Why Intermediary is Vital in Commodity Trading

#1 · October 17, 2023, 4:36 pm

Quote from chief_editor on October 17, 2023, 4:36 pm

Photo: puzzle-logistik-aussenhandel.de

Hello, everyone! I'm here to share a recent case that highlights the importance of intermediaries in commodity trading. I have two friends, both from two large world-renowned corporations, one on the demand side and the other on the supply side. They are involved in the business of copper cathode, a capital-intensive venture. However, despite being part of these global giants, their recent interaction reveals some critical insights about the world of commodity trading.

The Story Unfolds

In this story, the buyer and the seller both belong to two large world-renowned corporations. However, the trouble started when they initiated communication. Initially, they exchanged pleasantries and discussed minor details over the phone. Both of them were middle-level managers, not the top decision-makers.

Here's what happened next: the seller (the supplier) requested the buyer to stamp some documents. This request was not unusual in a business transaction. However, the buyer (the demand side) had concerns. It was nearing the end of the year, and they worried that the supplier might not issue the necessary invoices on time. Therefore, they requested the supplier to provide templates for invoices worth millions.

Now, ordinarily, the supplier wouldn't need to provide invoice templates in such a situation. It's like saying, "Let me see the invoice even before we have a contract." But they complied with the request anyway.

The Heart of the Issue

After listening to their long conversation, I could sum up the situation in one sentence: the relationship between them wasn't strong enough. If they had a solid working relationship and a high level of trust, such issues would be resolved easily. For instance, if they had a strong bond, they could sit down, have a chat, and look at the documents. No big deal, right?

Furthermore, the buyer, being a part of a large world-renowned corporation, questioned the seller's ability to deliver and doubted whether they could issue the invoices. In such cases, you can check if the other party has been involved in any legal disputes previously. If not, it's usually a sign that they are reliable.

The Outcome

As a result of these misunderstandings and delays, the deal got stuck. Both parties are part of two large world-renowned corporations, with busy leaders who have various commitments at the year-end, including performance evaluations and overseas visits. Consequently, the deal might not proceed until after New Year. However, my friend also mentioned that after New Year, the deal could face uncertainties.

The Bottom Line

In summary, even when everything seems right in a commodity trading deal—when the seller has goods, the buyer has funds—sometimes, the relationship isn't strong enough. In some cases, the buyer's risk management department might intervene and add complexities to the process. That's why I always say that trust can be expensive and, at times, cheap.

What's the solution, you might ask? Well, it's crucial to maintain a level head when doing business, but relationships must be solid. You should also have a strong subjective judgment. Without these elements, it's challenging to succeed in the world of commodity trading.

So, remember these three key points: maintain a balanced approach, prioritize strong relationships, and trust your judgment. Business isn't just about gut feelings; it's about diligence, knowledge, and sound decision-making.

In conclusion, the role of intermediaries in commodity trading is significant. They bridge gaps, facilitate communication, and ensure that misunderstandings do not derail potentially profitable deals. The next time you're involved in a complex commodity transaction, consider the importance of intermediaries in maintaining trust and streamlining the process.

Photo: puzzle-logistik-aussenhandel.de

Hello, everyone! I'm here to share a recent case that highlights the importance of intermediaries in commodity trading. I have two friends, both from two large world-renowned corporations, one on the demand side and the other on the supply side. They are involved in the business of copper cathode, a capital-intensive venture. However, despite being part of these global giants, their recent interaction reveals some critical insights about the world of commodity trading.

The Story Unfolds

In this story, the buyer and the seller both belong to two large world-renowned corporations. However, the trouble started when they initiated communication. Initially, they exchanged pleasantries and discussed minor details over the phone. Both of them were middle-level managers, not the top decision-makers.

Here's what happened next: the seller (the supplier) requested the buyer to stamp some documents. This request was not unusual in a business transaction. However, the buyer (the demand side) had concerns. It was nearing the end of the year, and they worried that the supplier might not issue the necessary invoices on time. Therefore, they requested the supplier to provide templates for invoices worth millions.

Now, ordinarily, the supplier wouldn't need to provide invoice templates in such a situation. It's like saying, "Let me see the invoice even before we have a contract." But they complied with the request anyway.

The Heart of the Issue

After listening to their long conversation, I could sum up the situation in one sentence: the relationship between them wasn't strong enough. If they had a solid working relationship and a high level of trust, such issues would be resolved easily. For instance, if they had a strong bond, they could sit down, have a chat, and look at the documents. No big deal, right?

Furthermore, the buyer, being a part of a large world-renowned corporation, questioned the seller's ability to deliver and doubted whether they could issue the invoices. In such cases, you can check if the other party has been involved in any legal disputes previously. If not, it's usually a sign that they are reliable.

The Outcome

As a result of these misunderstandings and delays, the deal got stuck. Both parties are part of two large world-renowned corporations, with busy leaders who have various commitments at the year-end, including performance evaluations and overseas visits. Consequently, the deal might not proceed until after New Year. However, my friend also mentioned that after New Year, the deal could face uncertainties.

The Bottom Line

In summary, even when everything seems right in a commodity trading deal—when the seller has goods, the buyer has funds—sometimes, the relationship isn't strong enough. In some cases, the buyer's risk management department might intervene and add complexities to the process. That's why I always say that trust can be expensive and, at times, cheap.

What's the solution, you might ask? Well, it's crucial to maintain a level head when doing business, but relationships must be solid. You should also have a strong subjective judgment. Without these elements, it's challenging to succeed in the world of commodity trading.

So, remember these three key points: maintain a balanced approach, prioritize strong relationships, and trust your judgment. Business isn't just about gut feelings; it's about diligence, knowledge, and sound decision-making.

In conclusion, the role of intermediaries in commodity trading is significant. They bridge gaps, facilitate communication, and ensure that misunderstandings do not derail potentially profitable deals. The next time you're involved in a complex commodity transaction, consider the importance of intermediaries in maintaining trust and streamlining the process.