Lessons from Trade Transactions Gone Wrong: Avoiding Common Pitfalls and Mitigating Risks

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Trade finance is a serious business, with billions of dollars in transactions taking place every day. But as with any industry, there are always unexpected and sometimes even humorous stories that arise. Below, we look at some of the most shocking stories from the world of trade finance and explore the lessons that can be learned from these incidents.

1. 28,000 Rubber Ducks Missing at Sea

The story of the 28,000 rubber ducks lost at sea is a true tale that happened in 1992. A cargo ship named the Ever Laurel was travelling from China to the United States when it encountered a massive storm in the middle of the Pacific Ocean. During the storm, a container full of rubber ducks was washed overboard and the toys began a journey across the vast ocean currents- never reaching their intended destination. Suffice to say, both the Supplier and Buyer were left to deal with such unexpected consequences. Although these rubber ducks may have caused a huge headache for some, they did become the subject of numerous scientific studies about ocean currents and were affectionately nicknamed the ‘Friendly Floatees’.

Lesson learned: Marine Insurance from a well-established company is crucial. Always be prepared for unexpected events and never assume the unexpected won’t happen to you!

2. The Unclaimed Cargo

In 2009, a shipping container of goods worth $300,000 was abandoned at a US Port. The cargo consisted of valuable electronics and fashion items, but the owner never claimed it. The container sat unclaimed for several years until it was eventually sold off at auction. This incident demonstrates the potential risks and costs of unclaimed or abandoned cargo, and the importance of clear and timely communication between buyers and sellers.

Lesson Learned: Always communicate effectively and timeously with all people involved within the supply chain to avoid lost consignments- from supplier, to shippers, to agents and to the end buyer.

3. The Suspicious Shipment

In 2018, a shipment of avocados was detained by customs officials in China after they noticed that the fruits had unusually thick skins. Upon further inspection, it was discovered that the avocados had been injected with water to increase their weight and value.

Lesson Learned: The importance for rigorous quality control and inspection reports within trade finance- the potential consequences can be catastrophic.

4. The Case of the ‘Non-Existent’ Shipping Company

A shipping company in India was discovered to be operating under the name of a company that didn't actually exist. The company had been carrying out illegal activities, including smuggling and money laundering, under this false identity. The incident highlights the importance of verifying the legitimacy of trading partners and conducting thorough due diligence before engaging in business transactions.

Lesson Learned: Proper due diligence and verification of trading partners is crucial in avoiding fraudulent or illegal activities in trade finance.

5. Painted Rocks that cost US$36.6m

In 2020, Commodities trader Mercuria Energy Group struck a deal to purchase $US36.6 million of copper from a Turkish supplier. But when the containers started arriving in China all they held were painted rocks. Clearly the victim of cargo fraud, it transpired that before their journey from a port in Turkey to China had even started, 300 containers of copper had been switched to rocks and spray painted to resemble copper. How did the fraudsters hoodwink one of the largest trading companies on the planet? By using a combination of authentic and fake shipping seals which upon final inspection went unnoticed prior to loading. To add to the blow, Mercuria discovered that only one out of the 7 contracts used by the Turkish company to insure the commodity was real- the rest were fraudulent.

Lesson learned: Never assume that what you see is real- check, check and check again! Container seal numbers should always be checked by multiple, third-party agents and verified with the shipping company. Always check insurance policies with the company who issued the policy. Work with trusted suppliers and partners who adhere to high ethical standards and are committed to transparency and accountability in their operations. Crucially, don’t become complacent- this case really does highlight the importance of adhering to effective legal and regulatory frameworks to protect against fraudulent activity.

These stories from the world of trade finance serve as reminders of the potential challenges and risks of the industry, and the importance of staying alert, informed, and prepared for unexpected events. The unimaginable is always possible within this industry (as clearly illustrated above!).

Geddes Capital recognises the importance of mitigating risks within the trade finance industry. Although we cannot guarantee funding for every shipment (a container of rubber ducks for example), we can offer our expertise to ensure that businesses do not fall victim to the potential pitfalls of trade finance. By understanding the lessons learned from humorous and not-so-humorous stories within the industry, businesses can be better prepared to navigate the risks and challenges of trade finance, and Geddes Capital is committed to helping them do so.

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