www.cl-

surveys.com WWW.CL-SURVEYS.COM

Inspection of (soft) commodities: theory and practices…

www.cl-

surveys.com

(i) CONUNDRUM : Trade contractual loading inspections should be a guarantee of quality. A guarantee of quality should be a guarantee against claims

(ii) INSPECTION TRADE PRACTICES – FRAMEWORK

(iii) INTERACTING FACTORS

(iv) WHAT THEN ? CLAIMING AGAINST INSPECTION COMPANIES…

(v) CONCLUSION - PREVENTION

www.cl-

surveys.com

CONUNDRUM….

A large part of the commodities trade, with regard

to inspections, is subject to a strict framework of

applicable rules. Trade associations such as the

Grain and Feed Trade Association (GAFTA), the

Federation of Oils, Seeds and Fats Association

(FOSFA), the Federation of Cocoa Commerce

(FCC), the Sugar Association, are strictly

supervising the accreditation of superintendents.

These associations issue stringent codes of

practice to their inspections that must be applied.

Sampling rules are very strict (i.e. the Gafta rules

124, i.e. the FCC rules 1.5.2015), meaning there

should be no space for inherent quality issues

being the cause of a transport claim.

www.cl-

surveys.com

Polling question

When you underwrite soft commodities (or intend to do it), do you condition your

agreement to deliver an all risk garantee to a loading quality and quantity certificate

by a first class inspection company ?

YES

NO

www.cl-

surveys.com

August 2016 – Argentina 52 000 MT maize loaded on board of the vessel - 10 980 000 USD

First class inspection company certificate at loading time « in spec »

+ SENASA inspectors (Gouvernemental agency for agri. Inspection)

= Clean on board BL’s

SPECIFICATIONS METHODS RESULTS

MOISTURE MAX 15% USDA STANDARD 14,82%

TEST WEIGHT 67 KG/HL MIN USDA STANDARD 75,40 KG/HL

DAMAGED GRAIN MAX 5% USDA STANDARD 3,40%

BROKEN MAX 5% USDA STANDARD 1,80%

TOTAL AFLATOXIN MAX 20 PPB USDA STANDARD < 20 ppb

AFLATOXIN B1 MAX 10 PPB USDA STANDARD < 10 ppb

VOMITOXIN MAX 2 PPM USDA STANDARD < 2 ppm

www.cl-

surveys.com

+ an excellent single deck bulk carrier build in Japan in 2013

+ a four weeks sea voyage without incident

= no claim…

September 2016 – Egypt

www.cl-

surveys.com

This is pure 理論 …!

練習 …

The 4 weeks trip became a 7 months nightmare and a 8 000 000 USD claim…

www.cl-

surveys.com

August 2016 – Brazil 5 762MT SBM (soya bean meal) GMO Free – 3 060 000 USD

First class inspection company certificate at loading time – certified and issued Non GMO certificate

max admitted limit 0,9%

= Clean on board BL’s

GMO Results in Brazil – Analysis performed by XXX

Place of sampling Type of sample Analysis method GMO Result GMO event found

XXX crushing plant (Brazil) Delivery of Soyabean

3342 trucks tested by XXX at delivery to the plant, representatives of 130,518.762 MT of soyabean.

Enzymatic test (Presence / Absence)

Absence -

XXX crushing plant Cracker point

Composite sample drawn by XXX at cracker point representative of 6,181.919 MT processed

PCR (Quantification)

0.34% RR1 RR2

Santos Port (Loading port) Soyabean meal - received from 27/05/16 to 30/05/16

Composite samples drawn by XXX at reception at SANTOS PORT, representative of 5,011.96 MT received

PCR (Quantification)

0.22% RR1

Santos Port (Loading port) Soyabean meal - received from 06/08/16 to 08/08/16

Composite samples drawn by XXX at reception at SANTOS PORT, representative of 5,049.38 MT received

PCR (Quantification)

0.88% RR1 RR2

Vessel loading Soyabean meal - Hold No. 2

Mixed and reduced sample drawn by XXX from hold No. 2 of the vessel M/V SAM HAWK at loading port – as per GAFTA 124 method, representative of 5,761.48 MT

PCR (Quantification)

0.82% RR1 RR2

www.cl-

surveys.com

20 days transport in sealed holds no GMO previously transported last 3 voyages…

www.cl-

surveys.com

September 2016 – France Another first class inspection company certificate at unloading time – GMO contaminated…!

