November/December 2011
Private inspection firms can prevent or settle disputes between scrap buyers and sellers by providing an unbiased look at the shipment in question.
By Nancy Mann Jackson
Imagine that your company exports a shipment of 4,000 mt of heavy melting steel to an overseas customer. When it arrives at the destination port, your customer says the shipment only contains 3,000 mt of steel, and that’s all the firm will pay for. Do you accept the customer’s claim and forfeit the difference? Do you argue your case and demand payment for the full load you say you shipped? Neither approach is ideal. The first might leave you distrustful of the customer; the second could be costly and take months or years to resolve; and either approach could end the relationship between the two companies.
There is another option: You can get a third party to settle the dispute—a private inspection firm or assay company. These firms, which include internationally known companies such as Alfred H. Knight (St. Helens, England) and SGS North America (Rutherford, N.J.) as well as smaller companies on nearly every continent, can act like umpires or referees of the sales transaction, providing an independent, knowledgeable assessment of the physical characteristics of the shipment. “Private inspectors can be valuable partners,” says Robert Stein, vice president of nonferrous marketing for Alter Trading Corp. (St. Louis). As unbiased parties without a stake in the outcome of the transaction, “they can analyze a scrap metal shipment to determine its components and provide a qualitative or quantitative report that all sides can accept.” Private inspection firms provide a variety of on-the-ground services that can help prevent or settle disputes between sellers and buyers.
Beyond Government Mandates
Most scrap exporters are familiar with the inspection requirements of countries such as China and India, but private inspection services are entirely different, Stein explains. “The inspections required by the Chinese government and Indian government are mostly concerned with making sure shipments comply with the environmental regulations of those countries,” he says. The China Certification & Inspection Group (CCIC), for example, typically performs a visual inspection at the scrap loading site to ensure the shipment does not contain prohibited material. So long as the shipment meets the legal requirements for that country’s imports, those inspectors “are not concerned with the weight or quality of your scrap,” Stein says. Rather than serving as an approval or denial for shipping, private inspections serve as reliable, independent reports of certain characteristics of the shipment, Stein says.
Scrap sellers might use a private inspection or assay company’s services for several reasons. Sometimes a customer will request that the seller verify a shipment’s contents prior to shipping. An inspection firm can confirm the shipment’s weight, supervise container loading, and/or sample and assay the contents, then provide the seller and buyer with a written report of its findings. This sort of verification is more common when a scrap seller is working with a new customer. With longstanding customers, such assurances usually are not necessary, says David Chiao, vice president of Uni-All Group (Atlanta). “We deal mainly with suppliers and customers that have been doing business with us for years, so everyone has a good relationship and trusts each other,” he says. “Our customers don’t usually feel the need to ask us to verify shipments.”
Private inspection firms also can help scrap sellers and buyers resolve disputes, such as when a customer questions the quality of a shipment once the material has reached its destination. Private inspection companies “can be very useful when there’s a lot of variability in the quality of a shipment” or in the recovery of a particular metal, says Rick Dobkin, vice president of sales for Shapiro Metals (St. Louis). For example, if you have a process that generates copper residues that can range from 25 to 50 percent copper, “it is good to have an inspector assay the load,” he says. In such cases, the buyer and seller might contractually agree to abide by the inspector’s findings. Typically the seller will bear the cost of the inspection, Dobkin says, though the buyer and seller could negotiate other terms. The scope of the work will depend on the circumstances surrounding the inspection. “He is there to represent whoever has hired him and to do whatever he’s asked to do, within his knowledge set,” Stein says. As it would with pre-shipment inspections, the firm might weigh the material or supervise the drawing of a sample and then assay its contents, Stein says. If the inspection involves taking a sample, the inspector typically will retain one portion, give one to the seller, and send another to the buyer, he says.
Because inspectors’ reports are sworn statements that can influence contracts and financial transactions, private inspection firms always do their work in person. “They won’t generally accept a photograph of the shipment; they need to be there doing the field work,” Stein says. “They won’t guarantee anything they haven’t viewed or witnessed for themselves.”
Choosing an Inspection Firm
When selecting a third-party inspection company—especially to settle disagreements between the buyer and seller—it’s important to choose a firm without loyalties to either party that will offer an objective report. Dobkin recalls an instance in which a European customer disputed the quality of a scrap shipment from his company. Both sides agreed to use an inspection firm the customer recommended in its home country. In the end, the inspector’s results “were in line with what the customer thought,” Dobkin says. In retrospect, his company’s executives wondered whether loyalties to the local scrap buyer influenced the inspection report, he says, because his company usually does not have quality issues with its shipments. “I don’t know how objective it was,” he says. “If we did it again, we probably would use a different company for the inspection because you want to find somebody who is as independent as possible.”
