An unprecedented event occurred in Israel two weeks ago: For the first time ever, Bank Leumi’s international trade unit was open on Shabbat, after getting special dispensation from the Bank of Israel. It was done to enable an Israeli firm to purchase medical equipment from an unnamed country just before it suspended any further exports of the equipment.
“The bank told us later that this was such an unusual move they were worried about what might happen, since the relevant systems had never been activated on a Saturday,” says Avi Buskila, CEO of Sarel.
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Sarel buys medical equipment for most of Israel’s government hospitals and the emergency stores of the Health Ministry, the Israel Police and other state security services, which these days also need personal protective equipment. For the past two months, Buskila has been working overtime to buy medical equipment at a time when global supply chains are collapsing and countries are competing for a limited supply of masks and gowns.
Like many people involved in fighting the coronavirus, Buskila has had little sleep in recent weeks. In one of the conversations TheMarker held with him on a recent Saturday night, he paused to take a food delivery sent by his family to his office, where he and his staff are working all hours.
The enormous demand, the pressure from customers, constant requests for more and the realization that this could go on for months, even years, makes his task particularly complicated. Buskila says what he and his team are doing is tantamount to an arms race with other countries to get their hand on critical gear.
Even though Buskila says Israel was on to the threat of the pandemic and began preparing relatively early, medical teams are already reporting shortages and demand may soon swamp supply.
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“Fighting a virus like this, on this scale, is something new for everyone,” he says. “It’s true that we have emergency warehouses and military stores with hundreds of respirators and masks, but I don’t think that anyone anywhere was prepared for an onslaught of these dimensions. I served in the army for 25 years in posts associated with such acquisitions and I’ve been at Sarel for 12 years, and I’m telling you that for almost 60 days we’ve been working day and night.
"This is a biological war and it’s not regional, it’s global.”
“It’s not that a war broke out and we have no ammunition. It’s like nothing else that’s happened before, not wars, not SARS, which was much more lethal. This is a biological war and it’s not regional, it’s global.”
Why is it so hard to obtain the necessary equipment?
“It’s a question of economics. It’s not a problem of funds or prices, but of where to find it. I told my people: This is biological warfare. Imagine the Iranians launching lots of missiles, and now we have biological cluster bombs with delayed fuses, each one infecting several people. No one alive today has ever witnessed anything like it. An epidemic on this scale last happened 100 years ago.”
He says Israel was prepared for SARS and Ebola, and for conflicts, but COVID-19 is in a class by itself.
“You have to remember that this is a new and unknown virus, so learning about it has to be done on the go. Only recently, for example, did it become apparent that it targets the respiratory system, affecting older people more than younger ones. So even when you have respirators in emergency warehouses, no one could have foreseen the extent of the need,” he says.
Is the world shutting down?
“Yes. Turkey isn’t allowing orders to be shipped. All sewing facilities there have been converted into making overalls and gowns. There are high-quality goods stuck there, with the authorities not allowing their delivery. India and the United States are not permitting exports of N95 masks, which are more effective than the standard surgical ones. German Chancellor Angela Merkel also instructed exports to be halted. The same applies to Spain. Everyone is wary of everyone else,” Buskila says.
Israelis became aware that a huge event was at their doorstep in late January, around a month after the first reports came from China about a new disease and a few days after the World Health Organization announced that the new virus is transmitted from human to human.
“On January 25, maybe a little earlier, we began preparing for it. We realized this was something big. Management here got together, and we decided to prepare for the worst-case scenario. The working assumption was that it could erupt here, with shortages in protective apparel and equipment. We realized what was needed during an epidemic and we focused on protective clothing and masks. We mapped out what was manufactured in China.”
Was it already clear that they would halt production?
"We ourselves have orders for 160 million masks from around the world, mainly from China.”
“This wasn’t clear yet, but we assumed it was likely that they’d stop manufacturing and exporting such equipment. We realized we had to start purchasing products elsewhere. Eventually, the Chinese also started to buy from other countries. We ourselves have orders for 160 million masks from around the world, mainly from China.”
Did you sell them any?
“No, of course not. First of all, I have no surplus inventory, but my prime concern is to look after Israeli needs. Whatever we bring in goes to hospitals first.”
Is it just protective gear or other products as well?
“It’s many other products. We set up a committee that mapped out medical products that might be in short supply, and we saw many such items, mainly plastic products such as tubing, catheters, suction cups. Many of these are manufactured in China, so we purchased huge amounts that should last for three months.”
