What a trading house does and how Switzerland counts it

The economic function of the physical trader

A physical commodity trader buys a raw material or a semi-finished product in one place and sells it in another, at another time or in another form, and earns the difference between purchase and sale price after the costs of transport, storage, financing, insurance and hedging. The trader rarely owns a mine, a farm or a steel mill. Its assets are contracts, credit lines, information about supply and demand, relationships with producers and buyers, and the organizational capacity to move a cargo from a port in the Black Sea to a rolling mill in northern Italy and to collect payment on the way. The three classic transformations that a trader performs are in space (moving goods from where they are produced to where they are consumed), in time (storing goods when they are abundant and releasing them when they are scarce) and in form (blending, grading or arranging the processing of goods to meet a buyer's specification).¹ The margins on each transaction are thin, the volumes are large and the risks are diverse: price risk, counterparty risk, country and sanctions risk, operational risk in shipping and quality, and the liquidity risk of margin calls when prices move.

This function explains why a trader can work from a place that has no port, no mine and no factory. A Lugano steel trader who buys hot-rolled coil in Turkey and sells it to a pipe maker in Italy needs a desk, a telephone, a bank that will open documentary credits, a shipping agent, an inspection company to certify weight and quality at loading and an insurer for the cargo. None of these needs to be located where the steel is. Above all, the firm needs people who know the products and the markets as well as a legal and fiscal environment in which the margin earned can be booked, taxed and reinvested with certainty. Switzerland has offered such an environment since the nineteenth century. The historian Lea Haller has shown that the country became one of the world's main transit trading nations from the middle of that century onwards.²

Merchanting in Swiss statistics

Swiss official terminology calls this activity Transithandel (commercio di transito, négoce de transit), a term that can mislead a reader who thinks of the goods traffic of the Gotthard. The Historical Lexicon of Switzerland defines the transit trader as an intermediary established in a third country who handles export and import business between countries outside its own economic territory.³ The goods do not cross the Swiss border. Only the contracts, payments and profits pass through Switzerland. International statistics call the same activity merchanting. Under the sixth edition of the IMF's Balance of Payments and International Investment Position Manual (BPM6), merchanting is recorded in the goods account of the resident trader's country: the purchase of the goods appears as a negative export and the resale as a positive export, so that the net value, the trading margin, is what enters the national accounts.⁴ The Swiss National Bank (SNB) applies this method in its balance of payments and reports merchanting as a separate line of the trade in goods.⁵

Two consequences follow for anyone who reads Swiss trade statistics. First, the goods traded by Swiss merchants do not appear in the customs statistics of the Federal Office for Customs and Border Security (FOCBS), because they never enter Swiss territory. A Lugano trader's sale of a million tonnes of Ukrainian steel to Italy leaves no trace in the Swiss foreign trade figures except the margin in the balance of payments. Second, the merchanting figures published by the SNB measure net receipts, which move with commodity prices and volatility as much as with the size of the industry. When prices rise sharply, as in 2008 or in 2021 and 2022, the margins of traders and therefore the merchanting surplus rise with them. When prices fall, the surplus shrinks even if the number of firms and employees stays constant.⁶

Notes

1. Craig Pirrong, The Economics of Commodity Trading Firms (Trafigura/University of Houston, 2014), chapter 2, on the transformations in space, time and form. The LCTA describes the trader as bringing together supply and demand "normalmente collocate in diverse aree geografiche" while providing further services along the value chain, and refers readers to Trafigura, Commodities Demystified: A Guide to Trading and the Global Supply Chain, 2nd edition (2018): LCTA, "Lugano e il commodity trading", https://www.lcta.ch/lugano-e-il-commodity-trading/. ↩
2. Lea Haller, "Transithandel", in Historisches Lexikon der Schweiz (HLS), version of 5 July 2023, https://hls-dhs-dss.ch/de/articles/060451/2023-07-05/. ↩
3. Haller, "Transithandel" (above): "Ein Transithändler wickelt also Export- und Importgeschäfte zwischen Ländern ausserhalb des eigenen Wirtschaftsgebiets ab." ↩
4. International Monetary Fund, Balance of Payments and International Investment Position Manual, 6th edition (Washington DC, 2009), paras 10.41–10.49 on merchanting. ↩
5. Swiss National Bank, Swiss Balance of Payments and International Investment Position 2017 (Zurich, 28 May 2018), pp. 10–11, https://www.snb.ch/public/asset/en/www-snb-ch/publications/statistical-publications/bop-and-iip/2018/bopiip_2017/publications0_en/bopiip_2017.en.pdf ("net earnings from merchanting (receipts minus expenses) are booked as receipts from goods trade"; net earnings of CHF 25 billion in 2017, broken down by product group; current data on the SNB data portal, https://data.snb.ch). ↩
6. The connection between prices and merchanting receipts is visible in the SNB's quarterly commentary, for example for the second quarter of 2022, when the surplus "en particulier pour le commerce de transit" fell: Allnews, "BNS: excédent en recul pour la balance des paiements", 23 September 2022, https://allnews.ch/node/84510. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of August 2025.