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Understanding the economic geography of commodity trade

It is often argued that the competitiveness of ports depends on their ability to insert themselves in global supply chains. However, the influential role of commodity traders in managing these global supply chains is not well understood by port planners. The case for commodity trade is compelling. It is linked with the financial sector on the one hand and with production, storage and distribution on the other. And these activities do not necessarily need to be in each other’s proximity. Another compelling reason to look at commodity trade is that access to, and control over, increasingly scarce commodities and contested supply routes are becoming more and more of a geopolitical concern. The aim of this research is therefore to understand the economic geography of commodity trade.

What is commodity trade?

Commodity trade is an investment strategy where goods (raw materials, production inputs) are traded instead of stocks. Commodities traded are often goods of value, consistent in quality and produced in large volumes by different suppliers such as wheat, coffee, sugar, oil, ore and non-ferrous metals. The role of the commodity trader is to match supply with distant demand and negotiate a premium. In essence, the competitive advantage (the capacity to negotiate a premium) of the commodity trader is based upon its knowledge of and information on supplies, demand, quality, prices and risks. These factors differ geographically. In order to take full advantage of these geographical differences, traders need to understand complex financial-economic instruments while at the same time need to carefully manage global logistics to ship the commodities on the right time to the market. This is what consultant Oliver Wyman calls ‘optionality’: “the ability to pay producers more than end users while selling more cheaply to end users than producers can afford”.

Who are the commodity traders?

There are two types of co…

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Dr. Wouter Jacobs and Thomas van Bergen, ITMMA, University of Antwerp, Belgium
Edition: Edition 61

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