September 8, 2022

Supply chain challenges have become embedded in the daily life of B2B trade over the last few years, and credit professionals are often the ones left to communicate shipping delays to customers. But when materials take longer to arrive, it also can generate an onslaught of customer disputes.

According to NACM's Credit Managers' Index, dispute activity has been steadily high for nearly a year, partly linked to supply backlogs. The disputes category has been in the contraction zone (below 50) since September 2021.

Disputes hold up the order to cash process, and customers can sometimes withhold the entire invoice even if they are only disputing a small dollar amount. “The most important thing for us is to make sure we’re communicating with our customers that have tendered us freight and making sure that both our expectations are being met,” said Shane Hood, manager of credit and debt referral at XPO Logistics, Inc. (North Richland Hills, TX).

When it comes to customer disputes, XPO Logistics focuses on the customer’s experience before making a decision. They can either remove credit privileges by decreasing their credit limit or reducing their payment terms. Some customers will levy a dispute for reasons such as a freight being delayed for 10 days or accidentally misplaced, “those are handled by our customer service experience team,” Hood added.

Supply backlogs also bolster inflation. Disputes can arise when businesses pass along those price increases. Long-term ocean freight rates climbed yet again in August, edging up 4.1% month on month to stand 121.2% higher than this time last year, according to Hellenic Shipping News.

And prices will likely remain high as backlogs shift from one port to another. “Carriers and shippers looking to avoid West Coast port congestion moved East and, lo and behold, the congestion issues shifted coasts too,” Patrik Berglund, Xeneta CEO, told the news outlet. “We now have a situation where schedule reliability is improving in the West, while container rates fall, whereas the opposite is true of the East. However, do stakeholders want to risk moving back West, especially when unresolved union talks may threaten any perceived benefits?”

Supply challenges have morphed over the last few years—initially caused by the pandemic; then scorching demand; then the war in Ukraine; and the latest being labor shortages and strikes. The Economic Roundtable stated that 572 full-time jobs were lost at the Long Beach Container Terminal and the Trans Pacific Container Terminal in Los Angeles, according to the Association for Supply Chain Management (ASCM). Dock workers are demanding raises, but if negotiations continue,“ 40% of U.S. imports would face bottlenecks, escalating shipping prices, and trucking and freight interruptions,” per ASCM.

In the U.S., rail back-ups at the port of LA and Long Beach are being recorded by logistic managers at around 12 days. “The wait times for containers that use a combination of truck and rail are ballooning to a wait time of 30 days,” according to CNBC News.

The latest economic data shows inflation in the U.S. running at 8.5% in July. This is a drop from 9.1% in June. July’s retail sales figures were flat, which some analysts interpreted as a hopeful sign. After stripping out food and fuel costs, prices climbed by 5.9% through July, matching the previous reading, according to The New York Times.

Another sign that inflation may be decelerating in the U.S.: Gas prices have fallen by $1 a gallon, back to the same levels as March, after peaking in June.

However, Federal Reserve Chairman Jerome Powell has signaled a willingness to inflict “some pain” on households and businesses in order to maintain the pressure on inflation. His speech led to the Dow dropping by 1,000 points, and market analysts believe that the Fed could raise interest rates by as much as 0.75% when it next meets later this month.

In the U.K., inflation hit 10.1% in July, and the Bank of England is predicting that it could reach in excess of 13% in the final three months of this year and remain “very elevated” for much of 2023. Goldman Sachs says it could rise as high as 20% in the winter if energy prices continue to climb. However, the Bank of England expects inflation “to slow down next year and be close to 2% in around two years.”

The Primary Drivers of Inflation

According to the Bank of England, there are three primary reasons for inflation in the U.K. The biggest is higher energy prices caused by Russia’s invasion of Ukraine, which has led to a doubling of the price of natural gas since May.

A second reason is COVID, which is still causing disruptions in the supply chain and an increase in demand for consumer goods at the same time, causing prices to rise. The third is that, in the U.K., there are more job vacancies than there are people to fill them, as fewer people are seeking work following the pandemic. “That means that employers are having to offer higher wages to attract job applicants. And prices for many services have gone up.”

Higher wages in the U.K. also appear to be creating an inflationary spiral, with a shortage of workers causing a rise of wages, which is driving up prices, which in turn fuels more wage rise demands. In the rest of Europe, there has been more wage restraint so far with most sectors in Germany, for example, agreeing to limit wage increases to a range between 3 and 4.5%.