“After a few days we realized that the ampules for many drugs are also made in China. We therefore rushed to buy supplies of these drugs from around the world, since even if, for example, there is a type of adrenaline that’s made in Europe, the glass for the ampule it’s put into is made in China, so that a shortage of the drug is to be expected down the line. It’s not just ampules. We purchased large supplies of drugs made from Chinese raw materials.
“There’s another matter: Even for products the Chinese don’t manufacture, we knew that because of the situation there, manufacturing will be affected, so there will be huge demand by the Chinese for products made in Europe and the United States. So, we hurried to buy large supplies of drugs and medical equipment.”
Did the fact that it took time before the first coronavirus patient was confirmed in Israel help in terms of these purchases?
“Of course. It gave us time to get organized and equipped. An outbreak such as we’ve seen in Italy and Spain can quickly bring a huge demand for respirators, shocking the system. It was clear to everyone that we’re preparing for a situation that could be much worse than it is now, but at least it would be a more gradual process.
"The market is in transition from being built around companies to being built around fixers."
“Every day, purchasing is becoming more difficult. We encounter counterfeit items, such as fake N95 masks or overalls that are not water impermeable, so we don’t buy anything without checking it out first. I’ve sent people to Russia, Turkey, Germany, the Netherlands, and we’ve uncovered sting operations or insufficient standards in several places. All kinds of fixers and dealers have cropped up, dealing in new, second-hand and third-hand products. There are dealers who purchased huge supplies, as well as other people with capital, and you don’t know who they really are. The market is in transition from being built around companies to being built around fixers. This is prominent mainly vis a vis protective masks. It’s annoying and very challenging.”
There’s probably price gouging.
“Prices are at least 15 times above pre-coronavirus prices, sometimes even more. The salient example is the N95 mask. These are masks that weren’t used previously by the health maintenance organizations here. They were mainly used in places prone to pollution. Now the whole world is competing for these masks. Before the outbreak, a mask cost $1, maybe even 70 cents. On the private market it now goes for 70-80 shekels (about $18-22). Simple surgical masks, which we used to buy for 8 or 10 agorot, now cost between 1 and 2 shekels.
One more challenge, he says, is shipping. “Since shipping containers are clogging up some of the major ports in China and South Korea, there’s a global shortage of containers. In any case, shipping by sea takes a long time, so we now have to fly in equipment, and this costs much more. The more countries are affected by the coronavirus, the harder it comes to buy equipment – it’s a battle over every item.”
Sarel sent an employee to Mexico to buy 20,000 masks one of its suppliers had found. The employees traveled for six hours at night only to discover that the Mexicans were getting 50 cents more per mask from the Americans, who got them in the end. “It didn’t matter that we’d paid them a deposit,” adds Buskila.
“It resembles a children’s game we used to play, with one person out of three coming out ahead, except that here it’s one out of 30 countries. For every deal, you have to check that you’re not being swindled, since many people say they have something, want a deposit and security, and in the end, you find out that they weren’t really leveling with you. Nowadays, everyone is suspicious of everyone else. You’re no longer working with your regular supplier who you can trust at their word.”
No more rules
How can you do business when the rules of the game no longer apply?
“Every country wants to keep for itself products that it manufactures. We had one case in which we got some goods out one day before that country shut down for exports. You can have a situation where you pay, the supplier is okay, the goods are the real deal, and then, boom! The gates are closed and they’re not allowed to sell.”
What other challenges do you face?
“A lack of personnel. I sent someone to Germany to buy masks, and as soon as he returned to Israel he went into quarantine. This is someone I really need, and he’s off for two weeks. This creates a situation where I can’t send people to examine equipment.”
How do you deal with that?
“We began cooperating closely with the ministries of economy and defense, so that economic attaches at the embassies, some of which are closed, help us locate equipment. If necessary they go to the factories making the goods, since they are already in those countries. We try to buy brand names, so that it shouldn’t be that difficult for people with no experience.”
What are the products most fought over?
“Masks, even though I predict that soon, with the Chinese returning to work, supplies will increase and prices will drop. The second product is bleach, the most lethal weapon against the coronavirus. There’s a huge demand for it now. Everyone’s talking about masks, but hygiene is critical. In addition to masks, there is huge competition over protective clothing."
"There is also a chase after nasopharyngeal swabs and test tubes. Swabs are the real bottleneck preventing an increase in testing. We started buying them early, and in large numbers. We obtained tens of thousands. This is quite complicated since this is usually a marginal item, and suddenly demand spikes a hundredfold of available supplies. Things are even trickier since one of the major factories making these sticks is in Italy. Soldiers have moved in there, taking over supplies.”
A week ago, after this interview took place, the Mossad arranged to bring 100,000 test kits to Israel, but the swab shortage has remained.