This is part of our series of scrap industry interviews where we uncover horror stories and bad practices. We’re sharing them with you to highlight how we can improve the scrap industry together. Names have been removed for legal reasons and some editing done for clarity.
Expanding a Network Dangerously
“I am a US-based broker dealing in exports to Asia.
I ran into difficulties several years ago trying to find new suppliers outside of the US. In the US I have some really great suppliers, but there are many times when market prices don’t work out for my markets in Asia. I primarily sell to customers in Pakistan, India and from time to time Indonesia.
In trying to expand my network I was doing some research online and I located a guy who ran a small scrapyard in Romania. I had several phone calls with this guy and he seemed genuine, but of course, my partner and I needed a due diligence check. It was hard to find any information about him online. There wasn’t any bad information about him, but there also wasn’t any way of verifying his ownership in the company, how long he had been in business, or his previous transactions.
We asked him to refer us to some of his buyers, and we got in touch with two of them. They said that they were buying from him on a regular basis and they’d had no problems with him in the past. Of course, we verified that his referrals operated real companies and they weren’t just his friends. You never know, so we double-checked everything. In this case, his referrals checked out and even though he didn’t have much of an online presence, we were feeling fairly comfortable. My partner wanted to meet him in person since developing the relationship could prove very profitable over the next few years, so we decided to book our flights.
We flew to Romania and met with him in person. He took us to this little scrap yard, and then we had dinner at his house and met his wife. Everything certainly seemed to be on the up-and-up, but my partner was still uneasy about the guy. He wasn’t sure why, but he didn’t feel our potential new partner was being totally honest with us. Partly because we had heard about horror stories from other people in the industry and how there are people out there that would take all of your money and not even blink an eye. So, meeting this new partner in Romania and meeting his family, seeing his small scrap yard, it all seemed to be too good to be true. My partner wanted to do some more digging before we shook hands and did business, even though the seller had files full of documents with bills of lading and bank letters… several filing cabinets full of deals that he had allegedly completed.
While we were in Constanta, my partner and I decided to visit a few other scrap yards to look for additional opportunities for our customers. Why not get the most out of our trip, right? But when we started talking to one of the scrap yard owners there – and this guy was clearly an icon in the community, running the largest scrap operation in the port city – he gave us cause for concern simply because he had never heard of our potential new partner nor his company. We figured if anybody would know everybody in the area it would be him, but he had no idea who he was. He cautioned us to be careful.
We decided to go back to the US without closing the first deal even though the terms were very attractive and the demand from our customers was strong. Neither my partner nor I felt totally comfortable, and we just wanted to do a little more research before signing on the dotted line. It’s a good thing we did, because just a few weeks later, we got a call from one of his buyers telling us he had just been robbed. He had purchased about 250 metric tons of re-rollable but when the container showed up, there was nothing inside but dirt and trash. Not only was this guy stuck with a financial loss of all of his up-front money, but he also had a huge cleanup issue as well. The buyer had lost about $80,000 USD. So this buyer was a fraudster all along. He was just trying to sucker us in so we would place this large order with him. He would have taken nearly all of our money, and he had perfected the art of forging documents. All of those documents in that little office in his house were probably nothing but a collection of forgeries. We wasted a bunch of time and money that we could have spent on real business. We got lucky this time, but the other buyer lost quite a bit of money.
After being in this business for over 10 years, I can’t tell you how many similar stories I’ve heard like this from friends of mine in the business. Somehow, we need a better way to find new trading partners. It’s one thing to find one in your own country, but when trying to trade with companies in Africa, Asia or anywhere that you don’t know the customs, the laws, and more importantly—who you’re dealing with… its almost impossible to avoid falling into a trap from time to time. Most people just see it as the cost of doing business in this industry and I think most people lie to themselves about how much money is wasted like this and also how good they are at judging a person’s character. A lot of folks think the last time they lost money with be the last time they will ever lose money. But the scammers continue to evolve and I’m convinced no one can avoid problems altogether in the international space. I hope you folks at Tradefox can make this situation better. ”
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