue for the canal, USD 300m for the salvage (equipment plus 800 people that worked to free the ship) and USD 300m for loss of reputation. The Egyptian State did not say who would be responsible for paying the USD 916m in damages.

Currently the Egyptian Court rejected the request for release the “Ever Given” from arrest; it’s therefore still kept in the Great Bitter Lakes; additionally Egypt has reduced on May 8 its USD 916m compensation claim for the grounding of the Ever Given to USD 600m and then (May 26) to USD 550m. The SCA reduced the value of the required compensation by 40 % after they obtained the estimated financial value of the goods on the ship.

The rescue story is now over. The story for the Legal and Insurance Implications just started.

Damage mapping
There are different insurance sectors that are impacted such as

• Hull & Machinery (H&M)
• Marine & Cargo and
• Protection & Indemnity (P&I)

The Hull insurance covers the damage to the ship itself. These losses should be manageable. The Cargo insurance in place for at least a part of the 18’000 TEU (probably affecting thousands of insurance policies) provides coverage against physical losses and/or damage for the goods being shipped. Information’s received at IBC through own clients indicated that the ship had power at any time and the cooling system for the perishable goods operated properly. Damage to goods on the other 360 blocked ships (including 41 bulk carriers and 24 crude oil tankers) should also be considered. The Protection & Indemnity insurance provides protection to the ship owner/operator should their negligence cause damages to others (this might include claims against the ship’s owner from e.g., the SCA for possible damage to the canal and for loss of revenues, and separately claims for compensation from some of the owners of the delayed ships).
In short: the canal blockage will trigger a flood of indemnity requests by everyone affected. The salvage company which usually work on a so-called Lloyd’s Open Form basis and will claim a success fee based on the value of the ship and cargo; the Suez Canal Authority; the shipping industry; the charterers; the owners of the goods; the other 360 ships stuck in the traffic jam, etc. The insurers for cargo on board will in turn file claims against ship owners, who will turn to their insurers for protection.

The ship-owner of the “Ever Given” declared on Apr. 1 “General Average” following the work to re-float the vessel. The declaration of a General Average means that shippers will be required “to share the relevant expenses incurred in ship rescue”. The General Average terms are outlined in the shipment’s bill of lading and are covering a pretty long list of expenses, which include towing and salvors. Lost revenue for the canal, however, would probably not fall under general average declaration. The goal of this incredibly complex process is to share the costs of a ship’s rescue among all stakeholders. The mandated adjuster RHL (Richard Hogg Lindley) will determine now how much the shippers will have to pay. Currently RHL is getting in touch with all of the shippers that had cargo on board to obtain guarantee bonds from the insurance industry. If the cargo interests decided no not to buy an insurance coverage – although it’s a relatively cheap insurance – then a cash deposit is requested by RHL.

Even if the period of time that the canal was blocked was relatively short, it’s beyond any doubt that the mayor concern will be around the coverage for delayed cargo. We are not speaking about shipping delays of everyday items for customers around the world like garden gnomes – which are in short supply in England – or about flower pots, barbeques and garden furniture in short supply in Switzerland. We are speaking about container ships and tankers which were not in the position to deliver on time food, fuel, commodities, pharmaceutical raw materials and industrial goods to Europe. The same applies the other way round for goods from Europe to the Far East. The impact ranges from infrastructure projects to essential spare parts for the proper working of the industry. Not to speak about the 18’000 TEU which timely availability is compulsively necessary for the shipment of further goods.

Losses due to delays

The crucial point is that most of the cargo policies exclude coverage and therefore an indemnity for losses due to delays. Effectively specific marine insurance policies for delay to cargo are in place however usually for vessel shipping perishable goods such as fruit. Generally, for non-perishable cargo a delay insurance is not bought.

Most of the marine cargo insurance policies adopt the ICC (Institute Cargo Clauses), English law and practice is therefore applicable (e.g., the terms of the UK Marine Insurance Act 1906). These policies require “physical loss or damage” to trigger coverage. The ICC “A” excludes delay. Also, according to the Swiss General Conditions of Marine Insurance on Goods (GCMI 2006) States that the insurer is not liable for the consequences of seizure, confiscation or temporary seizure (quarantine) by government authority or power as well as delay, howsoever caused, in transit or delivery.

Cargo owners of non-perishable goods normally renounce to an expensive coverage for delays. The “Ever Given” case sets a precedent. It should be considered as an alarm bell. The current approach of ship-owners and operators should be seriously reconsidered. Risk Managers across all industries have to reconsider how to deal with such risks, at least partially not insurable and take appropriate actions. Beside additional marine clauses covering pure financial losses, other insurances like CBI (contingent business interruption coverages), TDI (Trade Disruption Insurance) or supply chain risk insurance coverages should be considered. It must be imperatively agreed that the insurance coverage will also be triggered by an event that is not limited to physical loss or damage. The focus has to be aligned on non-physical losses and on business interruption damages as a result of delay in the reception of goods.