= 598 000 USD claim…

www.cl-

surveys.com

Cocoa beans in container 174 Mt no transport incident

Abidjan December 2014 Jakarta February 2015

Export Regulation In Ivoiry Coast : Max 8% moisture Rule. 4.11.1988 Moldy 3,93% = Sound…

Moldy : 26,44%

Damaged beans : 69 Mt…

www.cl-

surveys.com

TIC SECTOR (Testing – Inspection & Certification)

« An elephant who like to stay in the shadow… » ! An important growth potential in a world in which…

• norms & regulation are more and more stringent and which is exponentially caring about

health and safety (Infant milk crisis in China, Fipronil eggs crisis in Europ,…)

PRODUCTS RECALLS CASES IN EUROPE OVER THE LAST DECADE

• middle class is increasing and consumption is exploding… specially in South East Asia

• developping countries shall more and more feed developped countries = more

commodities trade

About 60 billion revenue per year growth rate per annum 5 to 6% - average EBITDA 20%

www.cl-

surveys.com

A fragmented market in general…. But very concentrated market when it comes to (soft) commodities inspection

« all in »

Major players in the commodities market

COMPANY TURNOVER

(ALL ACTIVITIES)

EMPLOYEES IN THE WORLD

SGS (2016) 6,3 B$ 90 000

2000 OFFICES & LAB.

BUREAU VERITAS

(2016) 5,3 B$ 69 000 1400 OFFICES & LAB

INTERTEK

(2016) 3,3B£ 42 000 1000 OFFICES & LAB

OVER 100 COUNTRIES

PETERSON - CONTROL

UNION

NA 4 000 70 COUNTRIES

In concentration process : SGS, Bureau Veritas & Intertek bought 133 companies in the past 5 years for a total asset of 2 869 000 USD

www.cl-

surveys.com

Inspecting commodities… Three (at least) problematic situation…

Inspecting commodities… yes but according to with product

specification…?

Inspecting commodities … yes but according to which modus operandi ?

Inspecting commodities… yes but according to which reliality (human) ?

www.cl-

surveys.com

According to which product specification…?

(1) Countries regulation (examples : temperature of preservation for food based on

animal products or dangerous and hazardous commodities, safety microbiological

levels in food,…)

(2) Contractual rules (examples : moisture levels, proteïn content, fat content, foreign matters content, …)

(3) Normative level (examples : ISO norms about quality, United Nation FAO Codex Alimentarius…)

www.cl-

surveys.com

Polling question

As far as transport is concerned, what is the main issue to control in order to

refrain claims ?

VENTILATION

MOISTURE

TEMPERATURE

www.cl-

surveys.com

Remind the maize case from Argentina… › The Argentina Ministry of Agriculture allowed loading to 15% max moisture

› The first class inspection company certified that 51 000 MT were loaded with a

moisture level of 14,8%

› No water ingression during sea voyage

› Spot moisture level discovered over 15% at destination

Two problems :

For the intended voyage (winter Argentina to warm region and considering the voyage duration), max

critical moisture for the voyage was 14,5% Additionnal 0,3% enabled water migration in maize within hold

= mold & self heating process

Investigating in Argentina, we discovered detailed data sheet from inspection company : maize was loaded

up to 15,3 / 15,7% but the inspection company issued a certificate on average basis which enabled a

result complying with legal max moisture.

www.cl-

surveys.com

According to which moddus operandi …?

(1) Contractual rules (examples : Gafta 124, Fosfa April 2010, FCC April 2015, …)

(2) Normative level (examples : ISO norms about sampling methods, United Nation

FAO Codex Alimentarius…)

Countries regulation rules are rather silent regarding proceedings

www.cl-

surveys.com

INTERNATIONAL INSPECTION FRAMEWORK SOFT COMMODITIES

INTERNATIONAL GENERAL MARKET ORGANISATION

« NON RULED » (*)

• Livestock (ref. AMSA code)

• Fish food & marine ressource (IFFO)

• Fruits & vegetables (ref. FAO Codex Alimentarius and EOCD)

• Animal feed

« RULED » (*)

