The trading business can be tricky 

The trading business has its advantages. The business model requires an efficient distribution network that is cost-effective. Even the working capital requirements can be minimised if payments to suppliers can be done on long-term credit and cash received immediately upon the sale of goods.

However, margins are thin. Hence, there is no room for mistakes or there cannot be too many receivables because it would result in cash-flow problems.

In this regard, it is interesting to note that Halex Holdings Bhd has entered into a collaboration agreement with Koperasi Majlis Belia Felda Malaysia Bhd (KMBFMB) with the purpose of importing and distributing rice.

This is under the Food Bank Project launched by the Government.

According to the disclosures so far to the exchange, the rice will be sourced from neighbouring countries such as Cambodia, Vietnam, Thailand and Myanmar. Generally, the price is determined based on what Padiberas Nasional Bhd or Bernas offers to the market with a premium added to it. The premium is RM200 per tonne.

Bernas is the incumbent rice importer and distributor of the country. On the face of it, it would seem that the distribution price set by the joint venture will have a small premium compared to what Bernas offers to the market.

So right from the start, it would appear that the already-thin margins earned from distribution will come under pressure. This is unless Halex and KMBFMB can come up with a business model that ensures their distribution of rice is super efficient and more cost-effective compared to Bernas.

This cannot be discounted entirely. With digital technology in place, any company can upstage the incumbent. This is especially so in the area of distribution. We have seen how some small companies such as GD Express Carrier Bhd have taken the shine off their bigger rivals in the area of delivery of parcels.

However, it is a game for those who have the tenacity and financial means to sustain the business. It is not something that will bring a windfall to the bottom-line of Halex overnight.