Grain Deliveries to China Hit Snag: North P&I Club

Posted by Greg Trauthwein
Thursday, January 07, 2016
Example of a DDGS color chart from the ‘Guide to Distiller’s Dried Grains with Solubles (DDGS)’ issued by the United States Grains Council. (Source: http://www.nepia.com/our-services/loss-prevention/signals-online/cargo/ddgs-to-china/ddgs-to-china-be-aware-and-be-prepared/)
A number of claims and disputes have arisen where cargoes of Distillers Dried Grains with Solubles (DDGS) originating from the United States have been rejected by Chinese receivers.
The cargoes were rejected on the basis of color. If the color of the DDGS is dark, the receiver may look to reject it. Incidents of this type were first reported in October 2015 but they continue to occur and it is apparent that a number of DDGS shipments have been affected.
 
The DDGS Trade
DDGS is used as animal feed and is a by-product of ethanol production. Predominantly maize (corn) crops – although other grains are used - undergo a process where they are fermented and the starch is converted to ethanol which is then distilled. The ethanol is usually blended with petroleum products for use as a fuel. The residues are then dried to create the nutrient-rich by-product.
The United States has been a major exporter of DDGS, much of it shipped to the Far East. The summer of 2015 saw record amounts exported to China. However, the trade was affected in the autumn when receivers became concerned that these imports would be the subject of an inquiry by the Chinese authorities.
Domestic bio-ethanol companies in China are understood to have approached the government with their concerns on cheap imported DDGS and that the government are investigating the matter with an ‘anti-dumping’ probe.  
The timing of this inquiry has coincided with the increasing number of rejected shipments to China. Typically, the cargo is rejected on the grounds of being too dark in color and therefore failing quality criteria.
 
Quality & Color
The international market places high importance on color, with different colors being desirable in different geographic areas. There appears to be a preference for ‘golden’ colored DDGS in China and other parts of Asia as buyers perceive it to be higher quality than the darker examples.
Due to the importance of color the DDGS market developed a 5-color scoring card. This allowed for specific color grades to be stipulated in sales contracts. An example of this grading system is shown in the chart from the US Grains Council guide on DDGS.
Although it is understood that this color scoring card is still used by some in the industry, many traders have stopped using it due to its subjective nature. Sales contracts now often contain a guarantee for an agreed measure of color, using colorimeters (color component measurement devices) such as Hunter or Minolta. This allows the product to be graded by three standard color parameters: its lightness, redness and yellowness.  However, it appears that many sales contracts tend to be concerned with lightness only.
It should be noted that color is not an absolute indicator of quality, but there is justification for its use in some circumstances. For example, dark colored DDGS may be a sign of heat damage. Heat damage can impact the nutritional content of DDGS which may result in poorer animal growth performance when used as animal feed. 
But DDGS may be dark in color not only due to heating but also due to other factors such as the nature of the drying process. The natural color of the feedstock can also affect the color of the DDGS. Blends of corn-sorghum DDGS are generally darker than corn derived DDGS.
Another influencing factor in color is the amount of ‘condensed distiller’s solubles’ added to the coarse grain residues during the DDGS making process. Increased amounts of solubles may darken the color as well as affecting the nutrient composition.
 
DDGS Quality Guidance
Unlike grain products, there are no formal international quality standards or grading system for DDGS. In the United States guidance is given by the US Grains Council (USGC). They advise that quality should be determined by parameters that relate to the nutrient composition and animal digestibility such as the moisture, fibre, fat, protein and amino acid content of the DDGS.
The USGC guide can be found here: http://www.grains.org/buyingselling/ddgs/ddgs-user-handbook
 
Potential Liabilities
Whether or not the dark color of DDGS is an indication of the quality of the cargo, it is apparent that the claims we have seen recently are pre-shipment issues. As such, the carrying vessel should not be found liable for the rejection of cargo on the basis of color only. It should remain solely a dispute under the sales contract between the seller and buyer.
But even where the carrying vessel is not liable delays may be experienced and costs incurred if any segregation and sampling of the cargoes is deemed necessary. Security may be demanded for a significant sum. If security is not provided then there may be attempts to arrest the vessel.
 
Heat Damaged Cargo – Loss Prevention
When loading heat damaged DDGS it may be recognised by a burnt or smoky smell. This is in contrast with the sweet fermented smell of undamaged DDGS. If you are loading a cargo of DDGS and it smells burnt or smoky then seek further advice via owners or local correspondents immediately.
It is advised that cargo temperatures should be measured when safe and appropriate to do so, for example during gaps in loading or if the barges alongside are accessible. The vessel should maintain records of cargo temperatures, and any adjacent fuel tank temperatures, which will act as vital evidence if defending an allegation of discolouration through heat damage.
Vessels are further advised to ventilate the cargo holds appropriately using recommended ventilation procedures and that full records are kept.
 
Dark Color Cargo – Loss Prevention
In practice it is probably not possible for a ship’s crew to assess if the color of the cargo loaded will present problems at discharge unless it is clearly heat damaged. The difference in the color between an accepted cargo and a rejected cargo has been found to quite subtle in some instances. It is made even more difficult by the fact that DDGS shipments are rarely homogeneous and therefore darker cargo may be mixed or layered within light colored cargo.
The ship’s crew are advised to make best efforts to monitor the condition of the cargo during loading, paying particular attention to the color. In a number of cases, ships’ masters have been pressured by shippers and agents not to complain if a color difference is perceived during loading.  However, if there are concerns about the color, it is recommended that vessels consider seeking advice from a surveyor experienced in this commodity.
A series of digital photographs taken of the cargo as it is loaded may also assist in defending any unjustified claim. Even if the dust is obscuring the view of the cargo, it is still helpful to take photographs in order to demonstrate the poor visibility.
 
(Source: North P&I Club -- http://www.nepia.com/our-services/loss-prevention/signals-online/cargo/ddgs-to-china/ddgs-to-china-be-aware-and-be-prepared/ -- We thank Tim Moss of Brookes Bell Hong Kong for his assistance with this article)

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