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Part II:
Commodity Exchanges

by Suzanne Brown

In Part Two of Techknowlegy Buzz’s venture into the new world of business-to-business (B2B) commodity exchanges we continue our exploration of unique business models. Not only do exchanges offer buyers and sellers a new media for trading, they offer the benefits of reduced costs and increased efficiency and provide access to greater revenue opportunities. And all these services spell competitive advantage.

It is important to note that online exchanges and auctions are separate concepts, although they both operate on a similar platforms. An auction is, in essence, a concept which may be executed in a non- nuclear manner and needs not rely on set clients or transactions. An exchange is an extension of this concept, and has a fixed, screened alliance pool which makes up its foundation and has a set structure for business transactions.

Founder and president of eCaravan.com, Tim Sanchez, notes, “Surplus and spot supply can be traded efficiently in real time with an auction model, while supply can be posted and traded at a set price on the exchange with no time limit. ” Sanchez is building an online trading platform for commodities including coffee, cocoa, orange juice, sugar and wine. The web site will service each commodity with individual sections containing in-depth reports, statistics and information. Sanchez told Tea & Coffee Trade Journal that eCaravan.com started as a general portal for the international trade business-to-business marketplace. Further researched revealed that focusing on the coffee industry in Latin America would prove to be a stronger move initially, so Sanchez decided to specialize in creating an exchange for that niche.

The concept of an exchange, however, is not a new one. Perhaps the oldest exchange for the coffee and tea industries is www.coffeex.com, which has been on line for two years. “The exchange model,” explains founder Irshad Sideeka, “allows participants to create offers for sales and requests for purchase, and bids can be made on the sale offers and offers can be made on the requests for purchase.”

Sideeka was raised on a coffee plantation in southern India. This experience combines perfectly with his background in software consultancy. He is now preparing to launch a second, updated version of his exchange. Sideeka points out that easier means of accessing information are making users more apt to participate in auctions, and any such step toward trust-building and user-friendly approaches is key in this line of business. “The easy availability of voice and video at any trading web site and the access to each others’ information will develop,” adds Sideeka. “Initially, the participants of every hub will be insecure about each other and as time progresses this will change as people within the marketplace will have each others information.”

Of significant importance is that global transactions are being facilitated by the Web, stimulating the evolvution of a global marketplace. The web site eGreenCoffee.com provides the seller, regardless of size, with a direct line to this developing marketplace. Coffee and tea growers or exporters in Latin America or Southeast Asia can use exchanges as a means to cost-effectively reach roasters in North America, Europe and Japan. Additionally, eGreenCoffee.com provides a standard platform on which to improve communication and to access current market data.

To its fame, eGreencoffee.com has signed over 150 members who are registered anonymously. Users “are adapting easily to the system because we built it to mimic the traditional way coffee is traded,” comments c.e.o. and president Hanif Moledina, a 16-year industry veteran formerly with Bean (East) Corp./Unicof USA, Inc.

Chief marketing officer Dimple Ahlwalia elaborates: “Buyers instantly receive multiple offers from pre-approved partners instead of making numerous calls to gather information. As a result, they spend more time on strategic activities and strengthening personal relationships that are critical in the green coffee industry.”

Each coffee exchange mentioned appears to have many of the same services, but with slight differences. Yet, keeping ahead of advances can prove to be a huge challenge in the world of the Web. How will these firms remain competitive with the rate of success for an internet company at a grim 10%? At this point, Sideeka says that client trust in the medium and its potential is still the main focal point., which is why they still use the bulletin board model; it will soon merge into a new transactional model, to be live and functioning through a protected environment.

He adds that coffeex.com will continue to strive for innovation and improvement of the current modelwork while concentrating on expansion of industry-affliated programs starting with the NYBOT (New York Board of Trade) and LIFFE (London Futures Exchange) contracts.

At eCaravan.com, the plan is to stay ahead through phased implementation of value-added, quality services, tools, functionality and information specific to the coffee industry. Enhancements such as complex, financial analysis and information tools, supplier back- end systems integration for real-time inventory and customized interfaces for members are examples of improvements planned for their exchange.

Sanchez says, “It has always been our vision not to impose a solution but to build something along with the members of the coffee industry....We believe our solution is about enhancing relationships, not technology....We [intend to] provide deep content and enhancements at no cost, including integration into their back office systems to provide closed-loop transactions.” With field operations in Sao Paulo, Rio de Janeiro and logistics operations in Miami, eCaravan.com is scheduled to launch in November with headquarters in San Francisco.

With so many innovations and rapidly improving mechanisms for transactions, security and privacy is a strong and exchanges must meet those security needs. At eCaravan.com members will be provided with anonymous, encrypted-transaction trading via a secure online platform with select, pre-qualified buyers. The company is a private, independent entity that will not resell or share confidential member information.

As of now, it is eGreenCoffee.com that has implemented all the latest features that have been developed for exchange models in the e-commerce sector. Ahlwalia says that eGreenCoffee.com maximized information security by using policies and the state-of-the-art cryptography of Verisign, a respected name in online security services. Secure Sockets Layer (SSL) encryption used on their site ensures data privacy. As a result, when members visit web pages that request or present sensitive information, such as credit card numbers, the system encrypts the data to prevent third parties from accessing it in transit. “SSL encryption is a proven method of security,” says Ahlwalia.

With information technology (IT) products and services that provide more efficient sales, what is the value of these web sites for the coffee industry? “Better liquidity for the seller and better procurement opportunities for buyers,” states Sideeka. “We want to accomplish trade without having great barriers across international borders. The information to buyers and sellers are available within seconds throughout the world. Most importantly, the exchange allows people to have a better understanding for the physical price of coffee,” he added.

Ahlwalia says the B2B online exchange is bringing the $68 billion coffee industry into the internet economy with an easily accessible, common platform that replicates the current trading process while greatly improving its efficiency. EgreenCoffee.com is also a single source for industry information, including futures quotes, weather updates, market alerts and news.

Finally, the standards for trading coffee are in print, but what about specialty? There are still no standards set in place for making those trades as premiums differ from country to country. Yet, as the internet evolves and e-commerce sites create transactional systems to meet these growing needs, the question that now lingers is which exchange will be first to effectively trade the highest grades of coffee in the world?

Please send your comments and ideas to Rosanna Mazzei, Techknowledgey Buzz editor, at editor@teaandcoffee.net, and to columnist Suzanne J. Brown, president and owner of SJB Associates. SJB Associates is a marketing consulting business in Atlanta, Georgia. Brown specializes in projects for the coffee and tea industries and has published articles on these topics since 1980. She can be reached at Tel: (770) 988-8811 or Fax: (770) 988-0087.

Tea & Coffee - October/November 2000


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