Lacking government solutions, Cuban entrepreneurs create their own wholesale markets

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Low prices overseas, with marketups back home. Photo by Matias J Ocner.

Six years after Cuba’s Communist Party approved guidelines to open up the country’s private sector and shrink its bloated state apparatus, more than half a million self-employed workers and 391 non-farm cooperatives are still waiting for wholesale markets to become a reality.

The absence of wholesale markets—which would allow the private sector to flourish—creates chaos in retail trade networks that directly affect Cubans. Retailers and co-ops must buy their inputs from the same networks where consumers shop—or from the black market—in order to keep their businesses afloat.

Competition between these two segments leads to shortages of everyday products.

Given the lack of government solutions, Cuban entrepreneurs have taken matters into their own hands and built their own wholesale market. This market is supplied mainly by Cubans with Spanish passports who can travel visa-free to the United States and other countries such as Panama, Mexico, Ecuador, and Trinidad and Tobago.

Air routes linking Cuba to both the United States and Panama provide most of the goods brought to Cuba by wholesale entrepreneurs. In 2016, an average 127 flights a week on planes with a capacity of 150 passengers linked Havana to Miami and Tampa. Likewise, the Cuba-Panama route provided an average of 48 weekly flights on aircraft holding up to 160 passengers each; 42 flights were to Havana, four to Santa Clara, and two to Holguín.

Most passengers on the U.S.-Cuba flights are Cuban-Americans visiting relatives, usually once a year. Within this group are a small number of travelers known as mulas (mules) who visit Cuba once or twice a month, bringing merchandise to distribute in Cuba’s informal market. Cubans also visit relatives in the United States and then return to Cuba carrying a variety of goods for personal and family use, and to sell them in the informal market. These passengers moved an estimated $1.9 billion worth of goods last year.

Thousands of Cubans also send goods through specialized shipping agencies to their relatives on the island. They provide supplies and miscellaneous items to private businesses started by relatives, or ship goods to be sold in Cuba’s informal market. In 2015, agencies moved an estimated $1.5 billion worth of goods to the island.

 

WHOLESALE ENTREPRENEURS

Martha, a Cuban woman who has a five-year U.S. visa, flies frequently to Miami to buy clothes for resale to her client network. “I sell quality clothing by catalog for youth and adults. Clients ask me for specific brands and sizes that do not exist in Cuba. I also buy a lot of clothes and shoes for children,” said Martha, who asked that her last name not be published. “I take advantage of discounts from Macy’s, Sears, Gap, and Walmart stores, with the credit cards of those stores that a family member facilitates to make my purchases.” Within 10 days, everything is sold, says Martha. “The profits allow me to buy again, pay for the trip and live decently. I wish I could have my own shop in Cuba. Everything would be easier, but the government does not allow it.”

Ernesto, who specializes in appliances (and who also asked that his last name not be used), prefers to shop at Best Buy and BrandsMart. “At the beginning, what sold the most were flat-screen TVs. I bought them at $250 or $300 and sold them at between $600 and $800. On some trips, I brought up to four at a time, until the Cuban customs authorities imposed restrictions and high taxes,” he explained. “My cousin who lives in Miami loaned me the Best Buy and Brandsmart credit cards to do the shopping. Imagine 18 months without interest! Some clients pay me in installments. In Cuba, the shops do not give credit, so you have to pay everything in cash and at prices more expensive thanI usually sell my products for.”

Another hot product in Cuba is game consoles, with PlayStation the most requested brand. “My clients are from the new middle class. Many are business owners with paladares (private restaurants), or rooms they rent to tourists, or they have workshops where they repair cellphones and computers,” said Ernesto, estimating that Havana alone has at least 500 such workshops. “I supply them different cell types and brands, hard drives, flash memory, and spare parts such as screens and chargers. They also ask me for laptop batteries and even laptops of specific brands.”

Ernesto said he buys many such components on Amazon, and his cousin sends them with the mulas when he can’t go to Cuba himself. “We have had to diversify the forms of shipping so as not to call the attention of customs and to maintain a low profile,” he explained.

Over the last five years, the value of Cuba-bound packages has jumped by 62 percent thanks to two basic factors: President Obama’s opening to Cuba, and Raúl Castro’s economic reforms. During this half decade, an estimated $14.8 billion worth of merchandise has been sent to Cuba.

Value of merchandise packages sent to Cuba (millions of dollars). Source: The Havana Consulting Group and Tech.

Between 900 and 1,000 Cubans travel to Panama’s Colón Free Zone twice or even three times a month to buy merchandise at department stores for distribution in Cuba’s informal market and the private sector, says Lucy, a young woman who specializes in this route, and who asked that her last name not be published.  They mainly look for appliances, furniture, clothing, footwear, and other products for use by beauty shops, cell phone repair services, casas particulares (bed and breakfasts), and other small businesses.

