A Few Thoughts on Trade

[rust]

Working on the economy of my Thalassa setting, I have found
that some changes to Traveller's trade system would be inevi-
table to make interstellar trade plausible.

The Thalassa Colony exports rare earths mined on the sea floor
to pay off the bank loans for the colonization project and to fi-
nance the necessary imports, for example foodstuffs impossible
to produce on a water world (grain, fruits, etc.), medical drugs
or spare parts.

The rare earths have a base price of 5,000 Credits. My assump-
tion is that this consists of the production costs (mining machi-
nes, drones, labour, etc.) of 4,500 Credits per ton and a profit
margin of 10 % or 500 Credits.

Under normal circumstances the colony cannot afford to sell the
rare earths for less than 5,000 Credits per ton, and even in ur-
gent need of money it will not sell for less than 4,500 Credits per
ton. No matter how high the broker skill or any other skill of a
trader may be, these 4,500 Credits are the limit.

In the end Traveller's trade table with a price range from 25 % of
the base price to 400 % of the base price would seem bizarre, un-
der any remotely normal circumstances this is just not possible at
the lower end - goods are normally not sold below the cost to pro-
duce them, because producers rarely have a reason to pay their
customers for taking the goods, they would rather not produce
them in the first place.

 

[DFW]

Yeah, the trade system is not really usable. What I've done, since I don't run "merchant campaigns", is make hauling freight viable. If someone is prudent they can make enough money freighting to survive on and make a small profit. You won't get rich but, you can maintain a starship and do other adventuring to make it "big".

 

[atpollard]

There are fixed costs which are the same whteher you produce 1 ton or 1000 tons (like insurance, interest on the equipment, office staff).
There are variable costs which scale directly with the number of tons produced (like power to operate the crushers and transportation costs of the ore).
There are variable costs which operate inversely with tonnage - economies of scale and efficiencies (like automating machinery for large scale production).

If we assume that a small operation would produce 1 ton (5,000 credits) of ore per day, and the 5,000 credits breaks down into:
1,500 credits per day for raw ore delivered to the processer (1500 credits per ton)
1,500 credits per day fixed overhead - factory able to process 1 tons per 8 hours.
1,500 credits per day of labor (120 workers at 12.5 credits per day per person)

5,000 credits per day revenue - 4,500 credis per day of expenses = 500 credits per day of profit (divided among the investors)
[as you pointed out, at 4500 credits per ton, there is no profit for the owners and below 4500 credits, the company looses money.]


If we assume that a medium operation would produce 10 tons (50,000 credits) of ore per day, and the 50,000 credits breaks down into:
15,000 credits per day for raw ore delivered to the processer (1500 credits per ton)
6,000 credits per day fixed overhead - factory able to process 4 tons per 8 hours. (4 tons x 3 shifts = 12 tons per day maximum capacity)
18,000 credits per day of labor (1440 workers at 12.5 credits per day per person - in 3 shifts)

50,000 credits per day revenue - 39,000 credis per day of expenses = 11,000 credits per day of profit (1100 credits per ton profit)
[the zero profit price is now 3,900 credits per ton.]


If we assume that a large operation would produce 100 tons (500,000 credits) of ore per day, and the 500,000 credits breaks down into:
150,000 credits per day for raw ore delivered to the processer (1500 credits per ton)
24,000 credits per day fixed overhead - factory able to process 100 tons per day. (small automated processor)
450 credits per day of labor (12 skilled workers at 75 credits per day per person - 2 per shift, 3 shifts per day, 3 days per week, x2 crews)

500,000 credits per day revenue - 174,450 credis per day of expenses = 325,550 credits per day of profit (3255 credis per ton profit)
[the zero profit price is now 1,745 credits per ton.]

Each time the factory became bigger, the cost of the raw ore stayed the same (per ton), the cost of the factory (per ton of ore processed) increased, and the wages for labor either stayed the same or increased. Note the economies of scale that lower the minimum price per ton of product.

I can justify the values selected, but what would be the point; one can argue about assumptions until the sun burns out.
If you don't like my numbers, pick your own.

