I'll trade ya: Barter companies thrive as economy reels

PORTSMOUTH

In an unmarked office a few feet from the Children's Museum of Virginia, Ron Whitney runs a nonprofit association representing 85 barter companies throughout the world.

Among his responsibilities: preaching the beauty of bartering. It's an easy sell these days in this turbulent economy.

Barter companies, also known as exchanges, do $12 billion in business worldwide per year, Whitney said. In the past year, he said, they're reporting increases in transaction volume and membership of 15 to 40 percent.

In Norfolk, the Barter Authority, which is a member of Whitney's association, has experienced growth of 60 to 70 percent in transaction volume, or about an additional $50,000 per month, said Melissa Hassell, the operations manager.

The barter boom also is benefiting Whitney's group, the International Reciprocal Trade Association. Membership, he said, is up 60 percent in the past 18 months, with recent additions from such countries as Brazil and Australia.

The surge isn't hard to fathom.

"The engine that drives barter," Whitney said, "is unused or excess capacity that every business owner has," such as the unsold airline seat. The recession has swelled that excess capacity, so "they're looking for alternative marketplaces to make up for that lost business."

Barter often is thought of as a one-for-one trade: A hairdresser offers a landscaper a free 'do if he spruces her garden.

A barter company assembles a web of businesses that can swap goods or services in three-way deals, expanding opportunities and preserving cash. In the process, members acquire and spend "trade dollars."

"You don't have to purchase from whom you sold to and vice versa," said Whitney, comparing an exchange to "a microcosm of the Yellow Pages."

Most barter exchanges don't start trading until they have at least 75 to 100 members, Whitney said. The Barter Authority, for example, has 400 to 500, Hassell said.

The exchanges usually have a brokerage or customer service department to engineer transactions. They provide members with increased business and exposure, Whitney said. The exchanges also sometimes extend credit via trade dollars.

Members pay sign-up and monthly charges, as well as transaction fees, which, Whitney said, usually amount to 10 to 15 percent of the value of the deal and are often split between the two parties.

Whitney, 55, who ran a barter exchange in Philadelphia for 15 years, saw once more the value of bartering a month ago.

His daughter, new to the Hartford, Conn., area, woke up with acute pain in her teeth. She didn't have a dentist yet.

Whitney found one through the area's barter network. The dentist, whom Whitney planned to pay with his barter trade dollars, saw his daughter and said she had serious root canal problems, requiring the attention of an endodontist.

The dentist recommended one, and "he signed up and became a member of the barter exchange," Whitney said.

"Thank goodness for the barter system. It came to the rescue even in a medical situation."

Whitney, who has a part-time assistant, rents space from a law firm on Middle Street, across the plaza from the entrance to the Children's Museum.

The International Reciprocal Trade Association moved to Portsmouth after Whitney did.

In 2007, as Whitney was selling his Philadelphia barter company, he visited Hampton Roads to scout another he was considering buying. He stayed at Harbor Tower Apartments in Portsmouth.

The deal didn't happen, but "I fell in love with Olde Towne. I told my wife, 'You've got to see this town.' "

She did, and they moved there.

Whitney at the time was a board member of the association. Shortly after their move, he was asked to be its executive director. He accepted.

It's an "excellent mid-Atlantic location" for the organization, Whitney said. "There's easy access to everywhere."

And not a bad commute for Whitney.

"I live a block and a half from here," he said. "I walk to work. No tunnel traffic."

Hassell, from the Barter Authority, said: "He's hands-on, tremendously involved. He's a good businessman all around, so I knew he would do a good job."

Of the association's 85 companies, about 70 percent are in the United States, Whitney said. Combined, they have 250,000 member businesses.

Whitney's duties include advocating for the barter industry and educating and networking with its members. His next big task: preparing for the association's European conference in Norway in June.

Whitney credits his organization with creating a Universal Currency program 10 years ago - allowing barter trades between exchanges and even countries - and drafting a code of ethics, which, for instance, prohibits businesses from "puffing prices" while bartering.

Perhaps the group's biggest achievement, though, was helping win passage of the Tax Equity and Fiscal Responsibility Act of 1982. Since then, the Internal Revenue Service has classified barter exchanges as third-party record-keepers. That means they must report all transactions on a 1099-B form.

"It legitimized the industry," he said. "It's the same 1099-B form Morgan Stanley uses."

The law, he said, did not add tax breaks for barter transactions. However, Whitney noted that members of barter companies with year-end "losses" are eligible for tax deductions.

He doesn't foresee the barter business fading when the economy revives.

"Even in a good economy," he said, "that hotel owner will have 10 to 15 percent unused capacity."

Rather, Whitney hopes barter becomes as hot in the United States as it is in other nations.

"It's so big in Australia and New Zealand, when they had the Super Bowl of soccer, the middle of the field had an advertisement for a barter company," Whitney said. "Maybe one day you'll see a barter company emblem on the 50-yard line of the Super Bowl. We can get there."

Philip Walzer, (757) 222-3864, phil.walzer@pilotonline.com