• Cereals & Grain (wheat, rice, maize, etc…) : GAFTA

• Oil, oilseeds & meals (soya, sunflower, etc…) FOSFA

• Cocoa FCC & CMA

• Cofee Regionals organisation (ECF,…)

• Sugar Sugar Association of London – Sugar Association (USA)

• Coton ICA

• Meat International Meat Trade Association

(*) by a general international non governemental common market organisation (others regionals organisation existing)

www.cl-

surveys.com

Rules edicted by those associations Accreditation of superintendents (& Laboratories)

Using non accredited superintendent will involve non recognition of the report Strict frame of professionnal ability, quality management, etc… Possible revocation of accreditation

GAFTA : abt. 450 (abt. 125) FOSFA : abt. 435 (abt. 110) FCC : abt. 26 In () : of which number of branches of the « top 4 »

Codes of practice for superintendents (& Laboratories)

Sampling (time of sampling, way of sampling, statistic representativity, sealing, etc…)

GAFTA sampling rule 124 FOSFA : sampling sheme April 2010 FCC : sampling rule April 2015

Preserving samples (in which recipient, in which condition, how long, etc…)

Cleanliness inspection (3 previous loads, odor and foreign material, compliance with stanadard – example GTP Coceral etc…)

Weighting (calibration of weighting means, ships tanks measurements, density, etc…)

Analysing (type of analytical method, etc…)

www.cl-

surveys.com

Trade associations

FCC

Federation of Cocoa commerce

ISO 2292 :1973

Cocoa Beans -

Sampling Rules

Parution date May 2015 February 2015

General Rules

Definition of Primary Sample

Small quantity of cacao beans taken at a

single position from a randomly Sound

bag (not damaged in transit or storage)

Small quantity of cacao beans taken at

a single position of the bag

Maximum size to be

represented by a sample

250 t for loading and discharge 25t on despatch and

200t on arrival

Rules for Primary Sample in

bags

Minimum of 30% of the Sound Bags must

be sampled

+ minimum of 300 beans/tonnes

Minimum of 33% of the Sound Bags

must be sampled

+ minimum of 300 beans/tonnes

Equipment for sampling in

bags

Must be done by a sampler, not precified Must be done with an open probe

with a rigid, robust stem and

sharpened as specified in the annex of

the document

Sampling rules for cocoa

beans in stationary bulk

Minimum of 300 beans/tonnes

+ 5 sampling points from each

wagon/vehicule containing up to 15t

Or

9 sampling points from each

wagon/vehicule containing 15 to 30t

Or

15 sampling points from each

wagon/vehicule containing 30 to 50t

Minimum of 300 beans/tonnes

+ minimum of 5 Primary samples

/tonnes

Sampling rules for cocoa

beans in bulk in motion

Increamantal samples (<1kg) shall be

taken across the whole section, of the

flow, perpendicular to the direction of

the flow, and at time intervals depending

on the rate of flow

Elementary Samples (not specified)

must be done across the whole

section, of the flow, and at time

intervals depending on the rate of flow

Equipment for sampling in bulk

in motion

With ordinary hand scoop or by other mutually

agreed equipment

+

If automatic intruments are used for sampling

the beans, they shall have a slot opening which

is at least 7,5 centimetres

With ordinary hand scoop or by other

mutually agreed equipment

+

Intermittent small samples during the

discharge

Sampling rules for discharge

from containers

When moving steam samples are unable :

The contents of the container should be

emtied onto the clean dry floor of a suitable

warehouse

+

The pile should not exceed 20 tonnes

+

he sampling point have to be selected as

appropriate to the shape and size of the pile

+

Incremental samples should be drawn using

suitable long handled sampling equipment

+

Not less than 9 sampling points by pile

When moving steam samples are unable :

The contents of the container should be

emtied onto the clean dry floor of a suitable

warehouse

+

The sampling point : bottom, middle and

top of the stack, after having mixed it

thoroughly

Equipment for mixte and

reduction

Not specified Must be done with a conical sampler as

specified in the annex of the document

Arbitration sample size « Minimum of 2kg » « 2kg is generally suitable»

Mark or Label of the Arbitration

sample

Shall state as much information as possible Must contain at least this information