The basic points I was attempting to make are:
3 shifts will allow greater utilization of fixed costs and assets than 1 shift,
a robot working 160 hours per week is worth at least four 40 hour human shifts,
doubling the size of a machine will increase its cost 4x and its capacity 8x,
automation increases fixed costs but boosts productivity - usually lowering the final price
automation needs skilled workers to maintain it.

[edit: made an error in the wages, but I don't have time to fix it now ... back to work].

 

[rust]

I have no problem at all with your numbers.

However, I have to work with what the Thalassa Colony of my setting
is currently able to do. Economies of scale would certainly increase the
profits, but the colonists currently have no way to finance an expansion
of their mining operation, which would cost several dozen million Cre-
dits (remember, it is sea floor mining).

If someone would start to mine and export rare earths on any planet in
the same trade region and would use the advantages of an economy of
scale, the Thalassa Colony would almost certainly have to close down
the mining operation for good, because it would not be able to compete.

In Traveller terms this would mean that this trade good would no longer
be available on this planet, no matter what the die roll result in the trade
goods table would say.

By the way, if the lowest zero profit price of your example, 1,745 Credits
per ton, would represent the 25 % of the base price on the Traveller ta-
ble, the base price would be 6,980 Credits per ton and the highest price,
400 % of the base price, would be 27,920 Credits per ton.

With Traveller's trade system a trader could have to pay only 1,745 Cre-
dits on Monday, his colleague 27,920 Credits on Tuesday, and a third tra-
der 6,980 Credits on Wednesday.

 

[BFalcon]

rust: In which case you need to find a more viable product, refine the process to make it more cost effective and/or look at a means of combining the process to produce another cash crop... maybe gold or other precious metals in the water after a storm makes the whole process viable? Don't blame the system because you are using a bad process to get your goods. Maybe use water purification or sand-filtration instead of underwater mining? Maybe look to non-radioactive elements produced in the same process as a side-product to help to offset the costs? Any gems likely to be thrown up in the same process?

The 400% would be a seriously bad seller and a seriously good buyer, so is unlikely - it would probably represent a seller that bought in far too much of a given product (he overestimated demand and his warehouse needs the room so he can bring in more goods). Also remember that warehousing costs money per day - so better so sell at just below cost than to have the cost of warehousing completely wipe out the value of the goods.

 

[zozotroll]

I used to work in te frieght department of a major store. I had to handle a lot of the slips that showed the store price vs the sell price. 100% markup was not uncommon on some types of goods. Others where in the 400-600% range. Most was of course lower thanthat. But I dont remeber seeing anything below 30-40%

I woul uggest tha when a broker gets something for 25%, he is not knocking somebody down, so much as getting it closer to the souurce and cutting out the middleman. And when you ell for 400%, agasin you may be skipping some of those and selling direct, so while it is going for 400% for you, that is less than what they have been paying retail.

Just look at the price of diamonds, from what a worker in Africa gets for finding one, to what a groom shells out for a rock on a ring. The total markup is staggering. And if you can dip into the middle of that somewhere, you can get a big chunk of that markup.

Owen

 

[rust]

I woul uggest tha when a broker gets something for 25%, he is not knocking somebody down, so much as getting it closer to the souurce and cutting out the middleman. And when you ell for 400%, agasin you may be skipping some of those and selling direct, so while it is going for 400% for you, that is less than what they have been paying retail.

True, but since the traders visiting Thalassa and - according to the
trade rules - getting prices from 25 % to 400 % of the base price
all buy from the same source, there is no middle man whom they
could cut out to get a better price.

In other words, my problem with the trade rules is not that there are
different prices on different planets, this is easy to explain, but that
traders can get those different prices from 25 % to 400 % of the ba-
se price from the same source at almost the same time.

 

[BFalcon]

rust: not really surprising - if you're in a port and want some goods, the demand will dictate, to a degree, what price you'll get - if things are hard to come by, you'll have to pay more to beat off your competing buyers, if they're in plentiful supply, the sellers are falling over themselves to get your trade so that their goods don't just sit in the warehouse.

