Corporate fraud is a significant concern in today’s business world. And in the global trade of recyclables, it’s no different.
That’s why it’s essential to protect the integrity of markets, like scrap metal, plastics and paper, by calling out those who falsify information for sheer greed.
Given that there are so many people involved in a single scrap transaction – from scrap producers, consolidators, buyers, exporters, importers, traders, brokers, and end users – all can be a potential threat or victim of fraud. But with cancelled shipments, as well as quality and weight manipulation, it’s the buyers who take on the most significant part of the financial risk: so much so that they have to build in a 1% margin* to their budget to account for it.
The risk margin – which costs the industry hundreds of millions of dollars every year – adds downward pressure on the market as a whole. This unfortunately results in sellers with integrity either earning less margin to cover the cost of doing business the right way, or cheating to compete – adding heavier, low-quality materials to their shipments.
The Market Today
With buyers losing 1% of margins each year (on average), scrap suppliers are not aware of the effect that dishonest sellers have on the market itself. Many sellers don’t understand why buyers experience so many problems – as money is received before they even ship the product.
Instead of selling the proper, agreed-upon quality grade, some suppliers, traders and even brokers mix in lower quality material with the higher grade, hoping the end user doesn’t notice.
This can cost a manufacturer significantly. For instance, 500 metric tons of HMS. 1 steel scrap, sold at $220 per ton, costs $110,000. Whereas HMS 2 costs $10 per MT less. By sneaking in just 10% of HMS 2, the buyer overpays by $500. This may not seem like a lot, but in the global trade of scrap, deals are won or lost over as little as $1 per ton.
But let’s consider a much worse case scenario. Every 5 to 10 years the average scrap consumer losses amounts ranging from tens of thousands to hundreds of thousands of dollars to fraud.*
Whether it’s scrap steel mixed with mud and dirt, barrels of palletized stone arriving as copper scrap or improperly processed “dirty” scrap plastics the problem always ends up on the floor of the factory that purchased the material. This creates a lot of distrust with buyers and requires them to self insure by building in extra margin, so this buyer’s problem is actually a significant problem for sellers with integrity as well.
Do Your Homework On A Reseller
The price war in scrap materials is everywhere, and unavoidable. A smoothly functioning supply chain where small scrap producers supply to larger consolidators, to traders, and then to manufacturers, no longer exists. Instead these problems produce an enormous amount of market friction costing all parties in the supply chain.
So can buyers trust resellers? Especially in the first two or three deals? Well, the answer is maybe but only after researching them.
Metal, plastics and paper manufacturers should ask themselves questions about the scrap producers and traders they use, including:
- Do they normally ship material quality that meets buyers’ expectations?
- Are they quick and fair at settling the quality claims they received?
- Can they be relied on to ship the full shipment ordered even in a rising market?
One element of any buyer’s research on sellers should be to use platforms like TradeFox, where they can read verified reviews from other industry professionals on their prospective and existing trading partners. It’s like the TrustPilot of the global trade of recyclables – if members have reported an unfair trade , all members that are tracking that company are notified immediately by push notification. That’s a lot faster and reaches many more people than word of mouth. Having immediate access to this type of information has already saved many companies thousands of dollars.
Ultimately, to make the global trade of scrap a safer, fairer playing field for all, the majority must participate in honest practices to turn the tide against cheating. But until everyone gets on board with more legitimate, trusted practices, there will continue to be significant losses – which ultimately impact everyone involved.
Are you a scrap buyer, seller or broker and want to meet new trustworthy trading partners? Check conference.tradefox.co and attend the next virtual recycling conference. Tradefox is hosting these several times a year with the next one just weeks away.
*based on results carried out from Tradefox´s customer surveys over the past two years
