A new year, a new start

1 January 2002

It is now almost three years that Limeblast has appeared in Leather International, and I have been commenting a lot on the honesty of people in our trade and on market situations, things that seem to me closely connected, because I firmly believe that when the market is stable, the honesty level in our trade rises, and suddenly and sharply declines when the market collapses, or when the market peaks. It all depends on whether you are the hunted or the hunter of the moment. When we think back to the good old times, we realise that our trade was far more stable than today. You did have your ups and downs, but if we want to imagine a metaphor, we would be looking at a hilly countryside where there is a gentle slope. We were having the biblical seven meagre years after seven fat years, a decent lapse of time by all means. All in all, though being tremendously active and vibrant, our trade was at ease with itself. Today, we see that the gentle slope has turned into a rough mountainous landscape with high peaks and low valleys, where the walls are very steep, and where one bad judgement makes you drop like a stone in the economic whirlpool. Leaving the metaphors aside, we see that the crises in our trade are following one another at ever shorter intervals and that the top and bottom prices in raw material are occurring over smaller periods of time with a distinct sensibility to political situations. A real roller-coaster! I suppose the same happens in other trades, the oil trade is an example I guess, though we may not be that aware of problems other people face, as our own problems are more than enough to handle. It is, of course, all the fault of our faster pace of communication. Globalisation is there, and nobody can make it go away whatever the protesters may think, and it provides for instant knowledge of whatever happens on the other side of the globe. News that 25 years ago took days to travel, now takes seconds. The market reacts immediately and, as we see, often violently rather than smoothly. It makes life very dangerous for some: those that make the wrong decisions at the wrong time. On the other hand it makes fortunes for those that make the right decision at the right moment. Fortunes are lost and made. The instant communications capability also develops the problems I spoke about last month, the cancelling of contracts. But it also allows one to exercise one's business instinct and by reacting correctly you can stay a step ahead of the game. The industry was used to planning its production based on orders of finished items. It would then purchase the quantities of the prime material need for its production accordingly with precise delivery times. Whereas now, mentally, we do the same exercise, in reality we work on a hand to mouth basis. We buy what we need, and there are very few stocks or supplies in the various pipelines. A medium or long term contract, today, is more like an option than an actual purchase/sales agreement. The moment a supplier finds out that the contract he had concluded has gone up in thin air, he must immediately try to sell his goods elsewhere, generally accepting a lower price. Buyers with their ears to the ground, receiving the same instant information, understand what has happened and try to buy at the lowest possible price. As soon as this is established it is carried around the world and a temporary benchmark has been achieved. The opposite happens when there is a shortage of supply and a buyer needs to buy. Prices peak. Each lower or higher level is a new basis for negotiations, as it has always been, but with the difference that everybody, buyers and sellers, have the same knowledge at the same time at their disposal. This effect of globalisation happens now in most industries that deal in raw materials, from the more important ones, to our own little world. The stock markets that oscillated once with zero-point something percentage points, now have ups and downs of even 5% on a hectic day. The pace is increasing, and since progress cannot be stopped, it will increase further. Life today in our industry is a roller coaster ride, and although many of us may enjoy better than average living standards, one wonders if these compensate for the ever growing headaches, the risks, and the subsequent stress, like the one suffered by a reader who sold a container of skins to India. Due to the market collapse, many Indian importers, like others in other countries, have refused to pay for documents of goods that were regularly contracted. In this case, the goods were in port in Chennai and the supplier refused to be taken to the cleaners and decided to sell the goods elsewhere. To his surprise, despite the fact that the goods had not been custom cleared and hence were virtually still in port and technically outside Indian territory, to reload the goods, they must be cleared by customs and by the Reserve Bank of India, who may or may not grant departure from the port area to another country. This process, especially from the RBI, can take months, during which container rent and demurrage charges accumulate. Therefore, be careful when you sell to India, as when you experience market problems, they are just the beginning. [email protected] [email protected]

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