Cocoa example : differences between FCC Code of practice and ISO Rules…

www.cl-

surveys.com

Remind the cocoa case from Ivory Coast… › The Ivory Coast Ministry of Agriculture allowed loading to 8% max moisture

› The inspection company certified that the moisture level was 7,18%

› No water ingression during sea voyage

› Spot moisture level discovered over 8% at destination

Three problems :

ISO rule n°2451 is only authorizing 7,5% humidity at destination (how is it possible to loose 0,5% during

transport …?! The only way : a transport claim)

Non fulfillment of the inspection company with the statistical representativity required by FCC rules (not to

say ISO rules…)

Application of the « average » rule to calculate the moisture : this a problem for transport as beans over

7,5%-8% are desorbing humidity in container favorising condensation & mold during transport

www.cl-

surveys.com

According to which reliability (human & market)…?

(1) When no rule : Inspection companies are pushing the rules by themselves… = problem of a very monopolistic market

(2) Human reliability : in some geographical areas, the price of a kg of cargo is the same as the wage of the attending

inspector for a day…(technical and deontology issues)

explaining most of the misappropriation cases

www.cl-

surveys.com

Examples of inspection « human reliability »

discrepancy without transport incident

but with transport claim… Commoditie Operation Type of

casualty Loss Causation

Sugar beet pulp pellets 2015 France to Japan

Pollution by wheat in violation with

Japanese Regulation

295 000 € No trade association rule The first class inspection company decided to create his own rule regarding tolerances misregarding

Japanese Reguation

GMO free Soya meal 2016 Brazil to France

GMO contamination of the product at

destination (free at loading)

598 000 USD Two differents first rank inspection companies at origin and destination not using the same analysis methods and

« house » method

Oil « often » Weight shortage - Loading inspection company using different density table than inspection company at

destination

www.cl-

surveys.com

CLAIMING AGAINST INSPECTION COMPANY…

Thoerically possible but practically very difficult :

4 companies are concentrating the most important share of the market. To claim against them = future trade

difficulties (notably in case those companies are also involved in governementals contracts)

Limit of liability as per General Sales Condition (applicable limit of liability is usually 10 times the amount of

fees invoices for the inspection)

Subject to arbitration rules of the trade association and generaly not to common law (very short notice to

notify the inspection company to an arbitration proceed in frame of the trade association rules)

www.cl-

surveys.com

Conclusion Soft commodities are perishable goods : quality date are evoluating with age of the cargo and loading quality inspection

is not providing an accurate information about potential life storage already consumed since production of the cargo

Quality specification will anyway evoluate during transport

A trade quality certificate is not to be considered as a garantee of suitable quality of the commodities for

transportation the « in spec » / « off spec » datas are differents for trading and for transportation

Concentrated market of the trade and same situation for commidities superintendent is involving an economic

subordination frame do not use TIC as a transport claim preventionist (or, in specific cases such as « third party

detention », there should be at least two different inspection companies involved – the first acting in the frame of the

financing contract and the second one acting to control the first one in the frame of the insurance contract)

www.cl-

surveys.com

Absolute prevention rules (« absolute » not always being very marketable…!)

Do not rely on a loading inspection certificate (even by a « first class inspection » company) to qualify a transport risk

Make your own risk analysis and require your own « in spec » values regarding humidity, fat contents etc… when not existing

in IMDG IMO Code

Do not accept « average quality result » but request « max / min values » for all controlled samples (average is the enemy

of risks minimizing)

If for any reason, you are asked to rely on an inspection company, then organise a « double inspection scheme » by a non

superintendent = « INSPECT THE INSPECTOR » (especially regarding third dentention contracts)

Feel free to contact us for any risk prevention advice/analysis commodities@cl-surveys.com (on no fees basis for short

risk analysis)

www.cl-

surveys.com

Some activity data

About 60 specialized surveyors : among them 75% senior + confirmed surveyors having previous experiences in the industry, logistic, at sea,…

Worldwide activities : about 25 own operated offices + partnership network

More than 50 000 cases managed for the last 25 years

Important experience in the field of commodities, perishable cargoes (abt. 50% our surveyors)

www.cl-

surveys.com

Surveys departments

Food products

Soft commodities

Hard commodities

Industry / heavy projects / Packaging

Chemicals

Nautical surveys – H&M

Rail & air

Thief & misappropriation

Livestock transport

International risks