When you add in a SERIOUSLY bad seller with a REALLY good buyer you'll end up with all kinds of cheap deals, likewise in reverse, the bad buyer with a really slick salesman will sell just about any piece of crap for a high-end price. If you then consider that the base price may be up to 200% of the actual cost of the goods, since they're expecting to have to discount some goods heavily.

Imagine a seller - he's got a warehouse rental of 2,000m3, which is full to capacity, including Goods A which hasn't sold any for over a month and Goods B which he's got a new shipment order coming up of the latest model and he's selling his current stock like crazy. Firstly he's going to want to maximise his profits by getting as much of Goods A out of the warehouse to free up space for more of Goods B. Secondly, he may need credits badly to buy in that stock or to pay the rent after gambling on buying so much of Goods A. Lastly, imagine that he's the kind of guy who, partly because he's nervous, will be sweating a bit whenever the haggling goes against him, he's too quick to stop the buyer from walking away from the deal and he's not holding his asking price as strongly as a strong seller might. Now imagine that a really hard-nosed Free Trader Cargo Master negotiates with him - he's used to negotiating with the best Salesmen and Purchasers that the corporations and governments can throw at them - is it suddenly so amazing that the price drops so much? By dropping to one quarter of the base price, not only is he being called on all his "tells", but he knows that he's desperate to sell and that the market is currently swamped with those goods, so the current trading price is low anyhow. He's currently also having to pay rent on the warehouse so each m3 has to pay as much for itself and it's possible that, although he's practically giving this stuff away in galactic terms, that he's also going to make much more money selling Goods B which will more than cover his losses.

Finally, don't forget - that base price also covers the whole galaxy. Planets which produce the goods will naturally have a lower sale (and purchase) price than goods that are needed (especially urgently). This will be reflected in the table by a slight drift in favour (one hopes) of the players even before the seller quality is brought into the equation. The random factor is also there to reflect the normal goings on, on a planet - mine collapses, late harvests, early harvests, mines hitting rich seams, shipments from across the world arriving at market, bad weather delaying shipments from same... and so on... which is why you need to wait for over a week before trying again - maybe your first roll was before the regular shipment of timber or goods from the next continent was delayed by a tropical storm (to be topical) and your seller that you're negotiating with just happened to have some stock in his warehouse. When you check the next week, that shipment has just come in, so the prices are really low. By the time you check back another week later, the prices are back to normal because all that surplus stock was bought up by a corporate Purchaser and is awaiting collection in their warehouse by the regular Superfreighter run.

You just need to look beyond the numbers and try to work out why such fluctuation may happen... I think you just need to remember that shipments are arriving all the time (and in varying quantities), that buyers are likewise all arriving at varying times (sometimes nobody will want a product and then suddenly everyone will) and that a week in business can be a long time - my own bank balance has gone from "quite healthy" to "I need to transfer money in to cover the bills" and back again in just a couple of weeks - it can be quite scary sometimes (just ask Matt Sprange if you don't believe me - I'm sure Mongoose went through the same thing in their early years).

 

[Captain Jonah]

Agree with the above.

Also consider the other end of the line.

There your colony broker is, sitting in a swimsuit and admiring the sun when in flies a merchant.
Its the first merchant for a month, you have a good stock on hand and are ready to deal. The merchant seems just a bit rushed, wants to fill his entire hold with your stuff and wants to shake on the deal NOW. So your broker breaks for lunch and goes to check on the news reports that just came in the mail the merchant delivered.

It seems the only other source of rare earths in the sector just had a major disaster, the goverment shut them down for dumping a few thousand Dtons of mining waste into the enviroment when holding tanks ruptured and no one noticed for several days as the radioactive dust floated off on the wind.
Suddenly your world is the only local source for the stuff and will be for months.

Checking dates the merchant must have jumped out the same day the goverment shut down the other mining company.

So rubbing his hands in glee your broker goes back to the meeting and delays and delays till news arrives that another merchant just jumped in. 400% sir, well if you are happy to pay that much, whats that, you want to buy now, oh well sir if you insist, just sign here.

