Pitfalls of Doing Big International Brokerage Business Online
Nothing has helped international brokerage business more than the internet: it enables a businessperson to do business with little or no capital and to make quick contacts. Yet nothing has made the brokerage business riskier. This comes from a broker unknowingly linking genuine or false buyers with genuine or false sellers. Other ingredients also exist to cook the broker an unpalatable soup.
When all seemed bleak, I felt the internet was my best bet to boost my business. I visited some B2B portals and posted trade leads. An Italian, Arnoldo Marchetti, contacted me as mandate of an Austrian firm, Holzhšuser GmbH, and offered me NPK 10-20-20 (10% Nitrogen, 20% Phosphorous, 20% Potassium) fertilizer. I posted the offer on a site called Alibaba. The same day a German buyer, Schneider GmbH, contacted me with NCND, LOI with banking coordinates, and the authorization to verify the availability of funds. I emailed the NCND to Arnoldo and Holzhšuser for their details and signatures. Then I emailed the LOI to Holzhšuser. A week later, HolzhaŁser replied that what they had was NPK 10-10-10! When they heard this, Schneider blacklisted me.
This was the case of a genuine buyer meeting a fake seller. But it could also be a genuine buyer and a genuine seller. But Holzhšuser and Schneider having known each other, might have decided to kick me from the deal. Why? Because of greed: they probably wanted to keep all the commissions for themselves.
With the NCND signed, couldn't I have sued? Sure, I could, but there was no proof that the deal had succeeded. To find out would require a lawyer but I didn't have the funds to hire one. This is how the NCND, supposed to protect one, can become an inefficient tool.
Soon after a German lady called Gisela offered me Libyan crude oil. I was now in contact with several companies, one of which was an American conglomerate, AAA Commodity Dealers, which needed crude oil. I got an NCND signed by all parties and sent AAA the offer. They began negotiations with the Libyans but I was kept in the dark. Not even Gisela was being informed. It was weeks later we learnt the commission had been apportioned. Gisela got a pittance thanks to the German mandate. But I was offered nothing. AAA considered that I had done no work. I asked them to justify their stand but received no reply. Months later, the German mandate informed us that the deal had failed because AAA wanted part of the commission for the Libyans, who, they figured, were taking the lion's share.
This illustrates a genuine seller meeting a genuine buyer but the greediness of the buyer's mandate made me lose a jackpot.
On another portal called Oilworld I contacted an American mandate, Ray Lewis, representing a Canadian producer of rapeseed oil. Tung Shun Chemicals from Hong Kong needed this product. We launched the deal and this time the buyer exceptionally received the POP and samples from the seller; only the POF was needed to close the deal. Months passed but Tung Shun gave no POF and Ray had to cancel the deal.
This third case involved a genuine seller and a false buyer.
Undaunted, I continued the business. This time a Nigerian company, Goodwill Ventures, proposed me railway scrap. I emailed the offer to a Mr Pontus Hagstrom in Sweden who had an Indian buyer, Net-World Agency. Net-World sent an LOI without banking coordinates. On our insistence, they issued a fresh LOI with the coordinates but quoted a C&F target price lower than Goodwill's FOB price! Curious, Goodwill contacted Net-World's bank only to learn that they were insolvent. In order not to lose the deal, I proposed it to a serious buyer but this time it was Goodwill which proved phoney.
So in that case both the buyer and the seller were untrustworthy.
My brokerage business experienced other jolts too. These involved the greediness of buyers' mandates for fat commissions as well as the haggling over discounts or the POP and the POF between buyers and sellers.
I lost a Russian crude oil deal because the buyer's mandate wanted more discount than the seller gave and a gold transaction in which the buyer judged the seller's discount too low. But nothing made me crazier than losing businesses where the buyer insisted on the POP before giving the POF and the seller also expected the POF before giving the POP.
"Has anyone succeeded in this imbroglio?" I asked several brokers. Everybody said something wry like "I'm on a sure deal now." That was when I decided to take measures about my brokerage business.
So if you are contemplating doing big international brokerage business online, think of all the pitfalls that await you and the precautions to take to avoid them, such as:
- verifying the credibility of buyers and sellers by asking for proof of previous performance;
B2B Portal: An internet site where companies can meet to do business.
Trade Lead: The message that one posts on a B2B portal to seek goods or services.
NCND (Non-Circumvention and Non-Disclosure Agreement): An agreement that prohibits parties to a
deal from dealing with each other's contacts and/or giving confidential information to third parties
without written consent.
LOI: (Letter Of Intent): A stamped and signed acknowledgement on one's letterhead that one would buy
something being proposed.
POF (Proof of Funds): A note from a buyer's bank to the seller's that money is available for the deal
into which the buyer intends to enter.
POP (Proof of Product): A note from a seller's bank to a buyer's that the product offered is available.
Banking coordinates: Includes Account name, Account Number, Name, address (physical and postal),
fax number and email address of Bank, and Bank Officer's name.
C&F: (Cost and Freight): The FOB + the transport charges to the agreed destination.
Target price: The price that the buyer is prepared to pay.
FOB: (Free On Board): The price of the goods + the transport and handling charges to the port of
embarkation + the cost of loading the goods on board the ship.
My name is Akoli Penoukou. I was born in Lome-Togo (West Africa) in 1953. I went to school in Ghana (West Africa) up to the high school diploma level. I taught French there for one year and then returned to Lome to work. From there I went on "adventures" in Nigeria (West Africa) and Germany. Back home in 1983 I began my business career. This began with a West German import and export company which represented major German manufacturers like Henkel cosmetics in West Africa. I started as Executive Secretary and ended up five years later as Manager. Then I founded my own company in 1987 which I ran part-time. The activities of the firm having increased dramatically in three years, I diversified into imports and exports. The brokerage business and trade representation constitute the main thrust of my buinsess now. I have trained as a freelance writer for children and adults and have published in newspapers and magazines such as "Aim" and "Clubhouse" in America. Hobbies:writing, reading, gardening, languages, music, traveling, and teaching. I am married and have 3 children.
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