In an instant, The Seam scrapped cotton's old-world trading model, throwing buyers and sellers from all parts of the globe into one transparent, but anonymous pool.
It almost seemed a counterproductive move for the merchants behind The Seam, who traditionally have made their money by knowing what no one else knew and keeping it that way. For decades, they kept a worldwide network of contacts reaching into the remotest corners of the world. They shipped cotton, yes, but they traded in information.
Why then, would they suddenly lead an effort to let a North Carolina textile mill and a Marianna, Ark., cotton producer work out their own deal?
The biggest reason, according to Anthony Tancredi, executive vice president with Allenberg Cotton in Memphis, was that electronic trading was going to happen sooner or later. The developers of The Seam figured it might as well be sooner, and it might as well be The Seam doing it.
“Even though the dot.com frenzy is gone, there are still of hundreds, if not thousands of groups out there looking to put something like The Seam together,” Tancredi said. “It is extremely valuable to the group that finishes it.
“Our choices were to take part in the development or sit back or let somebody else drop it on our table and say these are now the rules that you will trade cotton by. One of the things we all agreed on right away was that our industry was not about to have a non-cotton group come in and tell us how to trade cotton.”
The Memphis-based Seam “is a completely independent, central site dedicated to a total online trading platform, allowing buyers and sellers to complete transactions in a quick and accurate way — eliminating overhead costs and speeding up the entire process,” a brochure states.
Founders include Dunavant Enterprises, Allenberg Cotton, Hohenberg Brothers Cotton, Avondale Mills, Parkdale Mills and Plains Cotton Cooperative. Other partners include Anderson-Clayton Corp., Calcot Ltd., ECOM USA, Inc., Jess Smith & Sons, National Textiles, Paul Reinhart, Inc., Staplcotn Cooperative and Weil Brothers Cotton Inc.
In March, Phillip Burnett, who for the past 12 years was chief executive officer of the National Cotton Council, joined The Seam as president and chief executive officer. Undoubtedly his experience with the cotton industry's seven segments was a factor in the hiring.
“Our objective is to provide a totally neutral, multi-exchange, electronic global marketplace that improves the flow of goods and services throughout industry,” he said. “We are committed to delivering a powerful, reliable, flexible system that will enable the user to be more efficient, more competitive and certainly, more profitable.”
Electronic marketing has been around for about 25 years with Plains Cotton Cooperative's TELCOT system, which has electronically traded over 25 million bales. When the Texas cotton marketing cooperative signed on as one of The Seam's investors, a blueprint of its electronic trading system was enhanced and moved to the Internet via www.theseam.com.
“The Internet has simplified deployment of the system,” said Kevin Brinkley, manager, field marketing, with The Seam. “Now you have this giant network out all over the world that gives anybody the ability to access the system. As long as they are connected to the Internet, the provider of the system doesn't have to put in special equipment.”
For years, cotton producers have complained that price discovery in the cash market usually happened after they sold their cotton. And their concern that the current spot market is rift with heavy-handed discounts and disappearing premiums has long fell on deaf ears.
The Seam could offer growers a chance to participate more in price discovery, said Bill Dunavant, Dunavant Enterprises, Memphis. “When The Seam eventually moves into international electronic trading, it will help the marketing chain understand the real value of cotton worldwide. That's the reason why we're very excited about it.”
The Seam provides a grower-to-business exchange and a business-to-business exchange, notes Brinkley. However, growers won't necessarily directly market their cotton on The Seam. Rather, they would likely go through a special services provider, an approved gin, country buyer or warehouse.
Special services providers pay a subscription fee of $150 per month for each participant maintaining an electronic link to The Seam, and $50 per month for each additional computer screen linked at that office. The Seam also charges $1 per bale to the buyer.
The grower-to-business exchange allows producers — through the provider — to market cotton to merchants or textile mills in a firm offer environment with a bid. Sellers list their cotton for sale at the price they would like to receive. They then can entertain offers and make counter offers on that cotton. Once there is an agreement on purchase price by the buyer and seller, the remainder of the transaction is settled electronically.
Buyers browse the bales on the system or search for lots by specific attributes such as quality, price and location. Buyers are immediately able to purchase cotton with The Seam's Quick Buy feature.
Each trade is guaranteed by The Seam and is completely anonymous.
The Seam began by trading Texas and Oklahoma cotton to a nationwide network of buyers in 2000. Other territories started trading in January 2001. By March, more than 400,000 bales had been traded on the system. The Seam expects volume will be in the range of 2 million to 3 million bales by next year.
Tancredi says The Seam gives the small operator the same advantage as the big one. “There is no advantage to anyone in the marketplace. Everybody is on an equal playing field.”
Dunavant says The Seam is moving the cotton industry one step closer to being the first truly electronically traded and merchandised commodity.
“The first piece was electronic classing. USDA relies on HVI very heavily. Some of us would argue that it's not there 100 percent, particularly on color, but we will be there in five years. The second component is electronic title transfer. The industry got together and created the most efficient warehouse receipt program of all commodities.”
“The third component is electronic marketing. The fourth is electronic documentation, electronic letters of credit, bills of lading, electronic transportation, all the back office functions that currently take up an enormous amount of manpower. The Seam will be working very aggressively with banks and insurance companies to try and bring that electronic documentation model into being very quickly.
“The fifth component, which is probably a few years out, is the electronic trading of futures and options.”
Participants in The Seam must complete an agreement to receive a user identification and a password. The agreement can be downloaded from www.theseam.com. Each agreement is evaluated prior to approval to insure that only safe, credible transactions are conducted on the system.
Interested parties can contact their usual marketing channels or the Seam at 901-374-0374 for information on special service providers in their areas.