In the latest issue of North P&I Club’s loss prevention newsletter Signals, the Club advises on claims and disputes where cargoes of distillers dried grains with solubles (DDGS) originating from the United States have been rejected by Chinese receivers.
DDGS is used as animal feed and is a byproduct 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 cargoes were rejected on the basis of colour. If the colour 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.
Quality & Colour
The international market places high importance on colour, with different colours being desirable in different geographic areas. There appears to be a preference for ‘golden’ coloured 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 colour the DDGS market developed a 5-colour scoring card. This allowed for specific colour grades to be stipulated in sales contracts. An example of this grading system is shown in the below chart from the US Grains Council guide on DDGS.
Although it is understood that this colour 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 colour, using colourimeters (colour component measurement devices) such as Hunter or Minolta. This allows the product to be graded by three standard colour 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 colour is not an absolute indicator of quality, but there is justification for its use in some circumstances. For example, dark coloured 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. DDGS may be dark in colour not only due to heating but also due to other factors such as the nature of the drying process. The natural colour of the feedstock can also affect the colour of the DDGS. Blends of corn-sorghum DDGS are generally darker than corn derived DDGS.
A further influencing factor in colour 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 colour 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.
Potential Liabilities
Whether or not the dark colour 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 colour 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 Colour Cargo – Loss Prevention
In practice it is probably not possible for a ship’s crew to assess if the colour of the cargo loaded will present problems at discharge unless it is clearly heat damaged. The difference in the colour between an accepted cargo and a rejected cargo has been found to be 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 coloured 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 colour. In a number of cases, ships’ Masters have been pressured by shippers and agents not to complain if a colour difference is perceived during loading. However, if there are concerns about the colour, 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.
Click here to view the latest issue of North P&I Club’s loss prevention newsletter Signals.
Source & Image credit: North P& I Club