“On their first round trip of the year out of Cuba, these dealers can travel back to Cuba with 120 pounds of luggage, with import taxes fully paid in Cuban pesos. They prioritize appliances such as Split air-conditioners, washing machines, and refrigerators,” she said. “For example, a Split-type air-conditioner that costs $200 in Panama can be sold on the island for about $800. A two-door refrigerator that costs $400 in Panama commands a price in Cuba of $800 to $1,400.”

Adds Lucy: “Clothing is one of the most heavily imported products through these channels. It is sold to the public through street vendors. Clothing is very profitable and quick to sell, the demand is very high, and our offer is better than that of the state in quality and price.”

From the second trip of the year on, she explained, travelers are limited to 30 kilograms of duty-free items per trip. The rest of the merchandise is shipped from Panama to Cuba via shipping agencies in small packages of 1.5 kilograms each.

THE DRILL

The following example illustrates how the system works. Buyers and sellers spend about five days in Panama; upon arrival at the airport, they are met by minibuses that take them to Colón for $25 per person. They stay in modest motels that charge $36 a night, including breakfast.

“On the first, second and third days, these buyer-sellers select the items they are going to purchase in the free zone,” Lucy explained. “Then they take the products to a warehouse specializing in packing merchandise. Moving the goods to the warehouse costs $20 per truckload. Generally, three or four buyer-sellers combine their purchases to contract the truck. The fourth day is spent packing and dispatching the merchandise to Cuba through shipping agencies.”

She continued: “These shipping agencies provide the buyer-sellers with scales and packing materials to prepare purchased products. The merchandise is packaged in small parcels of 1.5 kilograms. Each buyer prepares on average 70 to 100 packages, which are sent to relatives and friends on the island. Each can receive up to 10 packages per shipment. Shipping each 1.5-kilogram pack costs $11. The merchandise takes 15 days to arrive in Cuba.”

Merchandise sent to Cuba from the U.S. (by form of delivery, 2015). Source: The Havana Consulting Group and Tech.

Once Cuban Customs informs recipients that their goods have arrived, they go to a designated office to pick up their packages. Each of them receives from the organizer buyer-seller between 5 and 10 CUC for collecting the merchandise.

In some cases, these goods are sold to intermediaries whose network of street vendors sell the products in the informal market. In other cases, buyers already have their own seller networks to distribute the merchandise. They sell some products directly to customers who have placed specifc orders.

One of the most innovative aspects of this long-distance Cuban wholesale market is its level of specialization. People dedicated to this business specialize in buying and selling different types of niche products. This includes electric motorcycles, which cost $1,000 in Panama but can fetch $2,000 in Cuba. Also sold are household appliances such as washing machines, two-door refrigerators, and air-conditioners, which are transported by sea. Miscellaneous consumer products such as clothing and shoes usually travel by air in small 1.5 kilogram parcels. Each parcel can contain 30 or 40 blouses or underpants, and several pairs of sandals or flip-flops, as well as baby clothes, pullovers, and T-shirts.

“To get an idea, in Panama underwear costs 40 cents each. They are purchased in boxes with several packages of 12 units. In Cuba, the seller gets 2 CUC for each unit. In one operation, packages of 600 men’s underpants, 400 women’s panties, and 100 pullovers can be sent, all separated in small packages of 1.5 kilogram each,” Lucy explains.

Buyer-sellers can net $800 to $1,400 per trip, excluding the cost of the merchandise. From Panama, products are flown to Cuba by Aerovaradero, which has branches throughout the country, while products arriving by sea are distributed by Transcargo, a unit of Cuba’s Ministry of Transport, which has a network of 56 correspondents in 14 countries.

During the first 10 months of 2016, Transacargo processed 506 containers (or 142,905 packages) of personal effects through Havana, and 51 containers (9,069 packages) through Santiago de Cuba. Of that total, 143 containers carried the goods of Cuban citizens returning to the island after fulfilling overseas health and educational missions. Over the same period, Transcargo handled packages, unaccompanied baggage, and housewares destined for 67,076 recipients.

Besides Transcargo and Aerovaradero, other agencies offering international shipping include Palco, CubaPack, Cubanacán Express, Cuba Post, DHL, and the postal service itself.

Clearly, Cuban entrepreneurs—despite their own government’s limitations—have managed to set up a wholesale long-distance system that works with some efficiency. It’s far more efficient than the state-run retail chains because it responds to market needs. Its logistics are based on a network that reaches all regions of Cuba cheaply. This system does not require merchandise to be stored, since the products reach the final consumer on request. Its source of financing is direct—derived from the sale itself—and needs neither bank loans nor approvals from higher-ups. Financing answers to the laws of supply and demand, and the ensuing profits are sufficient to run the magical cycle of buy-send-receive-distribute-sell time and time again.

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