Antwerp Facets Special Report

What is the role of the rough diamond broker in the modern era? In an age of transformation when rough diamond supply has become fractionalised following the sharp decline in De Beers' share of the rough market and manufacturers are constantly adapting to rapidly changing circumstances, the need for brokers might appear to be anachronistic.

 

There was a time when a rough broker’s income was entirely dependent upon the commission received from those of its clients fortunate enough to receive a direct allocation from De Beers’ Diamond Trading Company. As the official intermediary between DTC, these venerable institutions – several which are more than 100 years old – were revered for their ability to use their connections and relationships to secure a De Beers sight for diamond company clients. The image that took hold was of a type of gentlemen's club where deals were discreetly done.

 

However, that is far from the truth as the brokers have long since identified the need to be proactive in searching out new fields of activity. Although their work with DTC sightholders still remains an important part of their operations, it accounts for just one of their revenue streams.

 

The brokers are involved in consulting work for a large range of clients in diverse areas of business and use their global operations to secure comprehensive intelligence on the changing state of the diamond industry. They have also set up diamond manufacturing plants in low-cost labour diamond centres, such as Mumbai, to provide clients with a means of making diamonds without the added cost and risk of opening factories themselves. In addition, they are also involved in organizing tenders for diamond producers. And in the case of I. Hennig & Co, a recent development was the acquisition of part of Verichannel, LLC, an online diamond trading platform and jewellery industry search engine.

 

"Our first and main priority is to represent our clients as sightholders at the DTC and to manage the relationship between the two parties," explained Philip Hoymans, director of Bonas-Couzyn (Antwerp). "Clearly the industry has changed in the last decade from production driven to demand driven, and this, in turn, has changed the way DTC selects its clients. We are very much in a service business and the beauty of that is that it is a very broad concept.

 

"Already in the early days of Supplier of Choice (SoC), we as a company decided to continue to focus on that part of the business and be the best at it. A good example is the work we are all busy with at the moment, the Contract Proposal Questionnaires. We take care of the entire application process from start to finish."

 

The continuing importance of the DTC work is confirmed by H. Goldie Managing Director Mike Aggett. "It is fair to say that the broker’s role has indeed evolved as the industry has moved ahead as a result of the growing rarity of our natural product, the increasing demands of the ever more educated consumer, and the development of new markets," he said.

 

"Despite the reduced volume supplied by DTC over the past few years, it remains an important, if not the most important, supplier in terms of its reputation and the prestige that sightholders derive through their association with it,” Agget said. “Since the introduction of SoC, supply has come as a result of a formalised, structured and competitive process, thus changing the role of today's broker. Today's role encompasses consultant, advisor and PR executive.”

 

"Regardless of their supply level, the DTC remains, not the custodian, but the producer which leads and shapes the industry, and H. Goldie places great importance on aligning their sightholders' businesses with the strategic vision and goals the DTC has for the industry. “

"These days, sightholders are not required to utilise the services of a broker, but interestingly almost 100 percent choose to work with a recognised DTC broker. Relationships with brokers are generally enduring and built upon the fundamentals of trust, discretion, and treating clients with the respect they have earned and deserve," Aggett added.

 

The diamond industry has been changing for many years, says Arik Sela, Managing Director of I. Hennig & Co., which last year celebrated its 120th anniversary. "Our task is to provide solutions for our customers, and therefore we are adapting as well. In the past, it involved, for the most part, dealing with De Beers' clients and their requirements and procuring rough. That remains a very important part of our work, and it is a distribution system that we very much endorse. Clients need a steady supply of rough goods and being a sightholder is the way to ensure that.”

 

"Hennig identified the need to enhance the relationships with our clients and future clients by supplying services and consultation that are synergetic and complementary to our core business.  Thus we are involved in sourcing rough and polished, manufacturing and marketing solutions, trading and tendering in polished and rough, downstream and upstream, and in cyberspace activity, trying to keep at least abreast with the pace of the industry, if not a step ahead," Sela said.

 

The diversity of activity carried out by the brokers is emphasized by Hoymans. "We hire people globally who come from a range of disciplines – the luxury goods sector, FMCG (Fast Moving Consumer Goods), advertising, consultancy, and others. We believe this brings a different perspective and a new set of skills which stimulates business development. For instance, this allows us to guide clients through compliance and auditing, as well as creating documents or presentations for clients.”

 

"With most of our clients, we share an intimate business relationship that goes back several decades. We have become a sort of private consultant to their business, they trust us, and our wide vision of the business gives them confidence to involve us more, even for non-DTC related matters," he said.

