What's in store? Exploring issues in commodity storage and warehousing


As demand for storage capacity for the world's most commonly traded commodities grows, governments and major private commodity trading companies are investing heavily in warehousing and tank capacity.

Storage space is a real issue for any physical commodity that is not consumed or processed immediately such as grains, sugar, metals, coal, oil and petrochemicals, and natural gas. For such commodities, stockpiling in storage facilities permits greater flexibility of supply when production is disrupted, where there is an increase in consumption or simply to give the party storing the goods an opportunity to take a strategic position when the market price moves in the future.

Storing commodities gives rise to a number of risk issues depending on the physical characteristics of the commodity and the legal and regulatory environment of the storage location. Natural gas, for example, which is often stored underground in depleted reservoirs, is subject to extensive regulation in many jurisdictions. Oil and oil products stored on vessels offshore are subject to certain unique risks and there is an ever-growing body of regulation over both health and safety risks relating to certain bulk commodities. However, some common risks and particularly the legal issues that these give rise to are readily identifiable: protecting ownership rights, granting or enforcing or effective security over stored goods, obtaining appropriate and adequate insurance cover, mitigating and avoiding — where necessary — environmental risks and determining and computing liability for loss or damage.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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