• THE-COFFEE-GUIDE.gif 
  • QA 043
    Question:
    What is the effective impact of NYBOT's August 31 2005 declaration of Force Majeure in respect of the port of New Orleans?
    Background:
    On August 31 the New York Board of Trade (NYBOT) declared all delivery notices issued for the port of New Orleans with respect to the September 2005 contract to be null and void, effective September 1st 2005. Some market reports referred to this announcement as NYBOT having declared 'Force Majeure' in respect of New Orleans. First of all we of course express our sympathy to the people to New Orleans and surrounding areas hit by hurricane 'Katrina'. At the same time however we would also like to understand better what exactly this means.
    Asked by:
    Exporter - Vietnam
     
    Answer:

    Rule 8.15 of NYBOT's  "Coffee 'C' Rules" states amongst others that where delivery or receipt of coffee is hindered by a cause beyond the control of the Deliverer or Receiver ('force majeure'), then such delivery or receipt shall take place by such date as the Board shall determine. Following the hurricane 'Katrina" disaster the Board determined that a situation of force majeure existed in the port of New Orleans and therefore declared all delivery notices issued in respect of the September 2005 contract to be null and void.

    The point here is that there is a seven-day delay between issuing a delivery notice, and making an actual delivery. Therefore, no actual deliveries had been made by the time the hurricane struck nor could the issuer prove that the coffee intended for delivery was still in good order, or even existed… No delivery could therefore be made, effectively rendering the notices null and void. This situation was resolved by the reversal of all already issued delivery notices by returning them to the issuing Clearing Members and re-instating the contracts the notices covered, effectively re-establishing the original 'open' position as if no notices had been issued.

    In order to allow sufficient time to trade out of the restored contracts, or issue delivery notices against them for a port other than New Orleans, the Board also extended the last trading day, the last notice day and the last delivery day for the September 2005 Coffee 'C' Futures Contract as follows: 

    1. Last Trading Day   September 28th 2005
    2. Last Notice Day  September 29th 2005
    3. Last Delivery Day  October 10th 2995

    In this manner the Board ensured that all September contracts against which New Orleans delivery notices had been issued could be liquidated in an orderly manner. In practical terms this leaves the original issuer of a delivery notice holding physical coffee whose quality and perhaps even existence remains to be determined, with any loss to be claimed from Underwriters. This arrangement therefore simply reinstates the situation that prevailed at the time the owner of the goods issued the delivery notice: the issuer was the responsible owner then and remains so at present.

    The Board also declared that no further delivery notices may be issued in respect of the port of New Orleans until the condition of the warehouses and coffee located there can be determined.

    Sad as the surrounding circumstances are, the Board's action is a clear demonstration of how force majeure can intervene also in importing countries, and how to deal with it effectively. For more go to www.nybot.com and look for "Coffee 'C" Rules".

    The London Robusta Futures Market (Euronext.liffe) considers that its rules are broad enough to ensure that market participants' interests are protected and that any trading is conducted in an orderly manner if a similar situation were to affect an authorised delivery port.

    NB: In January 2007 The New York Board of Trade (NYBOT) merged with  InterContinental Exchange (ICE) - see ICE Futures US at www.theice.com

    Posted 13 September 2005
     

    Related chapter(s):
    Related Q & A: