Shipping Contract Changes Under Legal Review: Fmg

Shipping contract changes under legal review: FMG

FORTESCUE Metals Group’s plans to renegotiate its shipping contracts have resulted in ongoing discussions with shipping companies and could also trigger legal action.

The company said this morning it was continuing to review its shipping contracts and would be using all “appropriate legal mechanisms” to sort out the disputes caused by the process. understands one Asian shipping company has begun legal action against FMG in the United States over the suspension of the shipping contracts.

The Perth-based miner said today it had sought legal advice prior to taking its decisive action under the contracts and would continue to take legal advice over the issue.

Each of the 10 contracts it was looking to change has been suspended, and the company is now working with the shipping companies to renegotiate shipping rates.

Meanwhile, shipping to FMG’s iron ore customers continues.
The collapse in global shipping rates in the past few months saw FMG suspend its long-term shipping contracts in early December in favour of a free-on-board regime.
FMG, which only began mining at its Pilbara operations this year, was selling around two-thirds of its product into China (cnmining) on contracted negotiated freight (CNF) or cost and freight (CFR) terms.

Under this system, FMG was responsible for supplying the ore on a landed basis into China, including shipping costs.
The company locked in its rates when shipping costs were at around $US50 per tonne earlier this year.
At the time, FMG was making money on its shipping book, but with the collapse of freight rates down to nearer $5/t these costs have bitten into its bottom line.

It is not clear how much it may have cost the miner, although media reports earlier this year suggested it could be in excess of $A100 million.

The miner now wants two-thirds of its sales to be shipped free-on-board – meaning the mills arrange and pay for their own freight.

While a third of FMG’s sales would still be shipped CFR, the rates on these ships will also be renegotiated to reflect current market shipping prices.

It was not clear if there would be any financial or other penalties for pulling out of the contracts with the shipping companies.

Suspending the contracts would have no impact on FMG’s marketing or its sales volumes, the company said at the time.

Shares in FMG were down 19c or more than 7% to $2.44.


Post Author: mark

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