So you’ve spent days, weeks, and months trying to secure an international buyer to procure a commodity from you—whether an agricultural product or solid mineral—and because of this, you’re now reminiscing on the amount of money you’re going to make from the transaction and how proud you’d be of yourself that you can now legitimately carry the tag “exporter”, “commodity trader”, “export broker” or even “commodity broker” once the product is delivered and paid for.
The problem is there’s still a 90% chance that the transaction could still fail. And failure here doesn’t just mean the buyer not going forward with the transaction, but even you losing your entire investment.
Thousands of exporters lose opportunities every day. Even worse, over two-thirds of them lose their entire investments before they get a chance to make any type of profit from the industry.
If you’re a commodity trader or exporter in Nigeria, Africa, or anywhere around the world looking to close a transaction or are about to export a product, here are 14 things that can prevent the success of the international trade transaction:
1). The Buyer Or Seller Cancelling The Contract Before It Starts:
Signing a supply contract should be a great indication that you have a transaction in place, but unfortunately, it carries less-weight lately.
A lot of unprofessional international buyers would spend months negotiating with you, then go on to sign a contract with you, only to say they’ve changed their minds or might even stop responding to your message, emails, and phone calls all the same.
Because of these types of scenarios, it’s important that the international buyer must issue a Letter of Credit after signing the contract before you start doing anything.
2). The Buyer Issuing A Unpayable Letter Of Credit:
Many international buyers are dubious and would agree to issue you a Letter of Credit (bank guarantee) for you to supply them commodities, but because they know 95% of all exporters don’t understand how to review LC drafts or that their bankers are prone to not noticing some mistakes, they would issue a Letter of Credit that has some less noticeable terms that makes payment redemption impossible unless the buyer approves it with his bank.
It’s important that as an exporter, you either learn how to properly negotiate the LC draft, find a banker that actually understands how to properly negotiate the LC draft, or find export consultants to help you to properly negotiate the LC draft.
3). The Seller Supplying Commodities That Don’t Meet The Agreed Specifications:
You could spend one million dollars sourcing commodities from Nigeria to anywhere else and upon delivery, the entire goods are rejected.
This scenario happens a lot because the exporter failed to stick to the exact specifications that were agreed between them and the international buyer.
Sometimes the exporter might have thought they procured and are shipping the right product specifications only to realise they got cheated by the locals they bought the items from.
The easiest way to avoid this is to have an experienced quality inspection agent to follow you to the product source and test samples before you procure, and to have a mutually agreed international standard inspection company to be responsible for the product inspection.
If this is too much of a hassle, you could contract the services of an export consulting firm to help with the entire process.
4). The Buyer Refusing To Pay For Malicious Reasons Despite Meeting The Full Terms Of The Contract:
No matter what you do to supply, there will always be buyers that are simply just malicious and never have the interests of the seller too at heart. This also applies to sellers.
You need to watch out for these type of buyers. They’re usually the guys who want to buy the cheapest products, have the largest (impossible) discounts, and get everything delivered to them in a premium way all at the cost of nothing.
They never want to issue a Letter of Credit to guarantee that they’ll pay if you meet the full specifications and would want you to run around for them, only to either find flimsy excuses that make no sense to refuse payment or they disappear altogether after you’ve loaded and shipped the cargo.
These types of buyers are never loyal and even if they manage to pay you for your services, they’d only be looking for the next desperate exporter to take advantage of.
It’s better to always find and do business with people who believe in the same values, causes, and goals that you do. They’re the only ones who would pay you well for your services, issue you a letter of credit, and will be with you for as many years as possible.
5). The Seller Failing To Meet The Supply Deadline:
Sometimes sellers will fail to meet the supply deadline despite spending so much money and time on acquiring the products, and in this scenario, some buyers would exercise their rights to cancel the contracts.
When this happens, it’s not the buyer’s fault that they refused to pay the exporter. They might have a deadline too for resupply to their end client in their country, and when they miss the deadline, their contract too could be cancelled.
When negotiating, it is important that you give yourself enough time to complete the supply and never agree to unrealistic tight timelines that you’d very likely miss.
6). The International Price Of The Commodity Crashing Before Delivery & Receipt Of Payment:
If you’re trading commodities that work with an international standard pricing model, you could be in trouble when the price of the commodity crashes at the point your goods are about to reach the supply point.
This happens a lot when trading oil & gas, metals, minerals, and some agricultural products.
It’s always best to negotiate a fixed price so that you can always know you’re getting paid that amount upon delivery no matter what happens to the international market price.
7). The Buyer Dealing With A Malicious Seller:
Just as there are malicious buyers, there are malicious sellers, and when a buyer encounters one, they could either lose their money without getting any goods or could get goods and realise they’re not what they agreed to.
When it comes to getting goods that fail to meet the specifications, some sellers may have indeed done that unknowingly because of a lack of experience, and the buyer would have already paid.
Any seller who truly made this mistake would try to fix it on a next shipment or in some way in the future. But for malicious sellers, they suddenly disappear into oblivion.
8). Unstable Government Policies:
Governments change policies from time to time, and could suddenly place embargoes, quotas, raise export/import duties, or even altogether ban the export or import of a particular commodity.
