Swiss commodities sector grapples with Covid-19 turbulence

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Swiss commodity traders are hard at work so that people can continue to buy basic goods.  (Keystone)

The strategic importance of commodities and experience in handling fluctuations has helped commodity firms weather the coronavirus storm better than most.

swissinfo.ch caught up with Florence Schurch, general secretary of The Swiss Trading and Shipping Association (STSA), to find out how the commodities sector is handling the crisis and what it means for Switzerland.

swissinfo.ch: How would you characterise the impact of the coronavirus health crisis on commodity trading and shipping activity in Switzerland?

Florence Schurch: The global coronavirus outbreak has significantly impacted the global economy. Such impacts are inevitably felt in commodity trading and shipping activity given the global nature of commodity supply chains. Measures put in place by different countries to contain the spread of the coronavirus causes some disruption to the normal flow of the supply chain.

However, the flow of goods is free from these restrictions so as not to break supply chains. The transport of goods therefore remains authorised. Certain arrangements and specific measures taken by the countries have a direct impact on freight capacities, the rates, the speed of processing operations, the delivery time.

All ports at origin and destination are currently operating but activity has considerably decreased with none of them working at full capacity due to the restrictions and limitations. Delays will happen but cargo shall be released even if at a later stage.

swissinfo.ch: How are Swiss commodity traders and shipping companies adapting to this global health crisis? 

F.S.: The need for the supply chain to keep moving becomes ever more compelling amid such global uncertainty in order to ensure that countries have the necessary stocks of their daily necessities. For instance, Swiss commodity trading companies work closely with the roasters and chocolate makers to ensure the supply of essential consumer goods for Switzerland, in accordance with the Swiss government policies to ensure the federal reserves of coffee and cocoa are maintained. In addition, some trading companies active in hard commodities [natural resources that must be mined or extracted] are now participating in efforts to produce ethanol, which can be used in hospitals for disinfection, and to make disinfectant gel. In addition, masks, syringes and plastic gloves are produced using petrochemicals.

Sometimes traders are depicted as mean people making a lot of money on the shoulders of others. In reality, today, they are working hard to make sure that everybody can continue to live as normally as possible. And continue to drink coffee and eat pineapple or kiwi every morning.

swissinfo.ch: What additional constraints are they having to deal with in terms of borders and bureaucracy? Are any commodity traders facing special challenges?

F.S.: Well, it depends on the country. Honduras has implemented a complete lockdown as of 19 March, so trading companies cannot buy coffee or cocoa coming from there. Due to a shutdown in the country agriculture is at a standstill.  It seems that Peru is also thinking about doing a confinement quarantine but, as of today, they haven’t decided yet.

For oil trading companies – it is not just the coronavirus, it is also the oil war between Saudi Arabia, Russia and the US. These two forces together have caused the market to respond in unusual ways. It depends on whether companies have sufficient cashflow to buy gas and oil when the market is down. It also depends on whether they have the means to stock it or not. Today the barrel is at its lowest price in the past 17 years. Oil trading companies are at the front and the market is unpredictable, the companies are the ones taking risks in this turbulence.

If you think about day-to-day life, people now travel less so there is no need for plane fuel and lower demand for fuel for cars and public transport.

swissinfo.ch:  Can we expect job losses in this sector?

F.S.: I’ve had contact with traders of cocoa, coffee, cereals, oil, gas and electricity. Business has slowed down for all. They still have work, but it is difficult to say today what will happen at the end of the coronavirus crisis. For sure, it is not great. It is a shock but the sector is doing OK.

Yet we can never be sure of anything. If it lasts for two months like in China, for instance, we don’t know how small companies will be able to support that. It depends on how healthy the company was before the crisis. Among our over 180 members, we have a lot of small companies, not only big ones. In the small companies, cash flow is even more difficult. They will definitely need benefit from the different economical plans the Swiss government offers to SMEs [Small and medium-sized enterprises]. We really hope that no one will go into bankruptcy, but we never know.

swissinfo.ch: Are we likely to see a lower contribution to Switzerland’s GDP growth from the commodity sector in 2020?

F.S.: It is difficult to say. For sure, it will drop a little bit because trading activity is slowing down and it will take some time to go back to business as usual.  If you think about tourism, or restaurants, hotels and stores – they are closed for at least a month, maybe a bit more. Every sector’s contribution to the GDP will drop a lot. Maybe the trading and commodities sector’s share of the GDP will make a huge leap because of this. That doesn’t mean that we increased our business. It just means the others had a worse time than us.

What policies can the Swiss government take to mitigate the economic fallout of this health crisis with regards to the commodities sector?

F.S.: These are indeed disruptive and difficult times. However, the commodity trading and shipping sector is accustomed to dealing with turbulent markets and will remain resilient to fulfil its essential economic role. To ensure that the economic impacts are well managed and to provide support to the business community, the responses of the Swiss cantonal and federal authorities are crucial.

STSA considers that measures related to taxation can become important to effectively mitigate the economic impacts and to support companies in having the necessary cash flows for their businesses. What would really help with liquidity is the ability to postpone the payment of VAT (value added tax) and social security and pension contributions for employees.

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