Spec Trade, Demand Trade and Contracts

[JustinInOz]

A recent thread got me thinking. (http://www.travellerrpg.com/CotI/Discuss/showthread.php?t=21102&page=8)
The thread itself was schizoid. The original poster raised issues that sprang into two quite separate and distinct discussions. The one I was interested in revolved around the nature of trade in the OTU. I was less interested in the nature of artificial intelligence and robots.

I agree with some of what Aramis was saying. Other parts simply don’t wash with me. I think that I should summarise my understanding of his argument. He pointed out that the delay in communications brought on by light speed and the distances created a situation similar to pre-telegram international trade. This being that the only significant international trade was speculative rather than demand. The cargoes were owned outright by someone on the vessel. This owner was assuming all the risk/reward of the prospect of a buyer on the other end. This situation corresponds to the spec trade that happens in the OTU. Aramis extended this analogy to point out the unlikelihood of demand shipping to occur. This lag in communication causes any request for trade, the time in fulfilment and transport to mean that the needs will have gone critical before the completion of the order. This demand shipping would travel as freight on the ships. The third kind of shipping would be long standing contract. Aramis invokes common sense to frame this kind of trade as being used as a tool to manipulate market demand/price. This would be done by never having a large part of the market under contract. That way, advantageous movements in price could be capitalized upon.

The demand side of the market about people not wanting to wait for their products, I can understand. As a consumer, I am reluctant to wait for products. If I can not find them in one shop, most likely I will go to another. Only if I have a strong loyalty to a shop will I be inclined to wait. What Aramis seems to be describing, to me, is the public facing shopfront when it is the endpoint consumer or for large firms is the spot market. Yes you get what you want, when you want it. But this market place carries significant risks for the consumer/buyer. The first being a stock out - i.e. they is none available for purchase. The second being the price – it is highly variable. Both of these risks are anathematic to companies. They will do anything possible to mitigate them.

I do not see this “on demand” dynamic functioning between companies. I feel the need to make a disclosure here. I work in an open plan office of a national consumer goods company. Immediately next to me is the procurement department. They negotiate contracts of supply for goods and services. I hear them all the time talking about tender processes and supply arrangements. Companies like to have a guaranteed supply at a guaranteed price. They do this through the procurement process. I asked some of the guys how long it takes to set up a supplier from the announcement of tender to the initial delivery. They said 3 – 6 months, more if it is an overseas supplier. This long process enables them to secure suppliers at good prices. This process mitigates the risks that characterise the open market.

A 2 week lag in communication won’t be a deal breaker in this kind of process. If the supplier is willing to send a delegation who are empowered to negotiate contracts, a 6 week lag between announcing the tender and the arrival of parties is not going to stop it either. In my opinion, a retarding factor of distance is going to be more the incremental freight costs. The further you go the harder it is going to be for all parties to make a credit out of the deal. The further away you are away from your customer, the more likely that someone else will be able to do it for a cheaper productions plus freight cost.

A second disclosure is required. I do forecasting of demand for a living. It is not at all hard to translate a years projected activities into resource requirements going forward. Once a relationship is set up, I do not see there to be insurmountable problems in supplying needs 2, 3 or even 4 jumps away. All it takes is a little planning.

I do agree whole heartedly that there are conditions under which freight trade and speculative trade flourish in exclusion of the other. I don’t think that it is possible to simply state that one exists and the other does not. Or maybe it is possible to state flatly the conditions. In doing so you would be specifying the extreme conjunctions of circumstances. These extremes would not be easily found in practice. Most cases within any given subsector would fit somewhere between the extremes.

Under some conditions, there is going to be flourishing off world trade. Under other conditions there is going to be nothing but speculation trade. I don’t feel comfortable in stating these by fiat. I would like to have a go at setting up an agent based model to determine the conditions where this change occurs. Basically set the parameters and see under what conditions trade goes one way and not the other. Reading this thread and another one on a different board got me to look into agent based modelling

I would like to set up a model of a trading situation. I would like to model some sector of the economy of a world and its trading partners within a limited area. Off the top of my head, Jump – 6 would be as good as any to work with. I would like to model how frequently and under what conditions the firms within this sector of the economy would seek suppliers from within their world, from other worlds and when they would simply make things for themselves rather than seek external supply of their product inputs.

We would need to define agents. What properties they have and what rules govern their interactions. There is an existing paper/model which explicitly explores the situation where a buyer weighs up wether they are going to seek suppliers for their purchases or make the goods themselves. I see suppliers and buyers as being the agents in this experiment.

