Internet Intermediaries

About 70% of International Trade is done through International Market Intermediaries (IMI).

Sales of goods over the Internet in 2007 were estimated at $ 136.4 billion dollars, an increase of 19% since 2006. Total retail sales in 2007 increased 4% from 2006. E-commerce sales in 2007 accounted for 3.4% of total sales, and in 2006, e-commerce sales accounted for 2.9% of total sales of goods in the world.

About 95% of the total e-commerce sales are in the U.S., Canada and the EU. Based on reports from US Chamber of Commerce, for the next 25 years, most rapid developing business is Internet based sales.

Forecast for 2010: US e-commerce and Internet retail will reach $ 173 billion, an increase of 7 percent compared with 2009.

This Information is taken from the following sources

The major problem in modern market of Intermediaries is that it is filled with false and misguided information and procedures that do not correspond to any standards. And just like a virus it circulates the Internet from one agent to another. Such false-guides creates unrealistic understand and expectations for newcomers. As a result millions of intermediary agents are unable to secure a single deal. According to intermediary expert Davide Giovanni Papa, out of 100 million agents 99% haven't secured a single contract.

Additionally, such misguided "Intermediary‐businessmen" have no clue about their rights and responsibilities. They tend to spend years in front of computer, offering crude oil, petroleum, cement, sugar, gold, brilliants and other commodities, while believing in securing million dollar profit, but unfortunately without seeing a penny for their efforts.

Sometimes it seems like millions of internet agents live in delusional world. They spend most of the time exchanging imaginary procedures false banking terms, agreements, mandates and other information that is very distant from reality. Honestly it amuses us typical NCND (Non-Circumvention and Non-Disclosure) agreements that are being pushed around the Internet. Such documents in fine prints can stretch for pages. One would wonder, who writes those!? They claim that all disagreements would be reviewed somewhere in London (why London?), also extremely short expiration period, under 3 days, for commodity pricing, even though annual contracts are being signed. It amuses us more when we get made up procedures explaining to banks how they should do their business, how documents are sent across and through what mail. These procedures are outlined hour by hour. The most popular trend, right now, is selling Bank Guarantees, but that's a whole new topic.

Absurdity knows no limits.

With hints of pride such agents use misapplied anachronisms like "LOI", "BCL", "POP", "ICPO" and on and on. Such terms have no business in international trade.

It's like well known and popular game of Monopoly. Where each player has large bankroll, buys properties and banks, goes through bankruptcy and re-gains all the millions he just lost. However when game is over player returns to his day-to-day reality.

Such misguided businessmen come to our company on daily basis offering product or business proposition. After spending few minutes of discussion we feel bad for them.

One should not blame them for being uneducated in this matter; simply because there are not many places they can learn International Trade. Despite large number of universities, academies, schools, and seminars, throughout the world, few if any at all teach practical AND theoretical courses for Internet Intermediary Agents.

In years of working in this field our company has many interns from various countries of the world. Some had higher education and have obtain business degrees from universities or colleges. However, not a single one had any solid understanding of how intermediary agent closes an import-export deal nor did they know financial details and all documents necessary for such deal. Nobody taught them.

Most successful market of Internet trade is United States. In 2009, according to official data, Intermediaries from California cumulatively secured trades in sum over one trillion dollars.

Why?

Unfortunately, most countries do not have well established banking systems, legal and government protection under legal entity and seamless flow of funds from one bank to another.

Professional agents must follow four rules:

It is impossible to follow these rules, WITHOUT having legal entity and financial instrument. It is also virtually impossible to do if agent is not registered in US, Canada, UK or selected countries from Euro union.

An agent, for example, living in Brazil can attempt to register company in US, through someone, and open US bank account. Further, he can attempt to call for consultation, not even actual work, to his US bank in regards to necessary documents needed for ADLC, which has many options. As you have guessed it, it's very difficult if not outright impossible.