In addition to looking for objectivity, these scrap traders recommend looking for a firm with expertise in the type of material you ship. Some firms have experience with ferrous and nonferrous metals, others specialize in precious metals, and still others focus on other commodities. Also, consider choosing a firm that has a favorable international reputation, which gives the results more value, Stein says. “Their survey reports won’t be useful or trusted if the buyer has never heard of them,” he points out. Though some private inspection companies might ask to review a copy of the contract between the buyer and seller, Stein says that isn’t necessary and could even impede the inspection process. “If you want an objective view, the inspector shouldn’t necessarily know the details of the contract,” he says. The best inspectors will provide a reliable report whether they know the contract details or not. “Their reputation is on the line,” he says. “A first-class assayer isn’t going to say what you want him to say; he’s going to say what the shipment really is.”
Occasionally, a shipment is so different from what a seller promised that an inspection firm refuses to verify it, Chiao says. This happened to Uni-All when a supplier claimed that 38 percent of its shipment consisted of copper, and Uni-All’s internal sampling showed that the shipment was only 27 percent copper. The two companies agreed to hire private inspection firm SGS, but the company declined the job because it was “unable to certify the quality,” Chiao says. “After SGS declined to inspect the quality of the shipment, the supplier agreed to our report.”
Making Inspections Work
If you’re in a situation that seems to call for a private inspection, you can take steps to ensure the work goes smoothly and the inspection firm completes the job effectively. First, be sure the dispute or circumstance is one that an independent inspection can resolve. Sometimes customers request services his company can’t perform, says Ravindra Patel, president of Ravi Energie Group (Somerset, N.J.), which offers pre-shipment inspection as one of its international trade services. They ask him to verify “letter of credit requirements or agreements between importer and exporter,” for example, or guarantee that a shipment has no more than 2 percent impurities. “An inspection agency will take samples, test them, and mention in its certificate that the samples [consisted] of X percent impurities,” he explains, “but based on this result, to certify that the entire consignment will have less than X percent impurities is not always possible. … The importers [or] other parties can deduce their own results from the analysis of the samples.” Patel also notes that if an inspection requires a detailed description of a shipment’s contents, a facility with the workers and space for manual sorting or equipment for mechanized sorting makes the inspector’s job much easier, but not every yard has these features.
Clear communication is essential as well. Most inspection firms can perform an array of services, but they will only perform the services you hire them to do in any given situation. If you hire one to check weights, it will check weights; if you hire it as an assayer, it will assay the load, Stein says. “You have to know what you’re signing up for and communicate your requirements or the requirements of the buyer.” Ask questions, and read all information the inspection firm provides so you understand what the agreement covers and what is required on your part. In most cases, the inspector will provide you with a written report documenting the information requested.
Scheduling changes are another challenge when it comes to inspecting scrap shipments, Patel says. “After we book our dates, containers don’t arrive on time at the yard, [and when they arrive,] the scrapyard is busy loading other containers for some other dealer,” he says. Though scheduling changes might not be avoidable, inform inspectors about them as soon as possible so they can rearrange their schedules accordingly.
As you work with a private inspection firm—especially when there’s a dispute between buyer and seller—remember that in most cases, the inspector’s word is final. “If you [and your customer] agree to nominate an assayer, you are bound by his findings,” Stein says. Thus, if the inspector’s report contradicts your company’s stance, that could create financial liability for your company. For that reason, you might want to purchase insurance to cover any discrepancies. Though Uni-All rarely hires independent inspectors, the company does regularly buy insurance to cover its incoming scrap purchases. “We buy insurance in the receiving port,” Chiao says. “The insurance company will check the weight of a shipment, and if there’s any shortage that’s more than one-half of 1 percent, it accepts the insurance claim and pays us the difference.”
Nancy Mann Jackson is a writer based in Huntsville, Ala.
Private Inspection Services
Private inspection firms, also known as assay companies, can provide services to scrap buyers and sellers such as the following:
Pre-shipment inspection
Quality control, or ensuring that products conform to contractual specifications
Supervision of the loading process
Supervision of the discharge process
Inspection for defects
Investigation of damaged cargo
Weight determination of a shipment
Assaying a shipment’s contents
Representative sampling
Container inspection
Container sealing
Warehouse audits
Independent auditing
Independent certification of products
Shipment analysis
Certification of shipment
Photographic documentation
Private inspection firms can prevent or settle disputes between scrap buyers and sellers by providing an unbiased look at the shipment in question.