Founding firms of the new marketplace, dubbed IntercontinentalExchange, include giants BP Amoco, Deutsche Bank, The Goldman Sachs Group, Morgan Stanley Dean Witter, Royal Dutch/Shell Group, SG Investment Banking and the Totalfina Elf Group. The companies said they expect to revamp the way the industry conducts business by speeding up the purchasing process. Historically, the bulk of wholesale energy and metals trading has been conducted via telephone.
IntercontinentalExchange initially will begin trading a variety of petroleum and precious metals-based over-the-counter products later this year, with plans to develop additional markets for other products, such as natural gas, electrical power and a variety of base metals, the companies said in a statement. Buyers and sellers do not need to pay membership fees or other dues in order to take part in the exchange, which will be open to all commercial market participants, the companies said.
Financial terms of the new venture were not disclosed.
Such business-to-business exchanges, or online marketplaces, typically match buyers with sellers in a specific industry or connect buyers to an individual company. Companies participating in online exchanges hope to drastically drive down the cost of doing business by buying in bulk, thereby increasing profits. In 1999, the commodities market for over-the-counter contracts was roughly $1.8 trillion.
A number of exchanges have popped up in recent weeks as more and more companies begin to throw their hats in the heavily touted business-to-business e-commerce field, a market that is projected to reach between $2.7 trillion to $7.3 trillion by 2004, according to leading research firms.
Last week, more than 50 consumer products companies, including Proctor & Gamble, Kraft Foods, Nestle USA, Bestfoods and Colgate-Palmolive, announced similar plans to participate in a new open marketplace in an effort to drive down purchasing and inventory costs for the consumer products industry.
Several giant manufacturers have recently inked deals to deliver industrywide trading exchanges, including giant automakers Ford, General Motors and Daimler Chrysler. Last month, they agreed to merge their separate online trading exchanges--GM's TradeXchange and Ford's AutoXchange--to link some 30,000 suppliers. That merger also will cut costs by eliminating the paperwork and time it takes to process thousands of transactions.
In addition to running a massive trading exchange, IntercontinentalExchange said it will provide a hefty back-office system that will automate the transactions and purchasing process conducted in the marketplace. The site will provide participants with global trading support around the clock and throughout the business week, the companies said.
IntercontinentalExchange will be based in Atlanta, Ga., and led by Jeffrey Sprecher, the former chief executive of Continental Power Exchange, which developed the trading system to be used by the new marketplace.