Entrepot

Also known as a free port, an entrepot is a duty-free port where high-value commodities are traded. Such goods often are transported long distances, and the entrepot  functions as an exchange point between carriers. Commodities may be stockpiled at an entrepot , allowing for a more consistent supply to the market to be maintained, and thereby avoiding large fluctuations in price that destabilize demand. Goods exchanged at an entrepot  typically are in high demand, and are produced in monopolistic or near-monopolistic conditions. Such exchanges were common under the mercantilism systems of the colonial era. Entrepot  trade developed primarily due to the long distances involved in moving commodities from the point of origin to the final market.

For example, spices in the 1600s were frequently transported along a series of entrepot  ports of call between Southeast Asia, where nutmeg, cinnamon, and other high-value goods were purchased, and the major market area for the spice trade, Europe. Singapore and Penang, Malaysia both developed into major economic centers through entrepot trade. By employing a system of entrepot ports, companies in the spice trade, at the time primarily the Dutch East India Company, could stabilize supply and also reap additional benefits, such as replenishing damaged stock, exchanging information concerning fluctuations in production or the status of suppliers, and other non-tangible business advantages that collectively helped to maximize profits and limit risk. Managing the supply of spices was essential, because the demand for these commodities was stable, and an unexpected glut in supply could result in a dramatic drop in price. If too many ships carrying cargoes of spices arrived at Dutch ports unexpectedly, the surplus supply could result in the entire expedition failing to turn any profit, a serious failure indeed since the Dutch East India Company raised revenue to finance its ventures by selling stock. Too many failures to make a profit would not only result in financial losses, but undermine the faith of investors and damage the company’s ability to raise future investment capital. Under the monopolistic circumstances of the spice trade, the entrepot system allowed adjustments to be made in deliveries that virtually eliminated the dangers of oversupply.

The system also took root in Europe itself, with first Antwerp and later Amsterdam functioning as thriving centers of entrepoˆt trade. Antwerp was the leading entrepot  port in central Europe until 1585, when the city was badly damaged by military action as a result of the Dutch Revolt against Spain. Ironically it was the connection to Spain that had enabled Antwerp to dominate other ports in the region, but by the early 1600s Amsterdam had replaced Antwerp as the leading free port in the Netherlands. After the establishment of the Dutch Republic in 1581, Amsterdam became the home port of the Dutch East India Company, and the profits from the high-value commodities that the port traded, like spices, silk, and porcelain, led to the accumulation of enormous wealth. Eventually competition from British merchants undermined Amsterdam’s dominance, but for a century and a half its trading status made the Netherlands the leading maritime power in the world.