eNews April 1
In the News
April 1, 2021
|I. What Shifts Could be Permanent?|
|II. NACM’s March Credit Managers’ Index ‘Far Better’ Than Expected|
What Shifts Could be Permanent?
Chris Kuehl, Ph.D., NACM economist
There are many ways forecasters can appear foolish. Predicting what a consumer will do in a given situation is one sure-fired way. Trying to guess what will happen in the oil market is another one, and nothing humiliates quite like trying to figure out politicians.
In that pantheon of embarrassing assertions, there is assessing the post-COVID future. Everything about this pandemic has been new. It has included dozens of twists and turns that few anticipated—much less prepared for.
Nonetheless, we in the soothsaying business carry on. As we start to emerge from this year of lockdowns and recession, what has really changed? We have seen a lot of recovery and rebound, and far faster than anyone had expected. We also know that many behaviors changed to accommodate the wholesale societal adjustment to the pandemic. Do we go back to old ways or not?
Broadly speaking, we experienced massive change in three ways. We changed the way we work, the way we consume and the way we went about our daily lives. The most long-lasting changes will likely be felt in the way we work, followed by the way we consume and finally the way we live. The swiftest return to old patterns will be in the way we live.
The surge in some version of working from home was an obvious change from the start. The advancement in technology for virtual meetings helped bring it about. Prior, many people already had been working remotely in some sense. People who basically showed up at an office and did their jobs with minimal interaction with others could likely have performed those jobs from anywhere.
On the other hand, some people work in collaborative environments. They will rush to resume the old patterns as soon as possible. Many offices are expected to adopt the 3-2-2 workweek model in the months ahead (three days in the office, two days at home and two days off).
The major challenge with working at home is time management. Workers seem to fall into two categories: those who do the bare minimum now that they are unsupervised and those who don’t know when to stop and work far more than expected. The latter group is the bigger concern because they are heading for burnout.
The consumer shift began prior to the pandemic, but it has accelerated quickly. The lockdown meant reliance on online options and deliveries. Millions of people discovered it was easier and more convenient than they expected it to be.
Even entertainment dramatically shifted online as people engaged with streaming and gaming options, and the like. It may take a while for some people to resume those entertainment options now that they have all kind of new toys in their home. The one area that may rebound pretty quickly is travel. The airlines are reporting much higher passenger counts, and resorts are looking at numbers that are close to 2019 levels.
Finally, there is the way that we conduct our daily lives. This has been the toughest adjustment of all. For a year, people have been asked to shun family and friends completely. It has been more than abandoning backyard BBQs and parties. People stayed away from funerals, weddings, graduations and every other kind of celebration. The human being is a social creature. Being cut off from everyone has had serious implications for overall mental health and social cohesion in general. People are desperate to reconnect and will be resuming these habits faster than many in medical circles will approve of.
NACM’s March Credit Managers’ Index
‘Far Better’ Than Expected
Andrew Michaels, editorial associate
NACM’s Credit Managers’ Index (CMI) gained two points in March. Following four months of fluctuations, the March CMI reached its second-highest combined score in a year—just half a point shy of the highest, which was seen in January.
“It is normally the task of the economist to find the dark cloud that surrounds the silver lining,” said NACM Economist Chris Kuehl, Ph.D. “But numbers this month look far better than anybody had expected and indicate credit professionals are finding their footing on a path back to normalcy.”
Three of the four combined favorable factors bounced back from the February dip, creating a combined score of 67.7. Dollar collections and sales were among the most improved. Amount of credit extended also saw a slight gain, while new credit applications decreased.
More than half of the combined unfavorables categories also increased in March, most notable was dollar amount beyond terms and accounts placed for collection. Bankruptcy filings and credit application rejections also saw gains. Disputes, however, dropped less than half a point, while dollar amount of customer deductions fell slightly more. Overall, combined unfavorables scored 53.8.
“The truly encouraging news is that unfavorable categories have had five consecutive months of readings 50 and above,” Kuehl said. “Not one of the readings has been in the contraction zone since October 2020. This bodes very well for future economic growth readings.”
The manufacturing sector saw a small increase to 59.2 in March. Dollar collections and sales were the only favorable factors to increase. Amount of credit extended dropped just over a point, followed by a 4.5-point drop in new credit applications. In total, manufacturing favorables scored 67.1, while combined unfavorables scored 54.