This must be done in person by American partner.

Our company does not work with small one-time contracts, therefore let's consider primitive example for intermediary signing a sugar deal for minimum 12500 metric ton per month for one year. There are two ways to do it:

An internet agent, in our example in Russia, has contacted a legitimate buyer (anywhere in the world) looking to purchase Brazilian sugar. The seller is offering goods for 400 per ton, and buyer is willing to pay 402 per ton. Even if we assume that agent has understanding and knowledge of the business BUT does NOT have financial instrument through which all financial documents will go through. Of course, an well informed agent would not do business without financial instrument, but many actually do not have proper financial instrument in place. So he is working on mandate or commission agreement or some absurd NCND paper.

In such scenario he is break the four rules of International Trade, let's consider each again:

An experienced professional intermediary agent must never connect buyer and seller directly

In our example, agent connects seller with end buyer. He does not understand that bank letter of credit work with contracts and not actual money. Thus letter of credit cannot account for commission. And since buyer and seller sign contract together, they will almost never pay out the commission.

The main responsibility of an Intermediary is to control and coordinate documents necessary for a successful deal. ALL COMMUNICATIONS and DOCUMENTS must go through an Intermediary

From an agent there is absolutely NO control over the deal.

All cash flow must go through an Intermediary

Now the funds (credit) moves directly from buyer to seller bypassing the agent.

An intermediary must work directly with the bank through which he will coordinate cash flow.

In our example it's already irrelevant the last rule, because, agent is no longer involved in the deal. Sometimes it amazes us how primitive and naive people can be when it comes to working in such industry. Agent displays clear inability to have any control over the deal, lack of knowledge of the law, and complete disregard for International Banking Rules of trade, Maritime Rules of Deliver and Incoterms 2000. And these agents are waiting for their hundreds of thousand dollars in commission for simply connecting buyer with the seller?!?! And they don't want to learn, that's just silly!

As a reference, in United States, a person that received degree from reputable university in US or Europe, in his middle age, holding position as middle or upper manager in fairly large company, making 80-100 thousand a year salary, is considered financially secured. His working week consist of 40-60 hours a week.

But it's not as bad as it seems; professionals have potential and ability to make millions in profit in this business.

Let's consider the second way for our example above. Before securing import/export deal, our Russian agent has the following:

Then it follows:

With or without a partner finds buyer and seller for sugar without breaking any rules of the trade.

He never connects buyer and seller. He secures contract with the seller and his company and on other end he secures contract with the buyer and his company.

He controls all financial documents and their flow from buyer through his company to the seller. The transferable letter of credit from the buyer is issued in the name of his company that can only be transferred once to the seller (or supplier) of the product, while retaining the commission. US banks allow such procedure but L/C can only be transferred once.

Being in Russia, however, having a partner in United States, the company works directly with the bank at the local or corporate level, where physical meeting is actually possible.

Having followed through with correct execution of Incoterms and USP600 rules only then partners can collect their profits.

Conclusion:

If you're internet agent living in countries other than US, UK, Canada, or some EU countries, and you do not have your intermediary company registered nor a bank account with reputable top-world bank, nor you partnered up with professional in one of these countries, despite all the knowledge, you will not close a single deal. Agent agreements, NCND, commission agreements, and other documents simply DO NOT work.

What to do?

Start learning the fundamentals and theory. At least understanding the process is better than blindly following misguided information. Learning all proper and applicable terminology as well as procedures, as specified in official publications, is a good start.

We understand that information is limited and without knowing which information is correct it is hard to self-educate yourself in this business. Ideally, you would want to get as much practical knowledge as possible by working with already established intermediary.

Currently we are working on establishing business school around the world to formally educate students on this subject with potential placement in the future. However, we offer assistance and guidance and if you choose our professional experts as your partners you will receive complimentary educational material and our guidance.

Let us repeat the golden rule of this trade:

Trade correctly or do NOT trade at all.