Trust is a way of measuring the buyers’ subjective assessment of the suppliers’ probability of default. Naturally there would be a greater level of trust of those on your world. You have a reasonable chance of expecting a contract default to be legally actionable.

Tech differences are a major feature of the Traveller universe. The question is how do they impact the production costs of suppliers? If there is a huge difference in tech level, is it possible for the industrial base of one to supply another? One aspect of technology that I can’t get my head around is super high tech device printing. I take device printing to mean that if you have the raw materials (elements) and the plans you can “print” any device. If you can print any device, I don’t see why you can’t print any molecule. This capacity undermines most reasons for trade that I can think of. I would be happy if someone could challenge my assertions on this one.

Here are some links to agent based simulations if they interest you. Links:
General Links: http://econ2.econ.iastate.edu/tesfatsi/abmread.htm
The one I would like to base this on: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.134.3532&rep=rep1&type=pdf.

Is anyone interested in colaborating on this model?

 

[aramis]

That 3-6 months they take... now instead of each phone call or email, replace it with a letter and response each taking at least a week. You're now looking at at least 4 months to several years to hash out that contract; in many cases, you're better off just building the widget factory locally if you need a steady supply of widgets...

And building a supply chain over distances greater than a parsec? multiply the comm lag by the number of jumps. And note that the costs of jump are broken for jumps over J2 in every edition (with the possible exception of GT, for which I've not run the numbers)...

I'd be curous to know how many communications are involved in setting up a supply chain (I know from a retail end that a steady supply at salable rates takes weekly calls... and the fulfillment time is 1-2 weeks counting 72 hours of shipping... at least for items in stock at the distributor). Now up the shipping and commo time by another two weeks.

You're coworkers across the hall do their job with a rapid communications environment. Their job escalates in difficulty when all communications are lagged. It rapidly escalates the lead and maintenance time lags for the contract.

(Large standing orders really take off after the telegraph; by comparison to the weeks for letter, suddenley it was send an employee to Western Union, and the next or 2nd business day, close of business, that message is at the other end.

And not all speculation requires it be owned by someone aboard. It merely requires an agent capable of selling it be aboard.

 

[DFW]

There was plenty of demand trade (intercontinental) in the age of sale. The build your own widget works if you have the TL & other items. Why does the US import autos?

 

[rancke]

There won't be much, if any, "we've run out, order some more" interstellar demand trade. I can think of no reason why there wouldn't be plenty of "We're going to run out in six months, order some more" interstellar demand trading. And the amount of such demand trade will have a strong correlation to the size of the planetary population. If low and low-medium population worlds can keep some free traders in business, high-medium and high population worlds will keep lots and lots of big company freighters in business.


Hans

 

[MarcPolo]

Bad link?

The one I would like to base this on: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.134.3532&rep=rep1&type=pdf.

I'm unable to get the pdf at the end of this link. Could you check availability and perhaps update the link?

Thanks
Mark

 

[aramis]

There was plenty of demand trade (intercontinental) in the age of sale. The build your own widget works if you have the TL & other items. Why does the US import autos?

You'll need to show documentation; almost all of the trade flows I've encountered documented in history were speculative. Stable, but speculative.

It was not "Go buy us slaves" but "Go here, buy stuff, probably slaves; go there, sell what you bought, and buy more, then buy stuff you think will sell here, like wood and cotton, and sell it when you get home, then split 10% of the profits. Here's £20K operating capital."

And there might or might not have been slaves, rum, or cotton left when you got to A, B, or C...

From the standpoint of on-world vs off-world, look at the US colonies... the first thing most did was start building the infrastructure needed to support itself rather than rely upon trade with England.

Not that the colonies dropped trade with England, but they didn't rely upon it, and there were local suppliers for most things traded for as well.

What you didn't see much trade of was stuff that was massive and expensive... stuff that sold in large expensive units, like boiler vats, forge supplies, and carriages were almost all made locally.

The African and South American colonies fared similarly; build what you need, trade for luxuries, booze, and extra tools. Only in the med was food or other demand flow common; most of that died (went speculative) when Rome fell.

 

[CosmicGamer]

The 'nature' of trade?
Blah blah blah.
A bunch of words that confuse me. I'm not sure what is being talked about. I'm not putting anyone down. I'm just confused about what the issue is. Is there a specific question somewhere or is this just a general discussion on trade?
======================
A discussion of how long it takes to negotiate price or to generate a contract due to communicating across Jump makes little sense to me. To me, a Traveller speculator is someone at the location they are buying goods and negations take place instantly. They then travel to the location they want to sell the goods and negotiation again takes place instantly.