China Is Cutting Its Interest Rates

In most parts of the world, inflation appears to still be climbing. In the eurozone, inflation hit a new high in August at 9.1%. Germany’s central bank chief is predicting prices could hit 10% by the end of the year, primarily because of the cutoff in Russian gas. Prices in Australia rose by 6.1% last month, in South Africa by 7%, 14% in Russia, and in Brazil by 10%, although this is the lowest it’s been since December.

Turkey’s inflation rate is one of the highest, at around 80%. Even so, the Turkish president is calling for a cut in interest rates, claiming that it is interest rate hikes that cause inflation, the opposite of conventional economic thinking.

In China, the Central Bank has been cutting its interest rates, suggesting that it is more concerned about slowing economic growth than inflation. The Chinese economy is being hit by extended COVID lockdowns and significant problems in the country’s real estate market. Some analysts are even predicting an annual growth rate of less than 3% in the country, which would be the lowest level in two decades.

Risk of Stagflation

One hopeful piece in the puzzle has been a recent drop in food prices. Wheat, corn and palm oil are all back to their price levels of six months ago, before the Ukraine conflict. The main driver of this, ironically, appears to be a bumper wheat crop in Russia which has increased the amount of Russian grain exports. However, many developing countries will still suffer high food prices because of the decline of their currencies against the strong dollar.

There is concern that the global economy could become stuck in a stagflationary loop of long-term elevated inflation and low economic growth.

The IMF has lowered its economic growth predictions in the U.S. to 2.3% this year and 1% next year. In China, the IMF estimate is down to 3.3% this year—the slowest in more than four decades, excluding the pandemic—and in the euro area, the growth rate is revised down to 2.6% this year and 1.2% in 2023, reflecting spillovers from the war in Ukraine and tighter monetary policy. The European Central Bank is due to announce its next rate rise this week.

Reprinted with permission by Brink News.

According to the U.S. Bureau of Labor Statistics, the unemployment rate in the construction industry was 3.5% in July 2022. The last time it was lower than this was in September 2019—about six months before the initial lockdowns from the COVID-19 pandemic in the U.S. started.

Despite these low unemployment numbers, 93% of construction firms report they have open positions they are trying to fill. “Among those firms, 91% are having trouble filling at least some of those positions—particularly among the craft workforce that performs the bulk of onsite construction work,” said Ken Simonson, chief economist at the Associated General Contractors of America (AGC).

Construction workforce shortages undermine the industry's ability to complete projects on schedule and threaten the success of new federal investments in infrastructure and manufacturing, according to data from AGC and Autodesk. “Construction workforce shortages are severe and having a significant impact on construction firms of all types, all sizes and all labor arrangements,” Simonson said.

These workforce shortages are compounding the challenges firms are having with supply chain disruptions that are inflating the cost of construction materials and making delivery schedules and product availability uncertain. Two-thirds (66%) of construction firms have projects that have been delayed due to labor shortages, while 82% have projects that have been delayed due to supply chain challenges, per the AGC report.

One main reason for labor shortages is that most job candidates are not qualified to work in the industry. In fact, 77% of firms reported that candidates lack the skills needed to work in construction or cannot pass a drug test.

Another reason for the labor shortage is unfavorable conditions. “There are still some 40 million Baby Boomers in the workforce—about 25% of the total workforce, many of whom in ‘old school’ manufacturing roles,” according to Forbes. As Boomers retire, younger workers are avoiding manufacturing jobs in favor of technology, healthcare and other means of employment where working conditions and compensation are more attractive.

“Deloitte predicts a shortage of more than two million American manufacturing workers by 2030, representing an opportunity cost of $1 trillion dollars per year,” according to Forbes. These challenges are making construction more expensive. 86% of firms have raised pay rates for workers while 70% have passed along rising materials costs to project owners during the past year, per AGC.

The broader economy also is growing at a slower pace than in 2021, further hampering labor demand as firms look to protect profits, stated Insider.

In response to that, construction firms are focusing on preparing future workers for careers in construction. 51% of survey respondents—up from 37% in the 2021 survey—report they have engaged with career-building programs such as high school, collegiate or technical school construction programs, per AGC.

Simonson added that construction firms are boosting investments in training programs. 47% of firms are increasing spending on training and professional development programs, 25% are enhancing their on-line and video training capabilities and 16% are using augmented and virtual reality technology to better train workers.

