Updated: Nov 3, 2020
The complete global market is depended on commodity trading. It decides the value and the GDP at any given time for any Nation.
The better the trading the more are the chances of growth and development of a particular Nation internally as well as with other Nations. The world as of today is a place of time-specific, technology-dominated, real-time trading. The entire globe is connected today due to the exchange of commodities. The demand in one region is fulfilled by the supply of another and this connects every individual company and Nation at large.
Commodities are items of daily use at home, offices, Industries, schools, colleges, construction companies which manufacture fully furnished goods from raw materials.
Commodities can be e classified as very essential commodities and nonessential commodities.
The items whose shortage directly impacts the survival and existence of a human being and Company are called the essential commodities whereas the commodities which are used to enhance standards of Living and to lead a luxurious life are called nonessential commodities.
A large part of global trades his dominated by the essential commodities which are shipped from one country to another mostly by sea. Also, essential commodities coming under the medical and sanitation are also shipped by Airway.
Although it appears to be very simple, commodity trading has a lot many procedures that need to be followed.
To ensure that the right kind of product is sourced, purchased, packed, and shipped to the buyer who then resells it to the local consumers one has to be an expert in his job.
One has to study the demand for the product he needs to trade. One should have a complete idea of the rate of the commodity as per the government norms in a particular area. Smart and sober liaising with the traders dealing with the commodity helps us to acquire the product at a good price. Strong and quality packing is the next step after the laboratory check and quality check which has to be considered for the safe transportation of the cargo.
Proper documentation as per the local norms, taxes, octroi, and other duty if any should be paid along with transportation amount for the safe movement of the cargo.
Care has to be taken wilder shipment is being done by land air or water. Insurance and safety-related document for the cargo should be in place at all times to safeguard the interest of all the parties involved.
Once the cargo reaches the buyer, paperwork should be done and filed with various government bodies and finance-related departments to keep a complete track ok of the transaction involved in the trade.
This should complete one cycle of a trade.
The process of Commodity trading has the following procedures in general. These may vary in certain scenarios but the following can be assumed to be the steps that are common in all cases.
The commodity should be sourced from legitimate and government permitted traders from the right mills/fields/mines/company/ with proper certificate and documents stating the genuineness of the product. the rates should be negotiable as per the quality and the availability of the product. the commodity should be of proper quality as required by the consignee. It should be fresh and abnormality free such that the buyers should be convinced that the commodity is worth the money.
● Fixing rates
Negotiation of the rates is an important task of a trader. He has to make sure that the commodity is purchased at a fair price for his consignee or his clients in case he is a broker. One needs to take care of both the parties when negotiating so that none of them incurs a loss and get righteous benefits from the trade. The demand for the product/commodity has to be always kept in consideration while executing a Trade and during negotiations.
The product or the commodity has to be then processed as per the demands of the consignee in regards to the quality, appearance, and chemical composition in cases of certain raw materials.
Strong, sturdy, ergonomic, and attractive packaging is the demand in today's market. One has to consider all the points while packing a particular commodity or product which has to be shipped for a longer distance to reach the consignee in a safe and sound state.
Proper sowing, lashing and securing the cargo on storing materials like wooden pallets or cartons is particularly important in order to safeguard the product from any pilferage or damage during transportation. This cost has to be Borne by the buyer in certain cases where the packaging is done as per the buyer's demands.
A properly packaged commodity has to be safely transported so that it reaches the buyer in a good condition. This is possible with effective transportation done with good transportation companies that utilize Hitech machines and vehicles along with modern stowage facilities that prevent the cargo from getting damaged.
Certain cargos are insured prior to their transportation or shipment via land or water to prevent major losses for the consignees. It is the trader's responsibility to ensure proper safe transportation in artificially created environments that can combat the hazardous effects of humidity temperature and dust on a particular cargo.
The entire process involves a lot of documentation from the point of Sourcing to the point of delivery of the cargo. Documentation secures the interest of both the parties involved. It is also important in terms of keeping a track of all the activities that took place in a particular trade. Various financial activities like filing of taxes and taking the benefits of the export of certain commodities from the government are only possible through proper documentation. Documents also are very important in cases of pilferage theft and loss of cargo and can be used in the arbitration to recover losses for the consignee.