 

[BFalcon]

Jonah: True... a less than scrupulous (or desperate/pressured) salesman (or purchaser) will ruthlessly exploit the situation and get the absolute best price they can get, regardless of how badly it affects the other person. Anyone in any doubt as to this should go play EVE Online for a couple of months and try building things - after being fleeced at both ends of the deal unless very careful, you'll get to understand the whole subject a lot more.

A true shark will even resort to dishonest practices (see Scoundrel), including fake cargoes or documentation and false information/rumours (in the example above, a dishonest salesman could have started the rumour of the competition's closure himself and/or falsified the reports to drive up the price). Most usually, it would be a mobile con artist who'd so such a thing though - it's hard to prove and so if they can avoid meeting the mark (ie victim) again, then they will get away with it. As such they'll avoid being filmed or recorded if possible, but not in an obvious way, if they're sensible.

 

[rust]

There your colony broker is, sitting in a swimsuit and admiring the sun when in flies a merchant ...

Yep, and according to the rules such miracle happens during approxima-
tely 1 of 22 visits of any merchant with an intelligence of 12 and a skill
level of 3. Should the colony ever become productive enough to be visi-
ted by 22 such merchants per week, it will become a weekly miracle. In
this case I should probably rename the colony from Thalassa into Lour-
des.

Of course it is possible to explain a single event of this kind, or a few such
events spread out over a longer period of time. But it becomes ridiculous
very quickly when the rules as written make it happen again and again. A
single case where a merchant pays only 25 % or surprising 400 % can be
used as an adventure hook, one such case per month is just implausible.

Imagine your visit to the gas station would result in a gas price of between
25 % and 400 % of the base price, changing randomly with each visit - or
imagine the poor owner of the gas station, who cannot know in advance
whether his next customer will pay him 25 % or 400 % of the base price.

Sorry, I find it impossible to buy that. From my point of view such a rule is
beyond broken.

Edited, did not want to sound snarky - sorry.

 

[BFalcon]

rust: true that if the same thing happened over and over, but different things DO happen - just look at my own field, computers - prices have been bouncing all over the place in the past year... hard drives went from their current price up to 50% more at one point (as did memory) and that's just on one planet - imagine if you were relying on interstellar trade?

When I have time, I'll sit down and do a spreadsheet for trading to see what the percentages are like... if they are as bad as you say, then maybe something needs to be done about it. Do remember, though, that the lower DM will be normal in any case if it's a supplier planet and not a consumer - the base price is the average, so don't get too fixated on it... instead you might want to look into how badly the price fluctuates on the planet type you're looking at. If you're still unhappy, then either deaden the profit/loss possible by moving from the 5% per step to 2 or 3% or raise the base price for that commodity (it's more rare in this part of the universe or in greater demand).

Personally, for radioactives, I'd raise the base price if you're using them as fuel at any stage - the base price in Traveller assumes that most people (by a long shot) are using hydrogen as a fuel (either in hydrogen cells or fusion) and not radioactives. Greater demand = higher prices. Metals such as gold and silver would be much more valuable if used in electronics still too, for example.

As I said before, also, your water world would probably not rely on the rare metals scene anyhow - I can see the following being of value as exports:

Water!!! (obvious I know, but still true) - cheap to purify (use osmosis instead of evaporation - cheaper and easier - you just pump it past the osmosis filter - the pure water molecules fit through the pores in the filter while the rest of the water washes any impurities off the filter and out the waste pipe. Could be combined with "water mining".

Precious metals - often found in water as well as in the rock below (and hence the sand created). could be water-mined as part of the water purification process.

Food - there's going to be some LARGE animals in that huge water expanse and huge animals could mean huge slabs of meat swimming around. A useful side-product may be the ivory from the bones of such creatures. Also kelp and other seaweeds may be very useful (in dried and groundup form) as a raw foodstuff.

Sand - don't knock it - planets which are frozen or have a hazardous atmosphere (maybe a high toxic metal content in the rock) may prefer to buy in sand for construction than make their own. If you sand mine to the point where you've extracted everything possible then this would be a useful byproduct.

