On Linkedin, in the Rough Diamond groups, and in other forums where diamond buyers and sellers try to connect, I have repeatedly watched as buyers and sellers beg for ‘real buyers’ or ‘real sellers’. With so many real sellers and buyers out there, why are there so few deals completed? I went to other groups on professional networking sites on the web, where I also found this phenomenon. There too, were buyers and sellers who cannot find each other or if they find each other, they cannot complete a deal.
I cannot say why the people and companies in other industries fail. However, I know exactly why rough diamond sellers and rough diamond buyers most often do not succeed. I have outlined below the fears of both the seller and the buyers.
Fears of the Sellers:
The truth of the matter is that real sellers of rough diamonds do not or should I say, cannot risk paying all the costs involved to bring their diamonds to buyers in Geneva, Dubai, New York, etc. Consider their position: Miner/exporters must pay all government taxes, usually 3-6% to receive their Kimberly Certificate. Then they must pay the shipping and insurance fees to send the stones to Malca-Amit or Brinks. In addition, they have to pay room fees to Malca or Brinks if they want to show the goods in a secure location for a TTM (Table Top Meeting). On top of these expenses, they must pay for airline tickets, hotel rooms, transportation and meals for themselves and whoever they bring with them to work at the TTM. Add the other miscellaneous expenses and you can see that the seller has a large expense with no guarantee that he will have a successful sale.
To add another problem to the list for the seller, today it has become common practice for some buyers to rent an SBLC, Bank Guarantee,103/23, MT799 and so on. It appears that the buyer has the funds, but in reality, he cannot access the cash! These buyers use the instruments to bring unsuspecting sellers to the TTM and will bring in other ‘real buyers’ to the TTM in the hope that the real buyer will purchase the diamonds and they will ‘flip’ the goods at a good profit without laying out a penny. Sometimes, they are successful and everyone leaves happy.The seller doesn’t care because he sold his goods. The real buyer knew the score walking in and is also happy.
The problems arise when the real buyer either does not show up or does not buy the diamonds even though the buyer and seller have agreed on the price, terms and procedures before hand. Picture you are the guy who rented the financial instrument and your buyer does not show up or cannot perform. You are sitting with the seller who believes you are the buyer and he cannot understand why you are not buying the goods. After all, you told seller you were the buyer. Awkward eh? If you were the seller what would you do? If you were the seller and you had experience with the various shenanigans some people pull, how would you feel about repeating the exercise? Yeah, that’s how real suppliers feel.
Does anyone think that a guy who can put together thousands of carats or even hundreds of thousands of carats is unintelligent? Does anyone think he got that big without having had a number of negative experiences with so called buyers? Of course not, yet buyers are calling these guys for diamonds all the time and the buyers cannot understand why the seller will not work with them CIF! The sellers have been there, done that. Does this mean that no one will work CIF (Cost Insurance and Freight) in Genevaor other free zones? No, but most vendors find the risk to be unprofitable.
Fears of Buyers:
From the buyer’s side there are also major issues. How many times do you have to attend a TTM where the seller does not show up before you begin to believe there are no real sellers? How many manifests do you have to look at before you find one that is even a remotely accurate description of the goods? How many goods do you have to look at before you find a parcel worth the money?
If you fly into Africa, how do you know that when you pay the taxes, the goods will actually be shipped and land in Geneva? Or, if you fly to Africa, how do you know if you are dealing with legitimate sellers who can perform and have all their buying and selling licenses? How do you know if you put money into an African bank that your transaction money is safe and secure? How do you know if you can get your money out of the African bank if you do not go through with the purchase? How can you be sure you will be safe if you go to Africa? How many times do you have to pay for airline tickets, hotel rooms, transportation and meals for yourself and whoever else you bring with you to work at the TTM along with the other miscellaneous expenses before you actually meet a legitimate seller?
Does anyone think that someone who has the money to buy thousands of carats or even hundreds of thousands of carats is unintelligent? Do you think someone with 10’s or 100’s of millions of dollars has not had a number of negative experiences with so called sellers? Yet knowing this, many sellers of diamonds cannot understand why real buyers do not want to fly into Africa, pay the taxes and shipping and hope the goods arrive at their destination.
You cannot blame sellers for wanting buyers to come to them and you cannot blame buyers for wanting to buy CIF. However, I can blame both sides when there are logical solutions to minimize risks and to bring about successful closings.There are ways for the buyer to vet the seller and for the seller to vet the buyer. If you do not know how to do this, you must hire a consultant who does. If you think that you can do this business without any costs or any risk at all, you are naïve.
What you can do, is eliminate most of the risks and reasons why deals fail. This will not guarantee success, but it will guarantee that the only reason the deal does not close is because you the buyer, and you the seller, could not come to an agreement on price. If price is the only reason for failure, you will increase your success rate dramatically.
If you want to have a real chance to succeed at this business you have to have the budget and foresight to hire a rough diamond consultant who can save you the headache and for a fee, prevent losses of large sum of money and time.
Louis Pearl G.G.
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