Collateral Management and Stock Monitoring: A Day in the Life of A Warehouse Inspection Agent
Inspection and stock management are critical components of overseas trade and the import / export of goods. Warehouse inspections and audits, stock monitoring and controls, as well as due diligence on commodities forms a key component of risk mitigation and financing of international trade. TFG spoke to Valeriya Ovdienko, Project Manager at DRUM Risk Limited about the physical and transactional risks in the commodity supply chain.
A Day in the Life of an Inspection Agent
Deepesh Patel: Valeriya, thanks for joining us today. What does DRUM Risk LTD do?
Valeriya Ovdienko: DRUM Risk LTD is an inspection and stock management company with over 22 years of industry experience. With the objective to minimize physical and transaction risks, we offer risk management solutions for international traders, banks, producers, insurers and other institutions involved in commodities trade globally. Providing the wide range of services DRUM Risk LTD aims to ensure physical availability of financed commodities throughout the supply chain, storage, production and provide the remote visibility for our customers.
To enable the banks and other financing parties to strengthen their legal title over the commodities as pledgee we offer stock management & control (CMA). DRUM takes possession and control over the commodities from the moment they are financed until these commodities are released from the storage facility. Our inspection teams are onsite 24/7 to manage the stock (its acceptance, storage and subsequent release) on the behalf of the financing party.
In the event when the financing party does not require strong control over the financed commodities DRUM can offer stock monitoring services (SMA). This might be either continuous monitoring to oversee movements, or periodic inspections to measure the number of commodities in storage and assess their storage conditions.
Headquartered in London, our company delivers robust inspection services through our international teams coordinated from three operational centres.
What’s the weirdest commodity you’ve had to inspect?
DP: Do you work with any specific type of commodity?
VO: Our inspection teams have expertise in all types of commodities, including but not limited to metals, agricultural, energy, consumer goods, goods in processing and other types of commodities. Basically, we strive to work with whatever is being traded.
For example, the most exotic type of commodity that our inspection teams handled were body implants – titanium knees, hips and auxiliary materials.
For example, the most exotic type of commodity that our inspection teams handled were body implants – titanium knees, hips and auxiliary materials. Standard approaches to quantity measurement and stock accounting were not applicable to this case and we had to think out of the box. Moreover, we worked under enormous pressure to authorize the release of these goods as soon as the lending bank approved because the patient was on the operating room table at that particular moment.
DP: How does DRUM Risk LTD differ from other inspection and collateral management companies?
First of all, we guarantee complete independence from the borrowers and storage facilities by employing inspectors from other regions to a project. We do not use agents or subcontract. Our inspection teams are rotated on a regular basis, once in three months or often. This excludes the human factor and prevents the establishment of any corrupted connections.
Secondly, we are smaller and, hence, more flexible. Apart from standard CMA and SMA services, we offer tailor made physical risk management solutions and design the services based on the customer’s needs. I dare say that DRUM was the first collateral manager to set up CMA at the production plants – to supervise raw materials, goods in processing and finished goods. To persuade the production plants that we were there to support was a challenging task and some of them were even concerned that DRUM was involved in industrial espionage by the competitors. Eventually, we managed to establish good working relationship and, as the result, the majority of our CMAs at the moment are at the production plants.
Finally, we have recently diversified our services to support our customers at all stages of the transaction. Our analytical department provides support in KYC and due diligence via pre-deal background checks of the parties and ad-hoc investigations. DRUM offers warehouse inspections with the focus on identifying any potential risks to safety, integrity and quality of stored commodities, no matter whether further monitoring of commodities is required or not. A newly launched loss & asset recovery service is designed for customers experiencing difficulties with acquiring control and possession over the commodities.
Technology versus Physical Risk
DP: How do technologies impact your business?
In general, the message we are trying to deliver to the world of trade finance is that no technology can replace a physical inspection. Technologies such blockchain will undoubtedly facilitate the trade, but will not mitigate physical risk. There is always a gap between the documents and the situation on the ground. In the absolute majority of loss investigation cases where we assisted, the documents seemed being perfectly fine and submitted on time.
A textbook example we always give to our customers is the address of the warehouse as per documents vs the actual address. During a stock check in Russia, our inspector arrived at the address provided by the financing party and found out that the only building located there was a hotel. The warehouses were, in fact, on a parallel street.
As another example, during the one-off stock check in India, the warehouses appeared to be located not just on a different street, but in a different state to that provided in the documents.
This is the reason why we encourage the financing parties to have periodic spot checks of the financed commodities irrespective of absence of any issues.
At the same time, we do support technological development and are the part of the development team of a finance platform aimed to mitigate country risk.
Tackling the gender gap in trade finance
DP: There is a certain gender misbalance in trade finance. How does your company tackle this issue?
Our Managing Director Peter Hopkins always jokes that men are the minority in our office. Indeed, most of our managers are women. Furthermore, DRUM Risk LTD offers equal opportunities for male and female inspectors, as well as encourages female candidates to apply for this role. Most notably, one of the best and the most experienced inspectors we employ is a woman. Being a retired accountant, she assisted the storage facility to set up their own stock accounting procedures as a part of CMA implementation. The storage facility management expressed their gratitude to us for her incredible work.