You could find yourself on the unfortunate end of the law if you’ve negotiated a contract, acquired commodities, and just when you were about to ship, realised that the trade has been banned, and so, have unsellable products in your hands.
9). The Buyer’s Paying Bank Refusing To Issue A Letter Of Credit To The Exporter’s Country:
After negotiating and signing a contract with a buyer, both the exporter and the buyer may now find out that their bank has a policy of never swifting a Letter of credit to the exporter’s country of origin.
As an exporter, it is important that you get the importer to verify that their bank can swift LCs to your own bank before signing the contract.
10). Inability To Get The Product At A Competitive Price:
Sometimes many exporters are unable to supply the goods they already agreed to because they were unable to secure the goods from the locals at a good price that would make them profitable.
This scenario usually happens when the exporter is negotiating with a price being told to them by someone presumably in the sourcing community, without ever going to negotiate directly with the locals before giving the buyer a quote.
Before you give a quote to a buyer, always go to the community to find out the best possible purchase price.
If for any reason, going to the remote areas to find supply sources and prices is high-risk or stressful, you could enlist the services of an export consulting firm to cover all that for you, while you never get to leave your home, focus on other things important to you, and reduce any form of life risk involved in such trips.
11). Too Many Brokers In The Transaction:
When too many brokers are in the transaction chain, the buyer would get discouraged and leave the transaction because he’d know he’s losing so much money in it opposed to if he had gotten a seller directly.
12). Inability To Raise The Finance Needed For The Transaction:
Many times, exporters get a million dollar deal of a lifetime but are unable to raise the finance to execute it. Other times, those who think they have financiers would sign a contract with the buyer, receive a Letter of Credit, and when the transaction is to consummate, they realise their financier cannot fund their transactions.
While unfortunate, this is the dilemma many exporters face in Nigeria, Africa, and around the world.
13). Unprofessional Brokers Ruining Prospective Opportunities Before The Buyer And Gets To Agree & Sign:
When too many brokers are in the chain, many times they never let the buyer and the seller speak, and in the middle of this battle of control amongst themselves, they could have an outburst and throw the whole transaction down the drain without the buyer and seller ever knowing who the other party was or ever getting to do business with each other.
If you must use brokers, make sure they’re professionals and that they get the buyer to send a letter of intent/introduction before anything. This way, the communication can go smoothly and the transaction would happen effectively even if they want to ruin it themselves.
14). Not Working With An Experienced Export Consultant On Your Export Transactions:
Over 90% of all new exporters lose money in their first trial. This happens because of gross inexperience despite most of them having even attended some international trade courses to understand the industry before diving in.
There are so many ways a transaction can go wrong, and to give yourself the best chance of success every single time, it is important that you work with an export consulting firm not just once, but several times in a row when you have transactions to execute.
Startup Tips Daily Media’s sister company, Globexia Limited, an active Nigerian international trading firm and export consulting firm offers a host of export consulting services to new and existing exporters to give them the best chance of success every single time, starting with their very first attempt.
Some of the services offered by Globexia are:
- One-Time Limited Comprehensive Independent Advisory
- Feasibility Study & Feasibility Report preparation
- Procurement source location discovery
- Commodities procurement on behalf of exporters from any part of Nigeria
- International buyer leads (it’s up to the exporter to contact the buyer leads we send their way and to try to close the deal after getting buyer details)
- Limited Due Diligence service on behalf of exporters on local suppliers, sourcing points, and International Buyers within some specific regions of the world
- Export process consultancy/advice to ensure exporter gets paid, introduction to shipping agent, getting source of products, and more.
- One on one export process guide which would involve export advisory, physical trip to product source point, educating on inland logistics process, recommendation of quality inspection body, selection of shipping line, introduction to shipping agent, implementation of the right type of insurance, monitoring export process, review of Letter of Credit Verbiage (99.95% of all exporters get this wrong and end up not easily getting paid), and advising/assisting exporters on best practices to ensure they get paid
- Highly accurate excel sheet calculation for determining “the real/actual revenue and profits” that would come out of a transaction (99% of exporters get the exact calculations wrong all the time and always wonder what went wrong)
- World-Class International Business Branding Service
- World-Class Website Development (e.g http://www.globexia.com)
- Audio-visual animation/advert video that greatly describes the business for local and international buyers (e.g https://www.youtube.com/watch?v=HMdXrd3eDzk)
- World-Class Graphic corporate profile (e.g http://globexia.com/wp-content/uploads/2019/03/globexia-company-profile.pdf)
You can contact Globexia by filling in the form below:
About The Author
This is an article written by Stan Edom, the Editor In Chief of Startuptipsdaily.com and the founder of Globexia Limited, a global commodity trading firm that exports solid minerals & agricultural products from Nigeria, facilitates the global trade of oil & gas commodities, and that offers export consulting services to exporters in Nigeria and many places around the world.
These article along with others are written to help exporters and importers around the world to have a better understanding of the commodity trading business and to improve their chances of becoming successful in the industry.
If you’ll like to contact Stan Edom for questions or inquiries, you can reach him on +2348080888162 or via email at [email protected].
What are your thoughts on these 14 things that can prevent the success of an international trade transaction? Let me know by leaving a comment below.
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