On the “Ever Given” case there are objectively different liability situations with an incredible number of parties involved; at the end of the day everyone will try to recover from the party that is at fault.

Please contact the following IBC Insurance Broking and Consulting team members with any additional questions or to discuss further

Georges hardegger@ibc-broker.com – 079 341 38 76
Pascal timmermann@ibc-broker.com – 079 400 19 93
Piermichele bernardo@ibc-broker.com – 078 712 713 2

Article by Roy Grist and Yasser Muflahi, Squire Patton Boggs

It’s the end of the line for the London Interbank Offered Rate (LIBOR), the interest rate benchmark for many financial products since the 1980s. Sterling Overnight Index Average (SONIA), an alternative rate, will become the new benchmark of choice. Parties to contracts and their advisers will need to consider the implications of this for both new contracts and existing contracts reliant on LIBOR. What will the transition to SONIA look like and what do interested parties need to do now to prepare?

Background and LIBOR

LIBOR developed during the 1980s and originated from the need for a standard benchmark for interest rates across financial institutions. It is a measure of the average rate at which banks are willing to borrow wholesale unsecured funds and is calculated by using banks’ submissions of their inter-bank borrowing rates. Calculated on a daily basis and in five currencies, LIBOR is widely used as an interest rate benchmark and written in to an array of legal contracts and financial products.

In the period since 2008, when concerns emerged during the financial crisis about inter-bank lending rates such as LIBOR being artificially manipulated, many reforms to LIBOR have taken place and regulator scrutiny has increased. However, banks no longer fund themselves in the way they once did. This has meant that LIBOR is now sustained by the use of “expert judgement” rather than an underlying active market. The Bank of England and the Financial Conduct Authority (FCA) announced last year that LIBOR is “not considered sufficiently robust or sustainable given its widespread use”. As such, the publication of LIBOR rates is expected to cease after the end of this year.

SONIA and the transition from LIBOR

The Working Group on Sterling Risk-Free Reference Rates (RFRWG) was established by the Bank of England and the FCA in 2015 to oversee the transition in the UK to alternative benchmark rates for interest before the discontinuance of LIBOR. In 2017, the RFRWG selected SONIA as the preferred alternative to LIBOR for wholesale financial markets in the UK. SONIA is administered by the Bank of England and is based on actual transactions reported to it. It reflects the average of the interest rates that banks pay to borrow sterling overnight from other financial institutions.

SONIA is the preferred alternative to LIBOR because it is

• Founded on active, liquid underlying markets and therefore is a more accurate measure of the general level of interest rates
• Almost risk free, because it does not include any term bank credit risk or liquidity premium
• Suitable for use in around 90% of future sterling lending by value

In order to facilitate the transition to SONIA, the FCA has secured the agreement of banks which will continue to fund LIBOR until the end of 2021. Reliance on LIBOR after this will cause a number of issues; most notably, uncertainty over the legal position of contracts that refer to LIBOR rates. The Bank of England and the FCA are keen to avoid the risk of disorderly outcomes as a result of agreements continuing to reference LIBOR, with no permanent fallback provisions. As such, they have encouraged all stakeholders to actively progress the transition where necessary. The scale of the project should not be underestimated. The Bank of England reported in 2018 that LIBOR underpinned $30tn of financial contracts in GBP markets alone.

The RFRWG published a roadmap back in January 2020, which sets out various milestones, which need to be achieved to enable a smooth transition and ensure stakeholders are fully prepared for the end of LIBOR. The roadmap has been updated a number of times since, with the most notable recent update being, from the end of March 2021, LIBOR should no longer be used in any contracts relating to financial products that mature after the end of 2021. This means any new contracts entered into now which incorporate a reference rate should include SONIA or any other non-LIBOR alternative reference rate.

Relevance

These developments are relevant to all financial products and contracts that reference LIBOR. This will include finance agreements, commodity related agreements and indeed many other types of contract which have arrangements for payments which add interest. It will not be appropriate to simply swap SONIA for LIBOR because the risk free SONIA rate will typically be lower. Replacement benchmarks may therefore be set at SONIA plus an agreed “spread” to reflect that difference.

What should businesses do now?

Businesses effected by the transition from LIBOR to SONIA, with the help of their legal advisers, will need to:

• Identify LIBOR exposures and fallback terms (if any) within existing contracts and ensure they are adequate
• Obtain advice on how the transition from LIBOR to SONIA should be managed, taking account of the fact that SONIA is not a like-for-like replacement for LIBOR
• Update any impacted existing contracts accordingly with robust fallback language
• Ensure that any new contracts which incorporate a reference rate for the payment of interest do not reference LIBOR, but instead reference SONIA or another appropriate non-LIBOR alternative

Businesses should be taking action now to ensure that the end of LIBOR does not mean uncertainty about future obligations or entitlements to interest. Consider what contracts and which counterparties this is relevant to and seek advice on what might need to be done.