Loss control
In oil trading among many services we can see or hear about them is one called loss control. Older operators are well familiar with this service, while younger often fail to understand what exactly this is.
For the need of measurements, inspection companies are used. And for most of the times their accuracy is sufficient to keep the deal in the black. However, many times the exposure to bad results is such that it is wise to use extra service. Some call it loss control, some call it superintendents, some call it expeditors, regardless, having extra man in the field is always a good idea.
What exactly can such a person do that inspectors cannot? In plain terms, not much, they all use same methods and same calculations. The difference is in scope of work. Inspector’s work is to measure, calculate and report. And that is all he (or she…) cares about. Measurements and reporting. Nothing else. And in all honesty, you don’t want them to care more. Since once the inspector starts caring then the results would be biased. And that is destroying the credibility of the inspector. So here is the first reason why inspector cannot care about individual interests in a deal. They as a matter of facts, should not care at all!!!
Now, having this extra person in the field does change the whole thing, adding someone with a mission, with a mission to protect the interest of one party. How??? Well, in such a complex world as it is today, where time is measured in seconds, the pressure can lead to cutting corners or to unwanted errors. Inspectors are very often overworked and stressed out and can easily overlook something or simplify methods to save time or effort. Errors produced from these short cuts can sometimes be beneficial to the client, but many times are not. The cost can be minimal, not even big enough to raise an eyebrow, but can also be just short of catastrophic sometimes. Extra person will definitely be few steps ahead of the game, checking the plans and processes that will be used in the operation, and making sure everything is done right and in order to prevent any issues for the client. Even if the name says loss control, the work is not just volumes, it should not be. The work is to follow quality issues, to follow timesheets, pumping logs, COW procedures and basically, to follow or foresee the whole process and to make sure all goes as should. If some of the processes are not planned to be done as per standard, the expeditor will insist in the field that such a process are included in the operation or he will bring the issue higher in the system, in order to prevent possible issues.
Not just measurements, like mentioned before, sampling, witnessing of analysis, checking paperwork, use of safety gear, pollution prevention, basically making sure all is done in accordance with international rules and standards.
Services that a good Loss control and expediting company can provide are:
- Supervision of Loading Operations
- Supervision of Discharge Operations
- Loss Control Operations
- Ship to Ship Transfers
- Cargo Oil Tanks / Holds Cleanliness Inspections
- Blending Operation Supervision
- OBQ and ROB surveys
- Loss investigations
- Terminal Inventories
- Contamination Investigations
- Load to discharge port voyage attendance
- Due diligence inspections on terminals
Good loss control expeditor in the field can easily reduce losses for 0.1% and more on many occasions.
It might not seem a lot but, if you think that 0.1% on a VLCC is 2.000 bbls or abt 130.000 USD on current levels. And sometimes the difference can be from 0.4% losses to 0.15%. Then such a service makes even more sense.
The main issue with loss control is lack of understanding of the service, not just by operators themselves but also by traders and accountants. This service is investment, it is not expense! This is hard to understand, that few thousands spent on this service will generate a lot more of revenue later in the process.
Above VLCC can have a value of cargo in the region of 130 mio USD. Expense of 7 or 8 or even 10.000 USD for the expediting service can seem high. But the problem is that this is always seen as extra cost. The understanding that investing 10k into loss control service can bring extra revenue on sales in the region of 200k is the hard part. And proving it? That is a challenge sometimes. Since sale of the cargo will always generate those 130 mio, few 100k more or less. How to pinpoint which 200k belongs to the extra volume loss control generated. That is the main issue in the understanding of the service.
The only way to evaluate the service is, to use statistics. 5 cargoes without the service and another 5 with it. Then the difference can be evaluated.
It does require some thinking and effort. And a lot of times no one is willing to sacrifice the extra work or effort to get into it. And it is a shame, because a lot of barrels on the high seas are measured incorrectly and they are representing millions of USD lost to their owners.
It is a service which is not needed on all the deals and it is a service which can be of little value on some others, but if selected properly can bring savings into millions. Oil industry should try to understand this service better. It will pay back for sure.
Thanks Maja Berdnik for Sharing.
Maja Berdnik
PR - Marketing
email: operations@spectis.net
