Auxiliaries to Trade

Buying and selling alone cannot complete the journey of goods from a factory to a consumer's home. A number of hindrances stand in the way — the hindrance of distance between producer and buyer, the hindrance of time between production and consumption, the hindrance of risk of loss or damage, the hindrance of finance needed to keep production and trade running, and the hindrance of the buyer simply not knowing that the product exists. The services that remove these hindrances are called auxiliaries to trade or aids to trade, and together with trade itself they make up commerce.

1. Transport and communication — removes the hindrance of place. Transport (by road, rail, sea, air or waterway) physically carries raw materials to factories and finished goods to markets, while communication (post, telephone, internet) carries information between buyers, sellers and intermediaries so that trade can be planned and coordinated.

2. Banking and finance — removes the hindrance of finance. Producers need capital to buy raw materials and machinery, and traders need funds to hold stock and extend credit to customers. Banks provide loans, overdrafts and other credit facilities, and also provide safe and convenient means of making and receiving payments.

3. Insurance — removes the hindrance of risk. Goods in a warehouse, in transit, or in a factory face risks such as fire, theft, accident and, in the case of sea trade, marine perils. Insurance allows a trader or manufacturer to transfer this financial risk to an insurance company in return for a premium, so that a single loss does not wipe out the business.

4. Warehousing — removes the hindrance of time. Most goods are not consumed the moment they are produced; agricultural produce, for instance, is harvested at one time of year but consumed throughout the year. Warehouses store goods safely between the time of production and the time of sale or consumption, which also helps in stabilising prices by preventing a glut immediately after harvest. …