Kuehl credits increases in accounts placed for collection, dollar amount beyond terms and credit application rejections for the unfavorables score. Bankruptcy filings also improved. The only two unfavorables that declined were the dollar amount of customer deductions and disputes, both nearing contraction territory.
“The sectors that have performed well through most of the last several months have been in manufacturing,” Kuehl said. “This has been explained in part by the fact consumers have been unable to spend as they usually do on services.”
Prior to the pandemic lockdown, on average, about 65% of consumers’ disposable income was spent on services, Kuehl added. “The higher the income, the more spent on services as opposed to things.”
With a three-point gain to 59.4, the service sector, however, did exceedingly well last month, which is likely attributed to the extensive gains in all four favorable factors, he noted.
Dollar collections saw the most extensive increase by nearly nine points, while sales achieved the highest reading for the sector. Amount of credit extended also increased, followed by new credit applications.
The CMI reflects retail and other services less affected by pandemic shutdowns more than some of the other service areas such as hospitality, entertainment or the restaurant trade, Kuehl pointed out.
Unfavorables reached its highest score since March 2020. Credit application rejections was the only unfavorable to decrease, and dollar amount of customer deductions held. However, dollar amount beyond terms increased by nearly six points, while accounts placed for collection jumped three points. Bankruptcy filings and disputes saw minimal gains.
Proposed Texas Bill Would Change State’s Mechanic’s Lien Process
Bryan Mason, editorial associate
Update: Texas HB2237 is scheduled for public hearing 8 a.m. CDT, Tues., April 6, in the Business & Industry Committee, of the Texas House of Representatives.
The Texas legislature is considering House Bill 2237, which would alter how material suppliers file mechanic’s liens within the state. If the bill is approved, it would change notice requirements and deadlines.
To provide a quick overview, here’s a list of what this proposed legislation would do:
- Eliminates the subcontractors’ and material suppliers’ second-month notice to the original contractor. The notice is currently due the 15th day of the second month that follows the month in which work was performed or material was delivered (third-month notice remains in place).
- Eliminates the requirement that notices and affidavits of lien be sent by certified mail.
- Shortens the statute of limitations to bring suit on a lien from two years to one year.
- Makes the deadline to file a lien on retainage no later than the 15th day of the third month after the original contract is completed.
- Extends lien and notice deadlines that fall on a weekend or holiday to the next business day.
- Eliminates Section 53.083, Payment to Claimant on Demand. This section requires an owner to pay an original contractor’s undisputed claim within 30 days after the original contractor receives a copy of the claimant’s payment demand to the owner.
- Provides an expedited discovery process after a claimant files a motion to remove an invalid lien.
The bill, sponsored by state representatives Joe Deshotel (D) and Dustin Burrows (R), moved March 15 to the House’s Business and Industry Committee.
Although the proposed legislation is meant to make it easier for subs and suppliers to perfect liens, various members of NACM Southwest recently shared concerns over the removal of the second lien notice. Some credit professionals describe it as a quintessential collection tool.
“If this notice requirement is removed, it will increase DSO for suppliers,” said Connie Baker, director of operations for NACM STS. “Subcontractors will have no reason to pay sooner because the general contractor won’t receive notification of nonpayment until the third-month 15th-day notice.”
Overall, Andrews Myers PC’s senior associate, Katy Baird, sees the proposed changes as a “mixed bag.” Many subcontractors and suppliers find that the second-month notice prompts payment and negates the need to file a claim, Baird said.
“If you’re a subcontractor selling to a general contractor or a material supplier selling to the general contractor removal of the 15th day second-month notice is not a big deal,” said Chris Ring, of NACM STS. “If you’re a material supplier selling to a subcontractor, the removal of the 15th day second-month notice is a huge deal!” Basically, this gives subcontractors 30 more days to pay the material supplier, Ring added. “I’m not sure that is the intent of that part of the proposed legislation change, but if passed will surely be the result.”
If the legislation passes, sending it might not be an option, Baird cautions. “If subcontractors and suppliers continue to send the second month notice, it may give upstream parties a potential claim for tortious interference with their business practices.” These types of claims often occur when a defendant wrongfully interferes with the plaintiff’s contractual or business relationships.