Heavy Metals - some cultures will still want to use radioactives for fuel and it's been suggested that some ships might benefit still from using fission power.

Base metals - still used for various things - will still be of value and since you're going to be mining anyhow, might as well just strip-mine and done with it.

Industrial chemicals - again, maybe you'll be getting some of these from your mining, so may be a useful side-product.

I'm sure that someone will come up with something else that I forgot...

And remember: The only difference between sand-mining and underwater strip mining is the strip mining uses a submarine with drill bits or rotating claws to chew up the sea floor and a series of water vacuums and filters to pick up the resulting rock pieces, instead of just the vacuum and filters. With decent tides (possibly caused by geothermal heating causing thermal rotation and by the storms) the sea will break up the rocks for you - all your colonists need to do is go and recover it.

On a water world that size it would certainly take guts to be a fisherman too - the only ones who need a capital ship torpedo sized harpoon to catch their prey... :lol:

Could be a good PC adventure hook though - being drafted in to hunt the "biggest fish we've ever seen" that has been forced up out of its normal habitat for some reason...

 

[rust]

Thank you for your ideas for alternative trade goods, but they
would undergo exactly the same price fluctuations with the sa-
me rules, this would only move the problem around, but not
solve it.

 

[BFalcon]

Imagine your visit to the gas station would result in a gas price of between
25 % and 400 % of the base price, changing randomly with each visit - or
imagine the poor owner of the gas station, who cannot know in advance
whether his next customer will pay him 25 % or 400 % of the base price.

Sorry, I find it impossible to buy that. From my point of view such a rule is
beyond broken.

Edited, did not want to sound snarky - sorry.

I need to study the figures more, but I don't think the drift would need to be that much... I mean the planet's DM will be the same regardless, as will the seller's Intelligence/Social DMs and you are allowed to add your own DMs too (I'm a little dubious about the use of a 3D6 though... I'd sooner have had the usual 2D6 with a benificial modifier).

But to get 25% of the purchase price, you need the player to get a result of 24 on the table... that's an 18 on 3D6 + another 6 on EITHER the Intelligence/Social DM and his skills and on the supply modifier... that's a 1/36 chance for starters... and if you come up against someone with +1DM on their intelligence and +1 DM on Broker, then you're already coming up against a good broker without anything else... if there's a good supply then yes, the price will be lower, but then the local supplier would be used to that.

I just thought - are you using the Merchant Prince rules or the MRB version? I've been using the Merchant Prince book... (I sometimes forget that the MRB version is there - the MP version is much better so I tend not to look at the main rules much for them).

(Additional (I love the "posted since you read the thread part of this forum now" )

Rust: no problem - wasn't intended to help with that aspect, just to help you drive down your colony's bottom line, so making it easier to compete...

 

[Dave Chase]

I woul uggest tha when a broker gets something for 25%, he is not knocking somebody down, so much as getting it closer to the souurce and cutting out the middleman. And when you ell for 400%, agasin you may be skipping some of those and selling direct, so while it is going for 400% for you, that is less than what they have been paying retail.

True, but since the traders visiting Thalassa and - according to the
trade rules - getting prices from 25 % to 400 % of the base price
all buy from the same source, there is no middle man whom they
could cut out to get a better price.

In other words, my problem with the trade rules is not that there are
different prices on different planets, this is easy to explain, but that
traders can get those different prices from 25 % to 400 % of the ba-
se price from the same source at almost the same time.

So, you are saying that the initial provider (farmer, miner, tradesmen) is the one doing all the wheeling and dealing each time a merchant comes to visit?

This is not effective time management for either the provider or the merchant. Sure the buying at the source makes the item normally cost less, but what does time, fuel, effort and such end up costing. I have seen people spend lots of money driving around for the best deal and sometimes they spend more then they saved on the deal.

I have seen people spend $500 on an item because it had a $50 rebate, when the same item at another location only cost $400. Why, because the other was closer and it had a rebate.

To help explain the different when just rolling the dice (to me) it is the non-roleplaying way to speed up the process of playing out the merchant trying to find the cargo. I believe that if the player(s ) roleplay out the attempt or at least do some leg work other than just explaining to the GM what they want, that they sould get some better bargins.

