WHEN INTERNATIONAL transactions take place, deals are not conducted on blind trust. There is often an independent party that inspects that deliveries are in order before participating banks release the funds used to purchase the goods. That's where the cargo-surveying and inspection companies come into action.

SGS is a world leader in the field of independent cargo surveying, inspection and monitoring. The company employs more than 30,000 people, operates in more than 140 countries and runs 392 affiliates and 1,291 offices. The company's annual turnover exceeds $2 billion.

The Russian unit in the worldwide operation is SGS Vostok Limited, which employs more than 400 people in 50 offices, including in Moscow, St. Petersburg, Nakhodka, Novorossiisk, Tuapse and other smaller towns.

Andrei M. Koval, business-development manager for the company, spoke to Russian Metals about logistical problems encountered by Russian metallurgical enterprises.

RUSSIAN METALS: In delivering their products to domestic or foreign customers, Russia's steel producers encounter logistical problems. Can you explain the situation for us?

ANDREI KOVAL: Before 1994, Russia's market for steel-industry products was quite chaotic. En-route cargo losses of 3 percent or more were common. Therefore, independent quality and quantity-control was virtually mandatory and was specified in most export contracts. Nowadays, the market is gradually getting more structured. Enterprise heads have come to understand the importance of having all the necessary procedures completed to ensure a deal's security, i.e. for the customer to receive the dispatched cargo conforming to contractual terms and intact.

I would name two typical problems: First, a cargo may wind up in the wrong place. This happens mostly due to waybill errors and/or negligence on the part of cargo-handling personnel. The second problem is cargo damage incurred during loading/unloading or during storage. These problems affect the suppliers and the customers. The market for steel-industry products is getting tough, especially given that world steel overproduction has reached 15 percent. This is a buyer's market – hence, quality is essential at all stages.

Independent surveyors can provide complete and reliable information about cargo, including how it was handled and, if damaged or stored in bad conditions, who is at fault. Clients can watch a cargo as big as the output of a metallurgical steelworks along the whole route on a computer monitor. At this moment, SGS is the only surveying company providing such services in Russia.

RM: Since April 2001, SGS Vostok Limited has provided cargo-monitoring services for the metallurgical conglomerate Severstal. This is the first time cooperation on such a large scale between a metallurgical combine and an international surveyor company has occurred. How is this effort going?

AK: Both parties in the project have taken it very seriously. We had only three weeks to prepare, and we managed to get the bulk of the database ready and tested, largely thanks to the excellent software Lotus Notes. We also organized personnel training. Since April of this year, we have been conducting independent condition control and verification of records in shipping documents at Severstal's dispatch cold-rolled steel sheet terminals at the rolling mill, and the merchant ports of Cherepovets and St. Petersburg. Practical results essentially boil down to preventing errors in waybills and labeling, damage reduction, improvements in inventory, storage conditions and workplace techniques at the terminals. Today we monitor more than 400,000 tons of rolled steel per month, and in the near future we will put the whole output of the main rolling mills under our monitoring.

RM: How can an independent surveyor help a metallurgical company consolidate its position on the market?

AK: Independent surveying provides complete and reliable information about cargos en route. In addition to providing for watching cargos on their way from the mill to the ship on computer monitors via the Internet, a surveyor can help its client avoid cargo damage during loading, unloading and storage as well as errors in waybills and labeling. Furthermore, we provide very detailed and systemized reports on all incidents of cargo damage whereby the condition of every package is reflected.

A surveyor's major task is to protect all parties by providing them with information about the condition of the cargo. Thus, a producer can file claims effectively and negotiate better terms and conditions of sale. During cargo-loading onto a vessel, surveyors practically exclude the possibility of misplacement and ensure strict compliance with the vessel's stowage plan, which is particularly important for shipments to North America. Besides, if cargo is surveyed, banks are more willing to give credits to buyers, which is important, given that most goods are supplied according to the prepayment terms.

RM: What other major Russian projects is SGS involved in?

AK: Our other large-scale projects in Russia include a 100 percent survey of export supplies from the Kuznetsk Iron and Steel Works, a 100 percent survey of export supplies from the Nizhny Tagil Iron and Steel Works and a partial survey of export supplies from the West-Siberian Iron and Steel Works.

We have a major contract with the bank Societe Generale on the monitoring of alumina supplies and aluminum deliveries being made under the tolling scheme by the Russian Aluminum concern. Besides, we conduct regular cargo surveillance for the Volzhsky Pipe Plant and the Chelyabinsk Tube Works and also for the Seversk, Pervouralsk, Taganrog and Vyksunsk steel and pipe works.

Russia needs to get equal rights on the world metals market and consolidate its position. This requires to us to resolve domestic problems that exist with steel mills. Specifically, it is necessary to improve storage conditions and ensure both the high quality of the metals and their delivery.