A Traveller trader in non speculative goods does not need the instant communication because they would be dealing with known (from previous speculation or by visiting them to set up initial 'trade route') manufacturers/suppliers/retailers that they already have contracts, agreements, and relationships with. They should know the products and recent pricing and only need to determine the current price which may have changed due to fluctuations in the economy, supply and demand.
======================
My opinions on trade:
- Trade has, does, and can occur with slow communications and shipping and it can do so in Traveller.
- I'm not some economics trade expert and don't know much about how trade has, does, and can occur.
- I don't want to be required to know these details for a game.
- The details should be 'black boxed' behind simple game mechanics.
- Game playability should take precedence over complicated, simulation.
======================
While time, price, availability, variety, customization, and numerous other things can be factors; the ultimate need is profitability.

It does not matter how long negotiations take. It doesn't matter how long shipping takes. All that matters is that goods were available on Planet X and demanded on Planet Y for a profit. The reasons for why are numerous. Perhaps you could create a table to roll on.
======================
- Legal and approval delays. Negotiating contracts was mentioned somewhere. This will include needed different people to review the document and 'sign off' on it. I find it fairly rare for paperwork, even when sent instantly, to read and responded to quickly as it goes from one busy person to the next.
======================
For the following, I use my friends business as an example.

My friend is a middle man who buys goods from China and sells them in the US. He deals in a specific range of goods (for example clothing or electronics, or furniture). While he does often speculate within the product category he is familiar with, he rarely buys things outside this product line.

- Communications delays often occur.
PHONE Due to a difference in language requiring translators, the need to have most things in writing, and the fact that they are asleep when we are awake, very little is done over the phone.
LETTERS Letters certainly are not instant. They are pretty close to the Traveller jump week.
EMAIL Better, but certainly not instant. Many people have a huge amount of email and do not check their email promptly, sometimes it drops so far down the que that it will never be gotten to and only when a subsequent email is sent does it get someones attention. Often you send an email when the other side is asleep and then they read and reply when you are asleep so even for diligent folk, 24 hours from sending an email to getting a response is pretty good.
- Goods literally arrive on a slow boat from China. Not dissimilar to the time a Traveller trade route of one Jump would take.
- Often goods are not warehoused. China builds them when they get the order. This will obviously cause delays. Sometimes this can be weeks. So my friend tries to order based on past demand and predicting when his supply will run out. He also knows when the manufacturer is likely to encounter delays, such as around the Chinese New Year.
- Unlike Traveller where prices are negotiated and can vary a great deal for identical goods, in my friends business the price is often quickly determined. Manufacturers advertise their discounts based on the total value of the order. Some advertise discounts based on quantity ordered. Prices are usually in magazines, catalogs, and web sites and not something negotiated in back rooms. Unless you get exclusive importing rights (which does sometimes occur), all your competitors can get the same products at the same pricing.
- Requesting custom built goods can require much more time. Typically you will work with a manufacturer you already know and have dealings with which will help things go a little more smoothly and quicker. This also often requires many iterations of manufacturing, shipping sample products (which I've indicated earlier is often no faster than in Traveller), testing, and making modifications; repeat. Time consuming already. In Traveller, if someone wants to decrease the time for their custom item to get produced they could send a team to the location of the manufacturer.
- Speculating may not be profitable: Suppliers might ship the wrong items or defective items. What kind of customer support do they have? When dealing with new suppliers, my friend typically will do a small order foregoing the discounts and larger profit until a trusted relationship is built. After this, you will know what products and pricing the supplier offers so there is little delay due to negotiating when you speculate on something from this supplier.
- Information and pricing on newly available products is sent out to previous purchasers that might be interested. These people want their goods to be bought so they are not going to keep their sales information hidden away.
- The manufacturer is not constantly changing the price and when they do, my friend is notified. Sometimes my friend will order something and the cost will be different than he expected because it changed and he was not notified yet or he didn't read the email, open the letter, or look at the price of every item in the new catalog. He certainly doesn't like when it goes up. Sometimes it goes down due to a reduction in production costs. It is typically not a huge change in price and my friend usually grumbles and lives with it, and assess changing his pricing to reflect the unexpected change in his cost.

 

[DFW]

You'll need to show documentation;

Go get an advanced degree in econ. It's all there.

 

[JustinInOz]

Bad Link

I'm unable to get the pdf at the end of this link. Could you check availability and perhaps update the link?

Thanks
Mark

The link worked for me. Strange.

Probably easier if I upload the attachement.