Dave Chase

 

[rust]

So, you are saying that the initial provider (farmer, miner, tradesmen) is the one doing all the wheeling and dealing each time a merchant comes to visit?

Not so much the individual farmer or miner or tradesman, but the sales
staff of the farming cooperative, the mining corporation or the trade com-
pany.

 

[rust]

I just thought - are you using the Merchant Prince rules or the MRB version?

The main rules, and unless I made some stupid mistakes the numbers
there look like this:

With an intelligence of 12 (DM +2) and a skill level of 3 (DM +3) a tra-
der normally needs to roll 16+ on 3D6 to get the total of 21 required for
a purchase price of only 25 %. The probability to roll 16+ or higher on
3D6 is 4.63 %, so 1 in 21.6 cases will have that result.

If he gets a modifier from the trade goods table, for examply by buying
biochemicals on a water world, the probability increases accordingly. With
the example's modifier of +2 he needs only a 14 on 3D6, and now has a
chance of 16.20 % to purchase the goods for 25 % of their base price, or
in 1 of 6 cases.

 

[DFW]

Since goods are travelling at most, 2 parsecs, the following is what would develop in systems that trade with other nearby systems:

Planet A does trade with Planet B as they are complementary per the trade tables. Binary Trading Co. LTD. has offices on both planets. It's agents find the best deal and, after LONG experience knows what will sell high when shipped. The trading Co. buys the goods on the planet and sends them as freight via the tramp freighters. Their agents on the receiving Planet sell the goods.

Tramp Captains passing through don't stand a snowballs chance in hell of out brokering these knowledgeable & connected traders. Like the real world.

 

[rust]

Tramp Captains passing through don't stand a snowballs chance in hell of out brokering these knowledgeable & connected traders. Like the real world.

Yep, and I would also expect the huge majority of commodities
to be subject to long term contracts between the producer and
a trader, with an agreed price with little (if any) short term fluc-
tuations, and probably with a clause that prevents a sale to any
other customer at a lower price.

 

[BFalcon]

yes, but Rust, an INT of 12 and a Broker of 3 (ie 4 levels) really is the top end of the human scale where buying is concerned - he'd be working for a large corporation with those skills and raw ability...

But seriously, I'd recommend ditching the MRB trading rules - the MP ones are far better - not least because each commodity is split up into different trade goods with more variable base prices, so just because they get lucky on one item, it would minimise the impact on the catagory.

I think you also need to consider the colony like a business too, but on a longer timescale - as they say, don't expect to make a (sustained) profit in your first 18 months... for your colony, that could be expanded up to 100 years or more... when you'll have sufficient output to lower overheads more so maximising your profit.

With so few layers in your chain, it could save a small fortune in your bottom line, so that 25% of the base price may... just may be a slight profit still on your production costs per ton at that point (certainly will only be a slight loss if not)... and if you're lucky enough to hit the jackpot and get a 400% of base price... is your salesman going to turn it down?

With so few colonies, I would strongly suggest that you expand upwards the delay between rolls too - the 1 week assumes incoming shipments from elsewhere (I think) but mainly a thriving multiple-colony planetary economy, not a 2-colony planet... but on the flip side, I would possibly give a -2 DM to the supply price table at the least, because of such limited supply. Even being above average will still be profitible if the next-nearest supplier is far enough away to add in significant overheads in fuel, maintenance and wages - not to mention lost profit. A shorter run that brings in x amount of profit is usually preferable to one that takes 3 times longer but pays double... unless there's a specific reason for it.

Looking again at this, I'm very tempted to change the rules to a 2D6 here, but then I'm also tempted to consider the old British business saying "Swings and Roundabouts" - what you lose on one, you gain on another... so just because you're selling at 25% base price on one commodity, you may be selling at 400% on another...

Oh and another trade product for your colony I meant to mention - Luxury/gourmet foods... I'm sure that there's a tasty sea-creature there somewhere... and that may be what will bring in the profits for your planet...

BTW sorry to keep drifting off-course - I tend to bring up points as I think of them...