PRIMEUR “First loss is often the best loss”
Trade company Lehmann & Troost is specialised in day and contract trading. The company consciously doesn’t choose long-lasting contracts or contracts ‘far in advance.’ The fickleness of the market, both regarding production and consumption, and the resulting observance of the contracted (“which quite often leaves something to be desired because of that fickleness”) are the reasons not to work with long-lasting contracts or contracts in advance. Bram Troost recognises that it’s difficult to find new salespeople who understand the trade and can ‘read’ the market. He soberly looks at the global developments, after all, how large is the Chinese market in actuality? And how much impact will Brexit have in the end?
Lehmann & Troost mostly focuses on day trading and short-term contracts, why?
“We were founded in 1958. During these nearly 60 years, we’ve seen many changes. The number of producers with direct contracts has increased. This has no added value for the trade. Long-term contracts are only useful in the sector in which cost price of the fresh product isn’t the main part of the cost price of the final product, unless you enjoy gambling. So what is the function of the trade? Some focus on packing or convenience to guarantee their position. We asked ourselves whether that makes sense, and which long-term continuity it would result in, in part due to the investments needed, and the commitments the buyers of the final product are willing to make.”
“We recognise that production and consumption are subject to weather influences, and that the market is therefore often very irregular and unpredictable. This leads to irregularities in sales and in production, which has to be got rid off or supplemented. This is where trade has its function, and which we focus on.”
“Moreover, we conclude that the cooperation with retail comes with many specifically retail-related requirements (sizing, packing, labelling, supply, billing, certifications, and more), and that meeting these requirements has a considerable impact on an organisation. This results in time and attention for futures being lost, as well as for finding the right answers to irregularities between production and consumption.”
Does this mean the share of contracts won’t change for you?
“We recognise that the share of contracts takes up a large part of the market. However, we only supply based on contracts if we can come to agreements based on: price, period, quantity and specification. These four aspects are inseparable in our opinion, after all, what else can be contracted? Besides, we only do short-term contracts. It’s only possible to make fair and realistic predictions about supply and demand in the short term. It’s possible to make a fair prediction about how large supply will be, and how the market will probably continue to develop one or two weeks in advance. This is impossible for moments far in the future. We often see similar contracts based on historical data, but this data is never the same two years in a row.”
What is the biggest challenge for day trading?
“Maintaining good commercial expertise. It’s not just a challenge for day trading, but for trading in general. There’s a lack of influx of youths who understand how day trading works, and who are willing to give an interpretation to this. Naturally there are many people active in our branch, young people as well, but most only fill a limited commercial role. For all contract trading it concerns a one-time commercial action followed by a series of administrative actions to handle that which has been contracted, and that is what most people are working on. When I say commercial expertise, I mean: the people who have a knack for trading, who can make good analyses, who know what’s going on in the trade, and who, based on all this information, know how to go in the right directions, while meeting the interests of both the customer and the shipping agent. We see many older salespeople with much knowledge leaving the trade. It’s difficult to find new people with enough knowledge of trade for these positions.”
Is that also where the sector can find a part to play to better profile itself in, for example, training for salespeople and thus attracting young people?
“Because of the fresh element our sector differs from other sectors, it can’t be standardised. Sometimes decisions have to be made that are incomprehensible to outsiders, because in their consideration the fresh element isn’t taken into account. We can only go home if what has to be sold is sold, once again because of the fresh element. For the old familiars of the sector that makes sense, but for outsiders and supporters of the new economy this is difficult to understand. You can’t offer someone a job with fixed hours from nine to five and a mobile that can only be reached when it suits the employee. We see the group willing to do this job decreasing.”
“Besides, the sector has become so specific with such an enormous amount of details that all have to be taken into account, it’ll take years before you have plenty of knowledge and experience of the products, markets, legislature and certification. That’s not what young people want, they want to start a position ad hoc, and score quickly. That makes it even more tricky to find suitable candidates.”
Does that mean there’s no future in day trading?
“Day trading will always be needed to even out irregularities on the market, but the group that can perform that trick is decreasing. Only if all the irregularities would be removed from the market, everything would be streamlined enough that supply and demand would be completely in balance, only then would day trading no longer be needed. But that isn’t the case. This isn’t the case for any product. Not for non-perishable goods either: What do you think the Action shop chain owes its existence to? Or why there are Outlet Shopping Centres?”
The market is quickly changing, supermarkets are doing their own importing, sales offices are being opened in Europe and traders travel the world. Has this changed the role of importers?
“The role of importers has changed enormously. Every foreigner can establish themselves here and open a sales office. If they don’t require physical attendance, they can be fiscally represented by a logistical service provider. Supermarkets have their own import programmes. Transport units have become smaller. While you needed to charter an entire boat to import from certain regions in the past, every corner of the world is now accessible through a container. Because of all of this, it’s become possible for everyone, regardless of their means, to start an import project. Importing has changed enormously because of this.”
“I have learned that the question has arisen in political corridors as to whether the goal people had in mind has been achieved through fiscal representation. I think that question is justified. After all, what’s the use if a company is fiscally represented here, makes (nearly) no payments of any kind, with the exception of the import rights (which begs the question which values are used to this end), and then make complete use of all the facilities offered by the Netherlands and/or Europe?”
“Suppliers from all over the world with their own sales office have a wonderful entry into retail that wants to buy directly from them. But what if sales stagnate? What happens (or doesn’t happen) when overseas apples sell for half the price they had at the start of the season? What are the circumstances a producer can’t or won’t foresee? If a producer starts working as a salesperson, it still results in problems, especially if this is done from a distance. That might make sense, because a producer looks at their product differently than a trader. He takes different values into consideration when making decisions compared to a trader. In trade, your first loss is often your best loss. However, it requires insight and daring to come to this decision. Mind you, all following solutions are often (in hindsight) poorer solutions and no longer free but forced choices dictated by the remaining limited shelf life of the product.”