Even with the best of intentions, conversations about performance or behavior can provoke defensiveness and quickly veer off track. If you’ve ever been blindsided, confused or angry from a conversation that didn’t go the way you intended, it’s likely because you fell into one of these three common traps. Here’s what you need to know to avoid the traps of a difficult conversation and stay on topic.

Trap #1 Verbal Ping Pong

It’s difficult enough in a planned meeting with an agenda to stay on topic, but in a difficult conversation it’s easy to take the bait and get off course. If you find yourself defending your stance or arguing about a different topic it means you lost your leadership clarity.

How it happens: You’re discussing a performance issue when your employee says something that triggers you. You become defensive when they say, “That’s not fair” or “You should hear what others think of your leadership.” Now you’re having a totally different conversation.

What to do instead: Create an intention for every difficult conversation and state that intention at the beginning of the conversation. Be mindful of how you craft the intention because if you say, “My intention is to understand your point of view,” then your leadership behavior will be about listening, not about coaching. If you intend to coach or help them achieve a new standard, you might say, “My intention is to help you with a plan to achieve your goals.” Stating your intention at the beginning of a conversation creates focus. Staying focused doesn’t mean you discount whatever else is said—it means you designate a time for that discussion and stay on topic for the one you intended.

Trap #2 Perceiving Intent

Human beings are meaning-making machines, and leaders are no exception. When you’re dealing with a behavioral or performance problem it’s easy to perceive that they don’t care, have an attitude problem, aren’t engaged or won’t collaborate. These are all assumptions and perceptions. 

How it happens: Assuming intent is often fueled by resentment. Resentment builds when you first notice ineffective performance or behavior but fail to address the issues. Leaders often justify avoidance because they “already know” how the other will respond or they believe adults shouldn’t have to be coached. Here’s the problem: When the leader doesn’t address the issue, the employee has a viable excuse for not changing.

What to do instead: First address the observed behavior—not your perception of the behavior. Instead of saying, “You have an attitude problem,” which is a perception, say instead, “I noticed you just rolled your eyes when I brought up the new project.” Only after stating the observed behavior is it applicable to share your interpretation. The observed behavior is the fact, and your perception is how you interpret the behavior.

For example, “When you roll your eyes while I’m speaking, it makes me perceive that you disagree but don’t want to bring your thoughts forward.” Intentionally sharing your perception allows some grace for the employee to explain their situation and reflect on what you said. The employee might say, “Oh no, you’re just sensitive.” Don’t disagree. Simply ask for what you need in the future.

By the nature of bringing the issue to light, you have opened the door to ask for what you want or set an appropriate boundary. Remember, it’s one thing to act up when no one has said anything about it. It’s another issue altogether once the elephant is brought into the room.

Trap #3 Focusing on the Past

When you’ve been blindsided or disappointed over and over it’s tempting to build a list of past wrongs to help you feel justified. What you must understand is that if the problem has been going on for years, it means someone in authority has been avoiding the issue until it became urgent to address. If you have a laundry list of wrongdoings, then you must assume part of the blame so that you can facilitate real change.

How it happens: If you’ve told them a thousand times, it means you’ve allowed the behavior 999 times! The reason people continue to do what they do is because in some way it’s been allowed. When you’ve reached your limit, it’s easy to let emotions drive the conversation about past performance instead of future goals.

What to do instead: You can give honest feedback without being hurtful. Talk about what you want rather than what you don’t want. This simple rule is a practice that has to be built into a habit. Instead of saying, “I don’t want you to make so many mistakes,” say, “I want to significantly improve effectiveness.” Instead of saying, “I don’t want you to keep losing customers,” say instead, “I want you to increase your client list.” Stop focusing on the past and instead create a vision for the future.

Difficult conversations about performance, results or behavior can trigger defensiveness in the leader or in the employee. As a leader, knowing how to identify and avoid these three common traps keeps the conversation on point and forward focused. While avoiding conflict is a temporary fix, consciously stepping up to conflict can boost your leadership effectiveness.

This first appeared in SmartBrief; reprinted with permission.

Marlene Chism is a consultant, executive educator and the author of From Conflict to Courage: How to Stop Avoiding and Start Leading (Berrett-Koehler 2022). She is a recognized expert on the LinkedIn Global Learning platform. Connect with Chism via LinkedIn, or at MarleneChism.com.