Why trade exchanges bombed

Make fewer spot buys, more long-term contracts

Staff -- Purchasing, 4/4/2002

1999-2001 saw the rise and fall of countless online trading exchanges for chemicals and chemical raw materials. Purchasing’s new research suggests that a big force behind those failures was the fact that CPI buyers are actually moving away from spot buys and toward use of more long-term contracts with carefully selected suppliers. While an average 44% of chemical and chemical raw materials purchases were made on spot markets in 1999, the average spot buying percentage for 2001 was down to 33%, according to the study, and the anticipated average for 2003 is just 26%. By contrast, the average percentage of chemical buys going under long-term contract rose from 35% in 1999 to 44% in 2001. By 2003, CPI buyers participating in the study anticipate placing 55% of their chemical buys under long-term contracts. (Note: Percentages using short-term, typically quarterly, contracts remain essentially stable across the time period studied). In 2001, companies consuming more than $25M worth of chemicals each year were substantially more likely to be using long contracts (an average 63% of all chemical buys) than smaller-volume users (an average 40% of all chemical buys).