 

[aramis]

Go get an advanced degree in econ. It's all there.

Modern Econ begins with the Telegraph.

 

[DFW]

Modern Econ begins with the Telegraph.

So? Like I said, go get your degree and then get back to me.

 

[rancke]

So? Like I said, go get your degree and then get back to me.

Or perhaps you should come back to us when you're willing to back up your assertations without requiring us to take degrees. For most of us, Traveller is an avocation, not a vocation.

Oh, and here's a free clue: If you want to join in our discussions, you'd probably have a lot more fun if you lost the attitude. I know the rest of us would.


Hans

 

[JustinInOz]

That 3-6 months they take... now instead of each phone call or email, replace it with a letter and response each taking at least a week. You're now looking at at least 4 months to several years to hash out that contract; in many cases, you're better off just building the widget factory locally if you need a steady supply of widgets...

I understand what you are saying here and I agree with you that the communication lag would be considerable. That I why I suggested that this lag would not be tolerated. I said that a party empowered to negotiate a contract for the supplier would be sent. They would do all the communicating face to face.

One of the greatest arguments for not building your own widget factory is that someone you trust can do it cheaper. If they build widgets for you and 10 other customers who also want widgets, they can access economies of scale that are simply not avaiable to you. So if you get supply from them, you can run your business more profitably. You can concentrate on what you do best and not be distracted by setting up your own local, small scale widget factory.

And note that the costs of jump are broken for jumps over J2 in every edition

I am not 100% sure what you are refering to with this one. Are you meaning the rules statement that prices are charged per jump rather than distance? If you are then I wholeheartedly agree. Prices would be some function of cost and profit. Charging per jump ignores this. I strongly suspect this is from not thinking through all of the ramifications of a rule fiat. But that topic is not really where I am interested in exploring in the present discussion.

I'd be curous to know how many communications are involved in setting up a supply chain

There is heaps of communication. Do you think that this communication need could be addressed by the Vicepresident of Export visiting the prospective buyer’s world with a gang of accountants and lawyers to hammer out a deal face to face?

An example of a successful pretelegraph business model comes to mind. That being the set up of the family Rothschild. The father sent out his 5 sons to critical business locations. He sent them to Vienna, Frankfurt, London, Naples and Paris. They had executive powers within their spheres. They were the megacorporation of their day. They were granted noble titles. Their activities remind me a lot of the kind of things I imagine that Traveller Nobles do.

 

[JustinInOz]

The 'nature' of trade?
Blah blah blah.
A bunch of words that confuse me. I'm not sure what is being talked about. I'm not putting anyone down. I'm just confused about what the issue is. Is there a specific question somewhere or is this just a general discussion on trade? .

Given your summary, I really appreciate the depth of the answer you gave. It is a very informative one. I am trying to get my head around what causes which type of trade to occur and when.

The idea being that when a subsector (or what ever size you are using) is set up and detailed before play these kinds of things can be figured out. After they have been figured out they don’t need to be worked on in play. They form the back ground of what is going on a starport or they form the detailed “terrain” for a trading based game. The last thing you want to do is have this kind of stuff delaying play.

The fact that freight comes “on a slow boat from China” means that all that is happening in the Far future is that this same slow boat comes to you. If you want to pay a premium, you send your message in a high jump courier. If wikipedia is to be believed, the Rothschilds did have such a courier system in that they knew about the results of the battle of Waterloo one day before the government in London did. The London head of Rothschild bought up government bonds on this information.

I find it particularly interesting the information on the publication of pricing schedules. This would assist in setting up long distance trade relations. A lot of what you describe is addressed in the paper I attached to this thread.

 

[DFW]

Or perhaps you should come back to us when you're willing to back up your assertations without requiring us to take degrees. Hans

Sorry but contrary the belief of some, most written knowledge doesn't exist in linkable form (ie. isn't available on the internet). So, demands for me to link old text books and live professor presentations will be met with a similar response.

 

[rancke]

Sorry but contrary the belief of some, most written knowledge doesn't exist in linkable form (ie. isn't available on the internet). So, demands for me to link old text books and live professor presentations will be met with a similar response.

Not a problem. We'll just ignore your unsupported claims.


Hans

 

[Andrew Boulton]

So? Like I said, go get your degree and then get back to me.

This is an interesting discussion, please don't spoil it. It's not unreasonable to ask you to back up your assertions.

Play nice.

 

[JustinInOz]

Thanks for your replies guys.

I will have a crack at setting up the agents and rules for the model.

I will offer them up for criticism when they are done.