Meaning of Entrepot Trade
Entrepot trade is a trade in which goods are imported from foreign country for re-exporting them to some another country at higher price. It simply means buying goods from one nation and selling to another nation for earning profits. The word entrepot is also called transshipment port which historically was referred to as trading post, warehouse, port city or port where merchandise is imported, stored and exported to another country.
Goods are re-exported after being imported into nation with or without undergoing any change in packaging or additional processing. Entrepot trade is free from any import duties which makes it a favorable trade capable of making good profits. The country importing goods in entrepot trade work as intermediary which import goods just for the sole purpose of ending merchandise in different country. Entrepot trade is a combination of import and export trade due to which it is also termed as Re-export trade.
Entrepot or port cities were more commonly used in past for carrying out long-distance trade when there was time of wind-powered shipping. Merchants use to utilize entrepot for selling their goods without bearing the risk or expense related to long-distance travel. However, the usage of entrepot has become obsolete with introduction of efficient, fast and safe transportation options at efficient price.
Features of Entrepot Trade
The features of entrepot trade are as discussed in points given below: –
- Entrepot trade is free from import duties charges. There is no import duty levied on goods being imported from one country for purpose of selling them in some other country.
- Good imported in entrepot trade are kept and stored in bonded warehouses also termed as transshipment port till the time they are re-exported to different countries.
- The goods which are imported are processed and re-packed for re-exporting them.
Need for Entrepot Trade
The main reasons for the need of entrepot trade are as discussed below: –
- No Trade agreement: Entrepot trade is utmost required to be carried out when there is lack of trade agreement between 2 trading countries. In absence of agreement for exchanging goods among exporting and consuming countries, entrepot trade serve as an important mean for fulfilling needs of consuming country.
- Accessible trade: It is required in absence of accessible trade facilities to ultimate importing country. The consuming country in such conditions get access to required merchandise through entrepot trade.
- Banking facilities: Availability of good banking facilities is must for carrying out healthy trade practices among nations. Entrepot trade is only option available to importing countries having improper banking facilities.
- Direct link: Many countries are unable to establish a direct link in between them for carrying out trade due to large geographical distances. Entrepot trade is used under such scenarios where an intermediary is involved in between the exporting and consuming goods.
- Volume of Trade: Entrepot trade is needed when goods are imported by consuming country in limited quantity which is not enough to establish a direct foreign trade with exporting country.
- Processing facilities: When importing or exporting countries lack finishing/processing facilities, entrepot trade is utilized for carrying out trade practices in between these 2 countries.