 

If the company's DTC work is one pillar of its operations, the second pillar is what the company calls 'Value Chain Consulting'. "This is not DTC related, but nonetheless related to the diamond, jewellery or luxury goods sector," Hoymans says. "Our model is based on trying to benefit from our more than 140 years of experience in the diamond industry, and being in every diamond centre in the world, along with the deep knowledge and experience that all these bring. Value Chain Consulting is available to clients both inside and outside the diamond industry. It includes industry briefings to governments for trade missions, assignments for the Belgian government, as well as advisory work for banks or big international luxury groups," Hoymans explained.

 

He said that Bonas & Co. has also invested in two businesses in London, one of which is a boutique marketing consultancy with lots of experience in the diamond and luxury goods sector, and the other one is the leading augmented reality player for luxury goods, which also has applications for the watch and jewellery business.

 

"The beauty of our business focus is that both pillars reinforce each other: Value Chain Consulting makes us a smarter broker, and being a broker of scale gives us an industry wide perspective, which is exactly why people come to us for Value Chain Consulting.

 

Even in the rough diamond sector, brokers have been looking beyond the DTC. "A recent example of the way we have benefited from this synergy was with the organization and staging of a diamond tender in Antwerp for the mining company Lucara Diamond Corp of the first production from the Mothae mine in Lesotho in March,” Hoymans recalled. “Bonas handled all the logistics and managed the tender from start to finish: invitations, preparation of the goods, viewings, payment and shipping. Eighty companies attended and a total of 42 sales lots, totalling 9,381.35 carats, were sold and raised $8,177,714.”

 

"We all read the book ‘Who moved my cheese’ by Spencer Johnson, and one should never become complacent. Different brokers will follow different routes but to us there is no limit to the level of service one can offer."

 

Aggett explains that with global production of rough diamonds forecast to decline over the next 10 years, the procurement of a regular and sustainable supply has become paramount to today's manufacturer."H. Goldie proactively assists customers to secure regular supply and is in regular contact with other producers and producer governments to promote and present their customers businesses in a way that crystallises how they can become a valued asset to a supplier. This can involve formalising presentations on their behalf, in a similar vein to the assistance we give in developing the submissions for the DTC's CPQ process.”

 

"In addition to securing supplies and an upstream focus, many sightholders need assistance and support in forging downstream relationships, something that we have been actively involved in. In a more general consultative role, H. Goldie is now involved in providing analysis when required on mining forecasts and potential future availabilities all of which can assist their customers in the development of future business and their decision making going forward."

 

He said that another "crucial" service is the administration of Best Practice throughout the industry. "Since consumer confidence has become critical for all producers and strict adherence to Best Practice Principles and ensuring pipeline integrity is a significant factor, particularly in the labour intensive Indian industry. H.Goldie provides a full advisory role in this context.

 

"The broker's role has changed to provide services that are appropriate and relevant to today's industry, and customers choose to work with them because they add value and continuity to their businesses while defending their interests effectively. It is fair to say that the broker's role has indeed evolved as the industry has moved ahead as a result of the growing rarity of our natural product, the increasing demands of the ever more educated consumer and the development of new markets," he added.

 

How does the DTC regard the role of the brokers today? The company says that brokers, appointed directly by diamantaires who wish to benefit from their expertise, can play an important role in the development of diamantaires’ businesses. "Neither De Beers nor the DTC have any contractual relationship with any of the brokers, who operate entirely independently of us," explained DTC spokesperson Louise Prior.

 

"We believe that brokers have, over the years, provided a valuable service to the diamond community. Brokers have customarily performed an important role in providing independent representation to, and a comprehensive, expert and unique service for, sightholders. The DTC welcomes the continued contribution to be made by brokers in providing services to sightholders.”

 

"Sightholders represented by brokers continue to be encouraged, in their best interests, to use a broker to act on their behalf in all their dealings with the DTC. The sightholder will continue to be responsible for the terms of the broker’s appointment and for compliance with any such terms," she said.

 

Prior explained that brokers play an important role in providing strategic and technical expertise to their diamantaire clients and it is generally the brokers "with their profound experience in this business that encourage new sightholder applicants to apply to the DTC for supply".

 

Prior stressed, however, that the DTC makes it very clear that "being represented by a broker or other consultant in respect of any application to be a DTC sightholder, or during a Supplier of Choice contract period, is not a DTC requirement. Applicants can choose whether to be represented by a broker, a consultant, or neither."