January 13, 2022

 

Natural Disasters to Rise in Frequency and Cost

Annacaroline Caruso, editorial associate

2021 was the second most expensive year for the global insurance industry, with less than half of the total $280 billion in losses from natural disasters being covered by insurance, says Munich Re. With devastating tornadoes, hurricanes and deep freezes, the U.S. accounted for a higher proportion of losses than any other country.

"The 2021 disaster statistics are striking because some of the extreme weather events are of the kind that are likely to become more frequent or more severe as a result of climate change," said Ernst Rauch, chief climate and geo scientist at Munich Re, in a statement.

As natural disasters become more frequent and more difficult to predict, credit insurance becomes a more crucial tool for credit professionals, said Jay Tenney, managing director at Trade Risk Group (TX). “There just has been an abundance of natural disasters,” he said. “It definitely has an impact on insurance rates. There’s some movement to prevent insureds from building where it is a known natural disaster risk.”

Climate experts worry natural disasters will become more frequent, severe and expensive unless serious action is taken. Climate action failure and extreme weather events rank as the top two most severe risks over the next decade, according to the Global Risks Perception Survey from the World Economic Forum (WEF) released Tuesday.

U.S. greenhouse gas emissions also rose 6.2% in 2021, NPR reported, making it more difficult to reach its plan of cutting emission levels by 50-52% by the year 2030. “The transition to net zero [greenhouse gasses] could be as transformative for economies and societies as past industrial revolutions. However, the complexities of the technological, economic and societal changes needed for decarbonization, coupled with the slow and insufficient nature of current commitments, will inevitably lead to varying degrees of disorderliness,” the WEF report reads.

However, the WEF says the transition toward sustainability for businesses is a balancing act. If businesses make the transition either too fast or too slow, it could have devastating consequences.

“The transition could lead to stranded assets in carbon-intensive industries, while devaluations could potentially affect the financial system, leading to loss of liquidity and increasing liability, credit and market risks,” the report reads. “Businesses perceived as lagging, or as complicit in slowing down climate action could lose consumer and investor confidence.”

Bankruptcy Case Highlights Importance of Perfecting Your Lien on Time

Bryan Mason, editorial associate

Although it is important for suppliers and subcontractors to maintain positive working relationships with their customers, they also must do their due diligence when securing their lien rights and follow appropriate state statutes, as a recent California appellate case illustrates.

The Facts of the Case

In July 2018, Philmont Management Inc. filed a mechanic’s lien against 450 S. Western Ave., LLC, in Los Angeles, according to court documents. Over the next 18 months, 450 S. Western Ave. repeatedly reassured Philmont it would receive payment once a pending refinance on the property was completed and asked the subcontractor not to file a lawsuit to perfect its lien. Both parties understood that Philmont would re-record its mechanic’s lien if it was not paid from the refinance within 90 days of the recording. They further agreed that the debtor would not claim the successive liens were untimely. Philmont rerecorded its lien four times. Philmont recorded its fifth and final mechanic’s lien against the property on Dec. 19, 2019 for $2,361,878.40, including statutory interest. On Jan. 10, 2020, 450 S. Western Ave. filed a Chapter 11 petition. On April 29, 2020, Philmont filed a timely Notice of Perfection of Mechanic’s Lien under the California mechanic’s lien statute. On May 28, 2020, Philmont filed a timely Proof of Claim in Debtor’s bankruptcy case, again reasserting its mechanic’s lien. On Sept. 23, 2020, the debtor filed a motion to approve the sale of the property, subject to overbids. In the sale motion, the debtor claimed for the first time—and contrary to its prior repeated assertions and requests—that Philmont’s mechanic’s lien was invalid and disputed.

On appeal, in November, the U.S. Bankruptcy Appellate Panel of the Ninth District upheld the lower court’s decision that the mechanic’s lien and the notice were not timely filed and therefore, not valid.

Considerations

“The lienholder, in good faith, appeared to be doing the right thing in order for the refinance to go through so it could get paid,” said Chris Ring, of NACM Secured Transaction Services (STS). However, “Milestones in state statutes related to when suit action is commenced are fairly straight forward.”

