The cross trade is a type of operation that is carried out in international trade in which three participants who are located in different countries are involved. The idea is, with the action of an intermediary, to prevent the merchandise from having to pass through intermediate points in order to reach its destination.
The cross trade, also called triangular operation or cross-selling, is one where three agents participate in an international sale. In this way, it is sought that the product goes directly from the supplier to the buyer, without having to stop at intermediate places.
What is the point of avoiding intermediate points? Cost savings. For example, imagine that a merchandise that goes from country A to country B, but has to stop in country C, and must remain in a warehouse for 48 hours. For this time, a cost must be paid.
Characteristics of the cross trade
The characteristics of the cross trade are mainly:
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- Each of the participating companies are located in different countries.
- It includes three participants: The buyer or end customer, the supplier and the intermediary.
- The owner of the operation is the intermediary, it is the one that manages the transfer of the product directly.
Advantages and disadvantages
Among the advantages of cross trade we can mention:
- The merchandise is moved faster because it will not stop when it is transported.
- The reduction is not only in time, but also in costs. As we mentioned before, paying for storage at intermediate points is avoided. This, also taking into account that freight (payments that must be made to move merchandise from one place to another) have a relevant impact on the cost of the operation.
- Related to the previous point, the customer receives a better price. This, by reducing shipping costs.
- The supplier receives payment for his product quickly. Because it already operates with an intermediary that would be expected to be a company that offers guarantees and has a track record and experience in the market.
However, there are also some disadvantages in this type of operation:
- A series of procedures and documents are required that can generate inconveniences for those who are not related to the subject. In other words, bureaucracy can be an obstacle to making cross trade viable.
- Related to the previous point, it is required to have a consolidated company in the market as an intermediary, with a large network of customs agents globally.
- There may be mistrust in coordinating and reaching an agreement to delegate the management of the operation to an intermediary, and, even more so, taking into account that the importer and exporter may not know each other (it can even be said that the latter is the most common).