Types of trade and intermediary operations and trade Intermediaries

Depending on the nature of the relationship between producer-exporter, consumer-importer and reseller, the following types of trade and intermediary operations can be distinguished:

resale operations; commission operations; agency operations; brokerage operations.

Let us consider in more detail these types of operations.

Resale operations. Are carried out by the reseller on his own behalf and at his own expense. In this case, the reseller himself becomes a party to the contract of sale with both the exporter and the final buyer and becomes the owner of the goods after its payment.

There are two types of resale operations:

1. The reseller for the exporter acts as a buyer, becomes the owner of the goods, sells the goods in any market and at any price. Such intermediaries are called merchants. The relationship between the partners is regulated by the contract of sale.

2. The exporter grants the reseller the right to sell goods in a certain territory within the agreed period. Between themselves, the intermediary and the exporter conclude an agreement on the granting of the right to sell. The contract establishes the general conditions governing their relationship. For its execution, the intermediary and the exporter conclude an independent contract of sale in accordance with the terms of the contract for granting the right to sell. Thus, the relationship between the intermediary and the exporter is governed by two types of contracts – the contract on the granting of the right to sell and the contract of sale. Such intermediaries are called contractual traders or distributors. The intermediary of the trader under the contract consists in the promotion of goods to a certain territory, may include the organization of maintenance, but always the merchant under the contract must respect the interests of exporters and adhere to certain conditions.

Commission transactions consist in the commission of transactions by one party, called the “commissioner”, on behalf of the other party, called the “comitent”, on its own behalf, but at the expense of the “comitent”.

Relations between partners are regulated by a commission agreement. In accordance with this contract, the commission agent does not buy the goods, but only makes transactions for the purchase and sale at the expense of the comitent, who remains the owner of the goods until it is transferred to the buyer. Most often, the goods are transferred to the commissioner in possession. The risk of accidental death and damage to the goods lies with the comitent in the absence of another agreement. The commission agent is obliged to take all measures to preserve the goods and be responsible for their loss and damage, if they occurred through his fault.

With the buyer, the commission agent concludes a contract of sale on his own behalf, i.e. acts as a seller. He is the mediator for the comitent.

The commission agreement sets the selling price of each batch of goods, either the minimum or the maximum. As a rule, a condition is stipulated on the inadmissibility of setting high prices, which may cause a decrease in the competitiveness of the goods.

Commission agents are usually not liable to the committer for the fulfillment by third parties (buyers) of payment obligations, except in cases where such liability is provided for in commission agreements –  del credere terms. These conditions provide a guarantee of the buyer’s solvency under the contract of sale.

Commission agreements usually include additional obligations of commission agents to provide additional services to the committers, such as market research, advertising, maintenance, etc.

A common form of commission operations is the sale of goods on a consignment basis. When carrying out such operations, the exporter (consignor) delivers the goods to the warehouse of the intermediary (consignor) for sale on the market for a certain period. The consignor makes payments to the consignor as the goods are sold from the warehouse. The relationship between the consignor and the consignor is governed by a consignment contract. An indispensable condition of the consignment agreement is the preservation of the consignor’s ownership of the goods until they are sold to the buyer. However, this right does not guarantee payment for the goods sold. On the terms of consignment, mainly goods of mass demand are sold.

There are several types of consignment operations:

1. Simple or direct consignment. In this case, all goods not sold from the warehouse by the deadline, the consignor has the right to return to the consignor. Simple consignment does not guarantee the consignor a reliable sale of goods within a specified period in a certain territory.

2. In order to increase the reliability of the sale of goods, to strengthen the responsibility of the consignor for the sale of goods, partially return consignment shall be applied. In this case, the consignor undertakes to buy from the consignor at least an agreed quantity of goods not sold by this time after the expiration of the established period. For example, the consignor delivered 1,000 refrigerators to the consignor’s warehouse on the terms of a partially returnable consignment for a period of one year with the condition of the irrevocability of 200 refrigerators (20%). If by the end of the year the intermediary sold 700 refrigerators on the market, then he has the right to return only 100 pieces to the consignor, and he must buy 200 from the consignor.

3. Completely irrevocable consignment. In case of completely irrevocable consignment, the consignor is deprived of the right of return, and all goods not sold by the deadline must be purchased by him from the owner of the goods (exporter).

The methods of remuneration of the intermediary in the implementation of consignment operations are similar as in the case of commission operations: either the percentage of sales established in the commission (consignment) contract, or the difference between the price of the committer (consignor) and the sale price.

The third type of trade and intermediary operations is agency operations.

Trade agents in Europe usually include firms, persons and organizations that, on the basis of contracts with sellers (exporters) and buyers (importers), are entitled to facilitate the conclusion of transactions on behalf of and at the expense of exporters and importers.

In the UK and the US, agents include intermediaries acting for exporters/importers (principals) at their expense and on their behalf. In commercial terms, this terminology is the most widespread.

Agents do not buy products from manufacturers or exporters or resell them. They are authorized by principals to sell products as their representatives. At the same time, the right to determine the conditions for the sale of goods, first of all, to establish the level of prices for goods, remains with the principal.

Agency operations consist of an order by one party, called the principal, to another party independent of it, called an agent, to make the sale or purchase of goods at the expense of and on behalf of the principal. Relations between partners are regulated by an agency agreement or contract.

Agency agreements contain the ultimate powers of agents, mainly with respect to prices, terms of credit and payments, delivery dates, guarantees and liability, since agents act at the expense of principals. But at the same time, an agency agreement should always give sufficiently broad powers to agents to work effectively in the markets.

In addition to powers, agency agreements contain mutual rights and obligations of agents and principals. The duties of agents may include market research, advertising, warehouse maintenance, maintenance, insurance of goods in warehouses.

The independence of a sales agent is expressed in the fact that he is not in an employment relationship with the principal. Otherwise, intermediaries would become employees or subdivisions of principal firms.

The performance by an agent of his activities on behalf and at the expense of the principal distinguishes him from the merchant and merchant under the contract, who trade at their own expense and on their own behalf, as well as from the commissioner (consignor), who, although acting before third parties on their own behalf, but make transactions at the expense of the committer (consignor).

The fourth type of trading and intermediary operations is represented by brokerage operations. Brokerage operations consist in establishing contact between the seller and the buyer through the broker’s intermediary.

Brokers include trading firms, individuals and organizations that look for mutually interested sellers and buyers, bring them together, but themselves do not take a direct part in transactions either in their name or in capital. Unlike a trading agent, the broker is not a representative, is not in a contractual relationship with any of the parties to the transaction, but acts on the basis of separate instructions. He is given the authority to conclude each individual transaction. The broker fulfills the client’s instructions about the quantity, quality, price of the goods, provides a report on all operations performed with his participation. It can monitor the execution of contracts brokered by it. Quite often, the broker assumes the obligations of delcreder.

For its services, the broker receives a reward – brokerage. Its size ranges from 0.25 to 2-3% of the transaction amount.

The broker does not have the right to represent the interests of the other party in the transaction and accept commissions from the other party, except in cases where there is an agreement on this matter.

A broker usually specializes in performing operations for the purchase and sale of one or two types of goods, as a rule, these are auction and stock commodities.