Trading Blankets and Alibaba: How I Discovered the Broken World of Global Freight

The most boring title ever. I am aware. Fully. However, in this cozy season, I’ve decided to document how my experience of wholesaling blankets across the vast and snowy Edmonton last Christmas opened my eyes towards an idea or perhaps a broader problem. Exploring this concept of commodity trading also helped me recover from an unhealthy break-up with my ex. In this blog, the ‘ex’ is the 3-person start-up I had devoted my life to, monogamously, for 20 months. Her name was Pretzel and I was the clingy one.

Pretzel was an app that allowed people to sell coffee from the comforts of their home. Uber for coffee? How original. I blew tonnes of money on her and she never really appreciated it. At times I did not know what I was doing. Refer to “How Everything Was Wrong With Pretzel” to unlearn more. Either way, didn’t work out.

The Overture

A few months before last Christmas, my current business partner got me into commodity trading. The idea was that he would pass me these lists of ‘leads’ of businesses who wanted large volumes of ‘stuff’ and our job was to successfully broker them.

It was anything from 50,000 tonnes of corn to cattle farms, 5000 industrial gloves to a hardware distribution company, 10,000 pounds of fish fillet to a seafood restaurant to 100,000 pieces of medical syringes to a medical supplies distributor. My job description included cold calling these people in North America to confirm the requirements that they posted, linking up suppliers in the different time zones, negotiating the price, confirming the exchange rate as well as coordinating with the freight handlers and carriers. Execute and make money.

The Routine

Prior to the actual hard part of the job, let’s just say that I had absolutely no experience in commodities or trading. But I needed money. Not to mention the fact that I was still trying to make ends meet with my fledgling start-up Pretzel. The hard part initially was that only a few of them would answer their phones and after spending 4 to 5 hours, less than 5% would convert to plausible leads. The harder part after that, was that these sales would just almost happen and then not really. These times were hugely frustrating as all the effort would eventually amount to nothing.

Pre-Intermission — The Deal That Did Not Work

One time, a guy returned my voicemail to inquire about his order of 50,000 tonnes of corn per month. If we successfully brokered that deal, we would be making 20,000 CAD per month. That’s a big if. That was a lot of money and it would be continuous as long as the supply was on and the buyer was happy. Now, I was still working at that time when I was doing this commodity trading thing. The corn guy had called me during my lunch break and he wanted to meet that very day. It was quite the moral dilemma for me to put emphasis on my side hustle during my job. But on the flip side it would have been utterly sinful to return to unclogging industrial machines and sweeping factory floors when I had money calling me. Besides, I could always go back to doing things I don’t like. I asked my boss to excuse me 30 minutes early and I promised to make up the time the next day. To my surprise he agreed. I ordered a cab to take me to this ‘warehouse’ location. I didn’t even know anything about corn or that it had certification classes. On the 10 minute cab ride, I scrolled through every relevant information and certification of corn manufacturer I could find on my phone just so I could conduct a decent conversation with the buyers. Upon arriving, I tried to dust off the mess from my reflective factory operator vest and convince them that I am indeed a representative of a global import and export business. I tried. I am not sure how well that worked but they did invite me to their office for a quick chat. Upon confirming the details, it turned out that they wanted to close it in 2 days. At that moment, I was not sure WHO was the rookie in this deal. A deal of this magnitude requires 4 to 6 months to close. The most time consuming process in such deals are the quality control steps and regulatory compliance. Not to mention, the logistics which is involved. The quality control step involves flying out one of your reps to the manufacturing country, interviewing their executives, assessing their SOPs and machinery and validating their certifications. Lastly it would be touching, smelling and in this case, tasting the products. Packaging is also a huge element of global trade. Watch the movie War Dogs and you’ll know of its significance. Compliance would involve the goods being imported into Canada and meeting the rules of Canadian trade laws and regulations. It’s almost always a lock-and-key mechanism where every word on the invoice, bill of lading, and every other document for that matter, must match and comply. And of course, needless to mention, a lot of manual, tedious, error-prone tasks repeated along the way. Non-Compliance is a term that almost always resonates with bad reputation which in turn is bad for business.

So, if these guys wanted to close a deal in 2 days, the only people they would end up scamming were themselves. I kept in touch with them for the next couple of weeks trying to negotiate a price of $1.90* per kg when they wanted to pay $0.45* per kg in a season of low corn productivity across the globe. One random Russian supplier was able to provide at $1.36*. This too was beyond what they wanted to pay. Clearly, that was not going to work. It was like trying to break up with your girlfriend who constantly makes unreasonable demands, but who is also really attractive and you know that you guys are TOTALLY incompatible. I moved on.

The Intermission — The Deal That Worked

I was still cold calling lists and catering to some of the lukewarm leads during the phase when none of the deals were making us any money. One day, I called Becky, a lady from Edmonton, in response to her request for 400 blankets. A seemingly small deal. I found out that Becky ran a small mom-and-pop shop from her home and was packing up for the season’s sales. Becky was not too tech savvy, like a lot of other people I know in this business. She did not want to deal with manufacturers, distributors, logistics or customs people. She just wanted her 400 blankets. I asked Becky the specs of the blankets; the designs and the dimensions. She was very quick to answer my questions. All she did was Google “blankets with tribal designs” and then emailed me the link upon my careful instructions over the phone. It turned out that it was an Alibaba link to a blanket supplier in China. If she wanted, she could have sourced it herself by communicating with the supplier on Alibaba. But that of course is too much work. I asked her how much she would be willing to pay for each blanket to which she replied, USD 35.00. How much did the supplier charge? USD 14.00 shipping included. So, 400 x (35–14) = USD 8400 on our Paypal account. Cha ching.

Now, let’s pause there for a bit. Some people would call it unethical because I could have told her to coordinate with the supplier and get it much cheaper. But most people fail to understand that this is how supply chains work. You come in and add your own value to a deal, and then get rewarded for it. And it is important to note that the deal would eventually happen ONLY because of you or someone like you who has effectively coordinated the logistics of the process. The other parties, such as the manufacturers can focus their resources on what they do best i.e. manufacturing and Becky could focus on understanding her clientele, marketing and selling her blankets from her retail shop at USD 85 a piece. Only then, would everyone win!

OK some perspective here. We did make money. BUT, it is important to note that it was one of few deals that closed after thousands of prospecting and calling and sending emails back and forth multiple times each day. And it took us almost 4 months to close the deal after initial contact. It is NOT much money when you take all these into account.

The Finale

We realized that the money is only worthwhile if deals of that magnitude closed every week. We soon learnt that there may be better ways to close these deals faster. It may have something to do with additional value-added services and also improved customer service. And that it is not going to be easy. Centuries-old traditions of people who control heavy trade routes and who do things very inefficiently may have something to do with it. Some technology has to be built or rather assembled in order to coordinate the complexities between the different parties involved.

There definitely has to be ways to provide a better user experience. There has to be ways to provide an escrow service so that people do not have to blindly transfer through Paypal without any security. There has to be ways to find out where your shipment is without calling 10 different people in different time zones. There has to be ways to clear through customs faster. If these issues were addressed, a lot more value would be added and as a result, a lot more money would be made.

Based on both our previous experiences in commodity trading and technology, we figured it may be worth our while to explore the causes of the overwhelming chaos that is so common in supply chains. It may also be worth it to brainstorm ideas that provide a better experience with the existing clients in an effort to make global trade a little easier, engaging and fun.

*Values are not exact. They only represent relative differences between quoting and buying price.

Note: All images taken from Unsplash.com for illustrative purposes only.