Even if a tortious interference claim did not prevail, it could “create a new set of arguments that can delay collection efforts,” she added.
Some of the bill’s more positive aspects include the extension of filing deadlines for fund-trapping notices on retainage and for liens and notices to the next business day after a holiday or weekend can make collection efforts easier.
To argue the more troublesome parts of the bill, NACM Southwest is currently raising money to hire a lobbyist. “We look forward to working with legislators to revise portions of this bill to better address the needs of NACM Southwest members,” said Randall Lindley, a partner at Bell Nunnally, who is coordinating NACM member efforts with the lobbyist. “At the top of our priority list is maintaining the 'second-month notice,’ which is a valuable collection tool for our members.”
Global Supply Chain Disruptions Pile Up
Bryan Mason, editorial associate, and Diana Mota, editor in chief
While supply-chain bottlenecks are not uncommon under normal conditions, shipment delays, container shortages and other transportation issues have grown exponentially during the COVID-19 pandemic.
“One of the biggest current challenges is the backlog of container ships waiting to get unloaded, particularly at the Port of Los Angeles,” said David Noah, president of Shipping Solutions. “An increase in imports and safety protocols put into place to protect workers at ports has resulted in a significant delay in waiting time for ships to be unloaded. In addition, there is a shortage of shipping containers, particularly in Asia where many more goods are leaving that region of the world than entering it.”
In January, docking delays grew from an average maximum of two days to five days, The Wall Street Journal reported. “A surge in shipping volumes that began in late summer and rose during the holiday season has continued into the new year as retailers and manufacturers try to rebuild inventories that were depleted at the onset of the Covid-19 pandemic.”
According to the latest data released by the Port of Los Angeles, the port processed 799,315 20-foot equivalent units (TEUs) in February, a 47% jump compared to February 2020. It was the seventh consecutive month of year-over-year increases and the strongest February in the Port’s 114-year history.
Loaded imports reached 412,884 TEUs compared to the previous year, and loaded exports decreased 24.7% to 101,208 TEUs. Empty containers, heavily in demand in Asia, surged 104% compared to February 2020, reaching 285,223 TEUs.
A total of 78 cargo vessels arrived in January, including four extra loaders.
News reports further claim that even after shipments are offloaded, multi-day delays in loading shipments onto trucks or railcars quickly follow.
The delays create a domino effect for nearly every industry that relies on the global supply chain. “In the automotive and heavy truck industries, the delays have been particularly harmful,” TPS reported. “North American vehicle production was only temporarily halted last spring at the outset of the pandemic, but over the last few months more and more manufacturers are being forced to pause completing specific systems and vehicles due to lack of component availability.”
Additionally, warehouse distributors are receiving more orders than their vendor partners can support; and the vendor community says there’s no quick fix to stabilize the supply chain, TPS reported further.
“Our largest challenge at the moment for most materials—except the electrical components and semi-conductors—is knowing exactly where our goods are,” Thomas Doll, Bendix vice president, global purchasing excellence, told the publication.
Unfortunately, international shipping issues and port bottlenecking are not expected to ease until late this year or early 2022. Repercussions from the giant container ship, Ever Given, being stuck in the Suez Canal have added another layer of issues.
A team of Dun & Bradstreet and E2open data and analytics experts “found that Europe is the region that will feel the strongest impact due to the blockage of the canal,” reported Supply Chain Management Review. “Companies located in Asia will be impacted not only by the delay of shipments from Europe, but also by a shortage of empty containers returning to their region—further stalling their abilities to deliver goods around the world.”
Amidst the chaos on the seas, many companies have turned to air shipments as a more convenient alternative, especially as “prices on air shipping have also dropped dramatically in recent months,” CNBC reported.
“The price of a 250-kilogram air shipment traveling from China to the U.S. has dropped from about 60% of the cost of a full container to around 36%,” Capt. Adil Ashiq, executive of Marine Traffic’s U.S. Western region, told the news agency.
In the CNBC article, Freightos’ chief marketing officer, Eytan Buchman, added, “For the right type of cargo, and certainly the right value, air is absolutely becoming a more enticing option, with both capacity and far faster transit times.”
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