The job and career prospects are many in the field of commodity trading.
This is a vast field and there are various positions where one can enter in the capacity of a position that describes his responsibility.
One can be a trader who is responsible for the execution of trades. An executive that takes care of the paperwork once the negotiations are over. A commodity analyst or checker is also appointed by the firm for the analysis, lab report collection, testing of the commodity as per requirements, survey at the source.
There is an entire department for the packing, invoicing, dispatch and transportation of the finished goods to the consignee. Various positions can be allocated to people of such calibres.
There are people of the accounting department that keep a track of the expenditures, assets, liabilities, transactions of the trading firm. They also are sometimes responsible for the filing of taxes.
Also, a department of analysts or the senior-most traders is themselves the ones who carry out market analysis and detailed study of the market to keep the firm updated with inventory, stocks, and their connections with the sources of the items which they generally trade around the year. This helps better planning and implementation in the peak duration of shipments to fulfil the demands.
Types of Commodity Trading
The types of commodities are as follows and not limited to:
1. Agro-products: The grains and other items that are directly sourced from the fields and milled or treated and packed as per the buyer's demands. These include all grains, seeds, fruits, vegetables, oils, and other processed products.
2. Livestock: Includes meat, beef, fish, eggs, and other items.
3. Energy products: Crude oil, natural gas, industrial oils, etc.
4. Metals-: Gold, Silver, iron ore, bauxite, steel, and other metals.
5. FMCG-: Are Fast Moving Consumer Goods which are the items of daily need at home, office, school, colleges, hospitals, sanitation facilities, etc.
6. Finished goods are another group of commodities of all sizes which are traded in large quantities globally.
Different parties involved
Buyers/Consignee : Is the party which is looking for a commodity to purchase first within the country and if it's unavailable then in another country.
Sellers/ Shippers : The party which is the owner of the cargo, who gets into a contract with the buyers and promises the desired cargo/commodity on legal and righteous payments.
Broker/Traders: The person/ Company involved in connecting the two, negotiating at a fair price to facilitate trade and help the movement of cargo from source to destination without any problem. The entire paperwork, cargo quality check, transaction of funds etc. Is taken care by the brokers as mediators who facilitate a trade.
Survey/Inspection parties : Are basically third parties that take responsibility of the quality of cargo as per the consignees requirement and indemnify them of any discrepancies with the cargo.
Banks and Private fund security companies : Help in the safe and lawful remittance of the amount accounting of the cargo. Payment modes define the party to be involved in security and transfer of funds like Nationalized banks, private overseas banks, third parties like Escrow etc.
Custom/Octroi/Clearance: Are responsible of the clearance of a particular commodity which is imported in any country as a result of trade. It also keeps track of the quantity, quality, source, duty etc on all the products that are imported or exported from any country.
Factors influencing the same
Several factors affect trade, locally, and globally. A few key points should put up insights and give clear ideas of the same.
1. Demand and supply is the most prominent factor that affects trade globally and also locally. Prices soar up in high demand and vice-versa when there is no demand. Some commodities are regularly in demand in a particular region which are supplied by another hence forming a trade relationship which is for a long duration and gives fewer chances to new comers to make an entry.
2. Seasonal variations: Affect the growth of certain commodities and also the transportation of certain commodities that come from mines. The rainy season is to be carefully dealt with when transportation of grains and perishable items takes place. Also rain hampers cargo work at ports, heaping of cargoes that are hygroscopic and get damaged by excess of humidity. Farming and production of certain items is not feasible in rains while a few grow only during rains. Very few products are available the entire year. Hence seasonal variations impact cargo in many ways.
3. Force majeure: Are the sudden natural calamities or climatic changes which interrupt the smooth functioning of a trade pattern. Sometimes at loading, sometimes during transportation and sometimes when discharging cargo. Outbreak of a pandemic, earthquakes, and natural phenomena which are out of our control affect global trade.
4. Geopolitical differences: Also affect global trade. The relationship between two countries or a group of countries that come together for a social, political or economic cause affect the trade relationship between the two. Various nations are banned from global trade and under sanction by a group of nations which has hampered and affected their growth. Maintaining sound relationship with nations worldwide is the responsibility of every nation which is dependent on Global demand and supply.