For those who wish to obtain information concerning the cotton trade
from this pamphlet, certain subjects are here elaborated, which were,
so far, only indicated in connection with other explanations.
Of first importance are the shipping documents, which consist of bills
of lading and insurance certificates. There are three kinds of bills of
lading: Port Bills of Lading, Custody Bills of Lading, and Through
Bills of Lading. The first must be signed by the captain of the
steamer, who has undertaken to carry the goods, or by a duly authorized
shipping agent. They are, therefore, an absolute guarantee on the part
of the ship, to deliver the goods to the holder of the bill of lading.
Unfortunately, this obligation is frequently restricted by the
insertion of certain inconspicuous clauses. The "custody bills of
lading" are signed by a shipping agent, they acknowledge receipt of the
goods, and promise the forwarding in due course. In order to obtain
equal value with the "port bill of lading," they should, later on, be
supplemented by a so-called "master's receipt", which is an
acknowledgment by the captain, that he has actually accepted the goods
for forwarding, in accordance with the conditions of the custody bill
of lading. They are used when the goods have arrived at the port,
previous to the ship.
The "through or railway" bills of lading, oblige the railway companies
to forward the goods from a place in the interior of America, to their
destination. A master's receipt is not necessary, but desirable, as it
is an easy means of ascertaining by which steamer the goods are coming
forward. At one time, "through or railway bills of lading" were not a
properly valid document, as the railway companies were not in duty
bound to forward the goods. Now, however, a change in the American Law
binds the companies to this duty.
The "Insurance certificate" confirms, that the goods have been insured
on the terms of an insurance policy, which remains in America, and in
case of claims, it has the same documentary value as the policy itself.
When "total loss", "general average" or "particular average" occur,
claims on the insurer can be made, which must be substantiated in the
port of discharge.
Any claim, referring to difference in quality or loss in weight, has to
be made on receiving the goods, and the complaint has to be lodged
within a certain specified time. On these points, the Bremen Cotton
Exchange has specific rules which are easily understood.
If one party to a purchase or sale contract goes by default, the other
party is obliged to send in their claim within the time stipulated by
the rules of the Bremen Cotton Exchange, this is most important, as the
non-observance may mean the loss of any right to claim. The method in
which these claims are made up, is easily seen from the Rules of the
Bremen Cotton Exchange.
If one party suspends payment, all unfulfilled contracts are
immediately settled, without any action of the other party. The
obligation to take or make delivery ceases, and, instead of this, the
difference in price is fixed which exists between the date of contract,
and the time when payment was suspended. These differences in price are
put to account between the parties concerned. It can thus easily
happen, that the solvent concern has to pay a considerable amount to
the other party, through whose fault the contract was not carried out,
and yet, this constitutes no loss to the paying party, as they can at
once cover themselves at the existing prices. The advantage of this
procedure lies in the fact, that the solvent concern is not left in
uncertainty, whether their contracts will be fulfilled or not, while,
otherwise, this decision would rest with the liquidators, who,
according to Common Law, are not obliged to declare themselves, until
the stipulated time for delivery has been reached.
Of great importance in the cotton trade is the business for future
delivery, and that in a two-fold form. All transactions in "futures"
are governed by the stringent rules of the respective Exchanges, which
refer, particularly, to the price differences caused by the
fluctuations in the market, and the safeguarding of the interests thus
created.
Indirectly, every buyer comes frequently into contact with the "future"
business, because, for years past, the importing of cotton has not been
done at fixed prices, but at so many points "on" or "off" certain
"futures" in New-York, for instance, a purchase is made of "goodmiddling"
October/November shipment at 200 points "on" December, or lowmiddling
at 200 points "off". At any period up to the time of shipment, or even
of arrival of the cotton, the buyer can elect to fix the price on the
market of the following day. Should then December in New-York stand at
20 cents, the price for "goodmiddling" would be 22 cents or 18 cents
for "lowmiddling".
Very peculiar is the "hedge" business, to which reference has been
made, and it might be advisable to give a few examples as an
explanation.
A spinner is obliged to buy cotton to prevent stoppage of his mill, a
sale of yarn is impossible for the moment and he decides on a "hedge"
transaction. He buys "goodmiddling" at 22 cents, and sells at the same
time in New-York 200 December "futures" at 20 cents. Later on, the
market advances to 22 cents, and at this price the spinner covers his
"future" contract, thereby, losing 2 cents. The purchase price of his
200 bales is now not 22 but 24 cents. As the movements of cotton and
cotton products run on parallel lines, he has the same chance, for the
sale of his production, on the basis of 24 cents, as he had at 22
cents. He gained a longer period to effect a favorable sale, while the
chances of the market remained the same. It would have made no
difference had the market declined to 18 cents, with a consequent gain
of 2 cents, instead of a loss of 2 cents. The cotton would then have
cost 20 cents, but this would have been no advantage to him, as the
opportunity for selling his yarns would also have been on the basis of
20 cents.
A spinner sells his yarns for a distant delivery, at that moment,
however, it does not suit him to buy the cotton, he prefers to cover
himself in futures, and therefore buys 200 bales December "futures" in
New-York at 20 cents. He has calculated that the sale price of his
yarns allows him to pay 24 cents for goodmiddling. He watches the
market for a favorable opportunity to buy "goodmiddling", he succeeds
in buying 200 bales at 300 "on" December. On arrival of the 200 bales,
he fixes the price with his seller, now he must be careful to liquidate
his "future" contract at the same moment. Both are done at 18 cents,
and he loses 2 cents on his "futures". The cotton, however, costs him
18 cents, plus the 300 points "on", equal to 21 cents, he therefore
makes a profit of 3 cents on the calculated purchase price of 24 cents,
from this are to be deducted, the 2 cents loss on the "futures",
remaining, one cent net profit. The fluctuations of the market had
nothing to do with this profit, which he had, so to say, in his pocket
right from the commencement, as he had sold his yarns on the basis of
24 cents for cotton, with "futures" at 20 cents, in fact, he bought his
cotton at 300 "on" for goodmiddling, with the value of "futures" at 20
cents, which equals 23 cents. The hedge business, therefore, does away
with the market risk, now in what consists its value? The profit on
cotton does not lie in the fluctuations of the market, one has to look
for it elsewhere. The chances of profit-making are to be found for the
merchant in judicious buying, while, for the manufacturer, they consist
in the lucrative production of his finished articles.
The merchant requires for advantageous buying, far reaching connections
and a wide spread organisation, he has to survey the entire field of
cotton production, he must watch for every opportunity where cotton is
pressed for sale, he must know which district has grown the qualities
mostly preferred, in short, he has to keep himself extremely well
posted. The consumer has to work with the same tension, to find the
devious ways which lead to a profitable result in his business. Hardly
ever do big profits stare one in the face, and should a particular good
opportunity arise, it never lasts long, as everybody wishes to
participate in it, which, of course, spoils the best chance. For the
common welfare, competition tends to reduce the prices of everything to
the lowest possible level, that is the natural course of events.
Occasional deviations are simply exceptions, that, according to the old
proverb: "prove the rule".
What is the technical value of a market?
The most pressing requirement for a spinner is a big supply, and this,
naturally, collects in a big market. The manifold demands which a
spinner places upon the quality, can only be satisfied by a great
selection. Given a good supply, one of the main conditions of the
industry has been fulfilled. An active market has a further calling, it
regulates the prices, and, thereby, enables the industry to buy the raw
material at a figure, warranting a successful competition in the trade
of the world.