The Challenges Facing Independent Chemical Traders

21 July 2015

These are challenging times for independent chemicals traders. In fact, they are close to becoming an endangered species.

Whilst the chemicals industry, if analysts are to be believed, is due to embark on a few decades of growth as consumerism grips the developing world, the trading on the chemicals needed for that expansion is increasingly controlled by a handful of large corporations.

As economies of scale have influenced the production side of so many products, the power of money and the bargaining position that big business holds has led to the near extinction of the smaller businessman. The talented trader who could once use his networking skills and extensive contact list to make a deal is finding the margins smaller and smaller on each deal. The competition for many is too strong, and they are forced to join the corporate giant to ensure that the mortgage is paid, taking a lower position, with less pay and freedom for the sake of a guaranteed payday.

Unfortunately for the talented and self-motivated salesperson, the international conglomerate is keen to promote brand driven sales, where the company’s name, rather than the legwork of the sales rep, attracts business deals. By doing so they hope to save money (by paying lower commissions) and instead spend money on bigger, swankier offices and corporate branding, to the detriment of the smaller independent trader.

Thankfully, there is still room for expertise. A chemicals trader must still know his acetate from his acetone, as well as his REACH from his K-REACH. Plus there is the countless other trading rules and regulations, import restrictions, export duties and tariffs to consider (a situation that leads many smaller firms to focus on niche markets). Finally, there is also a minefield of logistics to factor-in, that sometimes not even the super computer ‘Deep Blue’ could fathom smoothly.

The Internet itself has become both a bane and a boon for smaller businesses in the chemicals’ trading world. It allows for the free spread of information, so that product prices in Moscow are also known, almost instantaneously, in Marrakesh. But the trader must still sift through the information, to find out what is worthy and what isn’t. In such a wealth of information the overall picture can get lost. The smaller business, if not careful, can be weighed down with over-information.

Online trading platforms meanwhile, whilst seeming to be in their second infancy (please see the earlier blog article on this topic; have yet to show whether they will be a help or a hindrance to the independent trader. On the face of it, they will drive down costs, so that it is no longer necessary to be trading chemicals in a city that acts as a trading hub, as the trading floor is now a virtual one. But this benefit also supports the bigger player, whose trading overheads are much larger. The removal of these costs, places more emphasis on the power of negotiation.

In an online world, negotiation has become less of an art form, enjoyed over cocktails, and more of a science, employed over calculators.

A similar shift in how things are done, can be seen in the way that Texas Holder Poker has moved online, removing the art form of reading a players hand through his facial expressions.

But skill in online poker still remains, and if there is skill, then there is room for individual talent, determination and drive. So surely the future is bright for independent traders. Whether they decide to network, build up the Rolodex of contacts or take the route of using an online trading platform, chemicals are still needed (maybe more so than ever before) and that means that someone will be needed to buy and sell them.