ew sites such as www.coffee-exchange.com and www.intercommercial.com are offering green buyers and sellers new online opportunities. These enterprises will help smaller farmers who have had difficulty bringing their crops to market have a vehicle to sell coffee. In turn, these exchanges offer buyers opportunities to make quick selections at competitive prices.
Exchanges and auctions are fast maturing. Last year, we experienced the power of the coffee auction held in Brazil. Now there are many web sites executing sophisticated technology that will deliver on-line trading, communications and the latest worldwide news reports. According to Forrester Research, Inc., trade via real-time modelsincluding those known as “auctions” and “exchanges,” will reach $746 billion in 2004. As eMarketplaces evolve, firms will move beyond today’s simple, ad hoc purchases toward configuring online markets for each transaction - trading across product attributes and giving special attention to preferred partners.
How will this affect commodities like coffee and tea? The Forrester report shows that eMarketplaces will expand their trading practices and deals will materialize and evaporate with one click. Therefore, traditional processes for finding suppliers and negotiating long-term contracts will change. Due to the new set of suppliers available at every transaction, buyers will need to establish a set of criteria to automatically evaluate new suppliers. Let’s look at two pioneer exchanges that will help initiate change in trading coffee.
Based in Costa Rica, Rodrigo Fernandez, founder of Coffee-Exchange.com, has created a medium that will facilitate trading in all sectors, from commercial to specialty. As of this report, Fernandez said there are no fees to participate in the site’s online services and this policy will remain in effect indefinitely. “Our main goal is for the industry to get to know us and what online coffee trading is all about,” said Fernandez. In an effort to explain his site to the industry, Fernandez gave a presentation titled, “Coffee Trading By Mouse Click” during the 12th ECF European Coffee Congress and Exhibition held June of this year in Bremen, Germany. In his presentation, a chart illustrated the dramatic growth in worldwide Internet usage. Canada and the U.S. are in the forefront, followed by Europe, Asia and the Pacific, Latin America, Africa and the Middle East. By 2005, there will be an estimated 350 million people worldwide using the Internet. He mentions the e-commerce advantages for consumers include instant gratification, no mobility, private and 24/7 availability; and for vendors, there are fewer outlets, decrease in payroll and inventory efficiency. In buying and selling coffee online, Fernandez offers the following benefits: global exposure, expanded markets, sharper competition, less intermediation, better product comparison and lower costs per transaction.
Presently, offers to buy and sell are beginning to appear on the coffee exchange and some have placed coffee lots for auctioning. These offers will increase as more people become aware of the site. “The actual trading occurs between both parties involved and [management at coffee-exchange] never interferes in the transaction. The trading can be measured by the traffic and numbers of offers to sell and buy that are posted,” said Fernandez.
When asked how the Costa Rican location might affect communications or marketing, Fernandez emphatically responded, “We’re on the Internet! Distances and places do not exist here. This is a new international marketplace; coffee traders are scattered throughout the globe and this is the right medium to serve them. Technically, our servers are placed in two different locations in the U.S., hooked to the main Internet backbones by several T3 lines, which guarantees they are always online. Eventually we will mirror our sites in Europe and in other languages,” he reported. As part of our marketing efforts, we are planning to go anywhere in the world where coffee traders can utilize our web site.”
Having been funded by several private investors from the coffee industry, in addition to the coffee trading area, the site covers coffee jobs, equipment sales and news. Other options to be introduced include an instant messaging system and customized home pages. Asking how importers might check the coffee for quality and site investigation, Fernandez responded, “Traders will still order samples as always, but rest assured, if technology ever develops a way to sample and taste coffee over the Internet, we’ll be there.” Fernandez is a “techie,” having graduated with a degree in engineering from Tulane University. He said that he is investigating plans to launch a tea site.
Another online coffee exchange scheduled for debut at press time is InterCommercial Markets, located at www.intercommercial.com. The portal site is an online exchange dedicated to providing Internet-based trading, information, and communication services to the physical commodity markets, targeting green coffee, cocoa, and sugar as the first 3 markets to be launched. According to Michael J. Corcoran, executive vice president of business development, the goal is to create a site, which attracts the eyes of each industry on a daily basis. The physical trading component will be the major attraction, but the content and communication features give industry players additional reasons to spend time on the site. The green coffee site is targeted at exporters, producers, dealers and brokers of green coffee, as well as traders in coffee futures.
Commenting on the company strategy, president and chief executive, Ted A. Heilman, Jr. said, “Our strategy of partnering with leaders in the industry we serve enables us to adapt our exchanges and services to the specific customized requirements of each market.” The New York-based company was founded by industry leaders with years of commodity and technology expertise and has strong backing from its strategic partners, Mercon Coffee Corporation and E.D.&F. Man Holdings, two leading multinational players in commodity trading groups. Recently, Brown Brothers Harriman & Company, one of the oldest lenders to the commodity market, has taken an equity stake in InterCommercial. They are the first “outside” investors in the new company. When asked about fees, Corcoran said the service would be free for everyone for an undetermined number of months, providing ample opportunity for prospective users to become acquainted with the system and experience for themselves the benefits of membership.
For producers, Corcoran said the site basically replicates and enhances the current methods of doing business in the coffee market. Buyers and sellers still pick and choose who they want to do business with on a transaction-by-transaction basis. So, as long as current buyers or sellers are members of the InterCommercial community, you can do business with them via the Internet rather than by phone or fax. The potential visibility which the site affords to both buyers and sellers should provide an excellent means to expand one’s list of prospective counterparts over time, he added. There is nothing required in being licensed to trade other than registering as a member, but trading partners will still be responsible for deciding with whom they will trade. Corcoran said transaction time for making a buy or sell would be more efficient than the traditional method. “What will change is the speed, ease, and cost at which buyers and sellers will exchange their pricing ideas with a larger number of prospective counterparts,” he added.
Marketing the site entails a mixture of traditional communications as well as new media. Trade shows, industry publications, personal visits and demonstrations, and e-mail campaigns are some of the targets. “The wonderful thing about the Internet is that anyone with access will be able to visit the site and check out the product. We also hope that industry participants that choose to take an investment stake in InterCommercial will assist in promoting widespread acceptance of the product by encouraging the parties that they do business with to become members.”
While the current focus is on business-to-business (B2B) the company does not rule out some links to other sites with a more business-to-consumer (B2C) orientation.
Once the site is functioning, there will be two sources of news initially, “Futures World and their own internally produced content, which will be more in the way of analysis and insight as opposed to breaking news. The communications features of the system will include instant one on one chat, an internal (to InterCommercial Markets) e-mail system, group forums like those which have developed covering the equity markets and a group chat capability allowing numerous users to exchange ideas simultaneously in a real-time environment.
Certain functions like the display of future prices will employ a technology that constantly “pushes” the information onto the user’s screen without the need for hitting a “refresh” button in order to update the information. Currently there are six people working for the company, three full time employees as well as a team of seven outside software developers working on the project.
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Suzanne Brown is marketing consultant to the tea and coffee industries. Her company, SJB Associates, is based in Altanta, Georgia. Visit her web site at www.sjbassociates.com click on “CyberCup Café” at www.culinary.ne.