“For a producer, own control often feels nicer, but it doesn’t lead to the right commercial decisions. We also see that people, because of the wish for own control, loss sight of the costs. What was compensation to the importer (whose service went much further than just logistical services, and included pre-financing, marketing, default risk, among other things) compared to what people pay nowadays to their logistical service providers plus the costs of maintenance of their own sales organisation? Last but not least, due to the financial involvement of the importer at the time, timely decisions were made more often then, so that total disasters could be prevented.”
Could you give an example of that?
“We were approached in October last year: a batch of 300 pallets of lemons was imported into Europe by a supplier from South America late May/early June. During the period the lemons were on the market, the market moved from prices around 22 - 23 euro per box to gradually lower levels. For reasons unknown to us, that batch remained unsold during that entire time. Only after four or five months did people decide to do something. But the product was four or five months old now, and the market for a similar product (in part due to the emergence of new harvest European production) had dropped to a dramatic low. The reason why this batch was left untouched for four or five months is unknown to us, although we do know much money was lost. This is only one of the examples we can give.”
How can a producer absorb this?
“By maintaining free trade besides retail. Respect and discipline are of great importance for that. It doesn’t work and isn’t respectful if retail gets everything and free trade nothing when demand is good and vice versa when demand is bad. Naturally it’s appealing to sell everything in one programme at once when the market is good. However, you then damage your contacts with free trade, and you might need that same free trade later when the market’s bad. It requires discipline to always maintain a good balance in that. If you do favours in the good times, you can ask for favours in the bad times. After all, free trade offers more opportunities to clear when sales aren’t going as expected.”
Is this also the case in times of scarcity?
“A different example: in the past there were two or three types of tomatoes; beefsteak, loose and vine. We now have many more: beefsteak, loose, vine, plum, cherry or mini cherry, low-priced ones or flavourful ones loose or vine, in various colours and so on. Everyone is trying to be distinctive. They’re all tomatoes but at the same time they’re also separate products with separate markets. Following all of these different markets has become a very intense process. Especially when you consider a similar analysis shouldn’t just be made of the Netherlands, but of abroad as well. Abroad doesn’t just produce to meet their own needs nowadays, but they have also become players of importance on the international markets, and they also all produce these various types.”
“Producers commit themselves to retail to supply a certain variety. If production doesn’t develop parallel to demand, it leads to surpluses that have to be got rid off, or shortages that have to be supplemented. Because of the large diversity it’s quite a job to know what is going on and how to respond to that. It requires much attention. You need an entire team to test and filter the available information, a team that can remove just the core that matters so that they can set a course according to it.”
“There’s a lot of non-information on the market. The German discounters are major players. When they place a large order, the entire market moves. It’s up to the trade surrounding it to interpret what this means. What are a customer’s risks and in the end, what should a product’s return be in shops? That’s the information you need, because if the market changes, you need to be prepared for it.”
You also have Dutch products in your assortment. Do these things also apply in this market?
“Yes, or perhaps I should say, this market in particular. Clocks are manipulated every day to put the competitor on the wrong track and to remain one step ahead of them. The bizarre thing is that the few clocks still around don’t even show the numbers representative to the market, the sales prices of these numbers are manipulated (which everyone knows), and yet the results of the clock are used by a large part of the branch as indicator of the market.”
We hear a lot about new markets, China, for example. Does that keep you occupied as well?
“We have been active with import in various parts of China since 1990. I hear a lot of rumours about this market, but how much volume is actually being sent there? I don’t think it’s a market where a tonne of European product is sold. Of course it’s a large country and if it would open its borders there would be many opportunities, but how much has really been exported to China up till now? You mustn’t forget that China, like Europe, is in the Northern Hemisphere, so we have the same seasons. For countries such as Chile, Peru, South Africa and others it would make a difference, because they have opposite seasons.”
You have a subsidiary in the UK. Is Brexit positive or negative for you?
“Who knows? The Brits live on an island, and the fact is that they have to import. Of course they now get fewer imported goods for their money, but they’ll still have to eat. For our company in the UK it has now become more appealing to pack over there than on the European mainland. Besides, we see a struggle going on with all sorts of appealing tax alternatives to attract international companies. We don’t know who will win this struggle, but what we do know is that people will always have to eat.”
The exchange rate is an uncertain factor. How do you deal with it?
“As long as the changes aren’t too ad hoc, it’s fairly easy to deal with it by taking up positions. If you ask me, the markets are too connected to each other to have enormous results, and when this does happen, measures will follow that bring the irregularities closer together again. The exchange rate is naturally important to the fresh produce trade, but by making calculations with a slightly higher rate, and by taking positions, this can be dealt with fairly well. In trade it’s about bridging five or six weeks, the time between supply and payment. It’s a different story when it comes to investments.”
How does the future look for Lehmann & Troost? Where will you be in five to ten years?
“After this interview it should be clear how we see the market, where we see weaknesses and scarcities, but also where we think the opportunities are. By means of a small, flexible team, a low overhead, respect for the perishability of the product, and by staying grounded we hope to continue to meet these opportunities.”
“We have seen major changes in the past 60 years of our existence, we are convinced that major changes are still to happen as well. The entire financial market is currently being manipulated to keep it at an affordable level. We don’t know how long governments will be able to pull this off. It seems to us that the current manipulation can’t last forever, it has already gone much too far. As soon as it ends, and actual economical laws can govern unmanipulated again it will have major consequences, for our branch as well, and changes are opportunities.”