The Challenge: A legal dispute arose between an oil trading company and oil marketing company over the value of a number of refined product transactions. Falling to reach an agreement the dispute was referred to the international court of arbitration and a consultant from JBC was requested to act as an expert witness with the challenge of calculating the theoretical replacement value of refined products including the costs of bringing the product to a discharge port.
The Solution: Using our 20 years of experience in calculating oil price values, JBC provided a report in which it modelled the value of refined products at the time of discharge at the port. The consultants then provided an expert witness report and testimony with which we assisted the court of international arbitration to come to a ruling. During the hearing the JBC expert witness underwent extensive questioning on the replacement value of the cargoes and the differences between invoices and replacement values which they were able to provide clarity upon.
Our Approach: In order to calculate the replacement values, JBC built a model based on certain parameters to derive a representative market price for a defined amount of refined products at the day of discharge at the discharge port. In order to cross check these assumptions JBC consulted trading sources, price reporting agencies and market participants. In this model JBC calculated from the discharge date the voyage time from the most nearby refining centre and arrived at an implied B/L date. From the implied B/L date JBC derived the assumed trade date. Using various adjustment factors, JBC’s consultant arrived at the FOB product value. Freight costs were then calculated by using published freight rates from the assumed trade date adjusted for the size of the delivery. On the basis of the FOB cargo value and the freight costs the consultant calculated the insurance costs to bring the products to the discharge port. Calculating the sum of the FOB product value plus freight and insurance the JBC consultant arrived at the replacement value of the product at the day of discharge at the discharge port.
The Outcome: The international court of arbitration was able to make a ruling on the cases under dispute and the judge praised the contribution of the JBC consultant and their ability to bring a high degree of clarity to a complex matter.