The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Freeport-based business is liquidating its $1 million-plus inventory after the new Customs fees “killed” its wholesale distribution model, its principal warning: “If things don’t change soon, we may not survive beyond year-end.”

Robert Myers, head of VTrade Company, confirmed to Tribune Business he had been forced to lay-off five to six staff, and warned that the Budget tax changes “absolutely put a bullet in the head” of hopes that Freeport can be developed into a logistics/fulfilment centre hub.

Disclosing that VTrade was “trying like hell” to remain in business through its logistics, warehousing and manufacturing segments, Mr Myers said he would probably never have established the business “knowing what I know now”.

Mr Myers, who is the Coalition for Responsible Taxation’s co-chair, was unable to confirm whether VTrade had been able to negotiate a 36 per cent discount to the duty rates its post-paid customers would pay on the liquidated inventory.

While acknowledging that such a request had been made to Customs because the company’s wholesale ambitions were “dead in the water”, the VTrade principal said it was still “paying duty at a higher number than we’re selling to the customer for”.

He added that VTrade’s plight was a classic example of the “disconnect” between government policymakers and the private sector, and pledged to help “bridge the gap” if elected as Bahamas Chamber of Commerce and Employers Confederation (BCCEC) chairman later this year.

“The wholesale distribution of product really got wrecked by these Customs tariffs and fees,” Mr Myers confirmed to Tribune Business.

“We laid out this case to the Ministry of Finance, and said there was no way to process small orders worth $700-$800, $400-$500, and have $175 worth of Customs fees and charges added to it. It just destroyed the business.”

The chief culprits are the 1 per cent administrative processing fee, plus the increased $50 per man, per hour fee for a Customs officer to attend “a place they do not normally attend”.

Both changes were introduced in the 2013-2014 Budget, and resulted in increased taxes equivalent to 37 per cent of a $500 order - a burden that made VTrade’s rapid order, Less than Container Load (LC) distribution business unsustainable.

“We’re liquidating, and trying to press on with the logistics, manufacturing and warehousing,” Mr Myers explained. “We’re out of that business - the wholesale distribution business.”

VTrade’s business plan was based on distributing small orders throughout the Bahamas and Caribbean, using Freeport’s free trade zone model under the Hawksbill Creek Agreement.

Yet the 2013-2014 Budget undermined that model almost as rapidly as it was implemented.

“The fees became such a massive percentage of the customer’s order that it became prohibitive,” Mr Myers said. “On our average sale, it was about 30 per cent.

“We weren’t competitive any more, couldn’t do small orders, so these fees basically preclude Freeport from small order distribution. Amazon couldn’t operate from Freeport; there’s just too much cost on a small order basis.

“Who’s going to order from you? Nobody. That business is killed. We’re trying to liquidate. We’re taking a massive loss on the product cost. My sales went from tens of thousands a week to literally nothing.”

VTrade’s staffing levels have dropped from a 15-16 peak down to 10, and the company’s survival is now at stake following its enforced wholesale distribution exit.

“We’re still trying like hell to keep the manufacturing,” Mr Myers told Tribune Business. “From a warehousing standpoint we’re holding our own, but that doesn’t make us a sustainable business.

“If things don’t change in the next couple of months, my guess is the business will not survive beyond the end of 2014.”

Mr Myers said VTrade had explored whether small wholesale orders could be combined into Full Container Load (FCL) shipments, but said this inevitably delayed when customers received their orders.

This, he added, worked against plans to develop Freeport into a true logistics/transhipment hub, as it prevented a “good cross-section of people” from setting up in the sector.

“You’ve really shot yourself in the foot,” Mr Myers told Tribune Business. “Any distribution company is not going to exist if it’s only FCL. If it can do FCL, but not LCL, that’s half their business. You can see how damaging it is.

“The fees should be repealed, but they absolutely put a bullet in the head of LCL and fulfilment. A Fulfilment Centre is not possible in Freeport. LCL is not possible in Freeport.

“FCL is possibly competitive, but places like Panama are going to eat your lunch, and the Dominican Republic, with manufacturing and free trade zones, they’re going to eat your lunch. It’s policymakers again putting laws in place without any understanding of business.”

VTrade has around $1 million worth of wholesale inventory left to liquidate, Mr Myers estimated, having already started to run stocks down via discounts to existing customers last year.

Tribune Business sources said VTrade had negotiated a 36 per cent discount with Customs to the duty rates its post-paid customers (non-Grand Bahama Port Authority licensees) paid on the liquidated stock.

This was backed by an e-mail sent out by Bradley Scott, VTrade’s director of operations, which said: “For our Bahamas duty paid customers, we are happy to advise that VTrade has worked out a reduction in Bahamas Customs duties payable on your duty paid orders.

“This agreement with Customs equates to a 36 per cent reduction in the amount of duty that will be payable on your orders.”

Mr Myers, though, said that while he had been informed orally that Customs had approved the 36 per cent discount for VTrade, he had seen no written confirmation to that effect.

Cautious on whether the company had been granted the discount, he added: “That was the conversation we had with them [Customs]. We said we’re dead in the water here. But we’re paying the duty at a higher rate than we’re selling to the customer for.”

Moving forward, Mr Myers told Tribune Business that VTrade was looking to begin the manufacture of Structural Insulated Panel (SIPs) housing - a product that lent itself to FCL or bulk shipping.

“We’re in better shape if that happens,” he added. “We’re hoping to have the first model house built in Freeport in the first quarter.”

VTrade also remains in the logistics business, acting as Bahamas Ferries’ Freeport based shipping agent, and Mr Myers added: “We’re going to look at some other wholesale opportunities, but we have to look at large order sizes, import and export.

“It can’t be low ticket items; it has to be higher value added items. Hopefully, the Government removes those fees and Freeport exists for what it was created for; a logistics hub.”

“It’s tough environment,” the Tax Coalition co-chair said. “If I had to do it all over again, knowing what I know now, I would probably not do it.”

And, summing up the situation, Mr Myers said: “It only indicates that policymakers are putting policies in effect with no regard for business, and that has to change.

“The understanding and relationship between the private sector and the public sector has to tighten up. We have to get better at understanding each other.

“We’ve got to be able to do better. We should not be seen as working against each other, but that’s what’s happening. We’ve got to narrow that gap and strengthen that tie.

“If I’m elected chairman of the Chamber of Commerce this year, that’s going to be focused on. It’s our collective problem nationally. I hope we can achieve some success, and be responsible about it, and start seeing the private sector as partners, not the enemy,” Mr Myers added.

“It’s a shame there isn’t more consistency. While the Government is out there marketing one thing, they’re doing another. It’s a bit of a mixed message. At the moment there’s a real disconnect, and has been for a while.”