California case law “allows for the re-filing of liens as long as you are still within the timeframe to re-file and have released the previous lien filing,” said Connie Baker, CBA, director of operations for NACM STS. The release should not state the claimant’s claim for materials was satisfied and the second lien must be filed timely according to statute to be valid, Baker added.

“Once bankruptcy was filed, 450 S. Western Ave. was successful in getting the lien dismissed as the milestone to commence suit action had come and gone,” Ring said. “Mechanic’s lien statute milestones can be unforgiving and can be used as a leverage tool for payment as well.” The lienholder should have commenced suit within 90 days of recording the lien and used that as leverage for payment, Ring explained. 

Baker agreed. “They should have simply filed suit to foreclose in lieu of their continued lien re- filings. The lien holder trusted them to get the refinancing, but in the end the bankruptcy filing hurt them. Sometimes it is more cost effective to engage an attorney and simply proceed with suit,” Baker said. “Once you have missed a deadline per statute, there is no going back. They did everything right at the beginning to be secured, but waited too long on their suit action.”

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Supply Disruptions to Remain in 2022, Here’s How to Tell Your Customers

Annacaroline Caruso, editorial associate

Just when one snag in the supply chain eases, another is thrown into the mix. Businesses are on edge watching the rapidly spreading Omicron variant and winter storms add to the pressures already weighing on the fragile supply chain.

“We expected to have more improvement in supply chains becoming unblocked by this stage. In fact, things have worsened,” Simon Heaney, analyst at Drewry, a maritime consultancy, told the Financial Times. “We have more feedback telling us how deep a crisis inland logistics [trucking and ports] is facing.”

Supply-chain disruptions are expected to last at least into the first three quarters of 2022, but they could stick around longer if Omicron or extreme winter storms force shutdowns. Last week’s East Coast snowstorm alone put roughly 25,000 product types and $5 billion in revenue at risk, according to a Supply Chain Dive report. It will take about 23 weeks for affected facilities to recover, the new report reads.

However, the possibility of long-term supply-chain constraints is what worries Shaun Papperman, CCE, CCRA, CICP, director of order fulfillment at Baltimore Aircoil Company (Jessup, MD), the most. “We are seeing the supply chain continue to deteriorate,” he said. “But there are some longer-term trends that we are pretty concerned about as far as shortage of truckers and ocean cargo.”

So, with supply-chain disruptions sticking around, you will need to get good at communicating those issues with your customers, Papperman said. “If your customer doesn’t know when to expect the product and you aren’t keeping them in the loop, you’re going to create additional problems.”

Working closely with your supply and customer service teams is the best way to prevent wasted time and additional costs. Papperman formed smaller teams that are responsible for different product lines so they have a more focused approach to solving any issues that emerge.

“My customer service person also now sits in on the supply-chain call so they are getting a real, up-to-date picture so they can have the best possible conversation with our customers,” he explained. “Adding that additional level of coordination is helping us keep our customers better informed. It doesn’t mean they are going to be happy about what’s going on but it will prevent surprises.”

You also must have an understanding of what is happening deep down in your supply chain and where your raw materials are coming from. For example, if China scales back manufacturing significantly, how would that impact your customers?

“The reality is that China remains the center of global manufacturing,” Thomas O’Connor, a supply chain expert at Gartner Inc., in Sydney, told Bloomberg. “If there was significant manufacturing or logistic shutdowns in China associated with covid-related challenges, that would have a massive impact on the global economic environment.”

That is partly why Papperman likes to use online portals for both vendors and customers, so everyone has as much visibility as possible and can get real-time forecasting for product delivery at any time.

Note: Make sure to attend Shaun Papperman’s educational session on Effectively Communicating Your Supply-Chain Status: Fulfillment, Pricing and Contract Modifications, and Other Related Issues at the NACM 2022 Credit Congress in Louisville, KY. Click here to register.

Finding the Hidden Treasure in Every Employee

Ron Price, Price Associates

As a leader, developing and coaching others is a necessary skill. Supporting professional growth in others, to me, feels like finding hidden treasure. I can know you have potential, but to help you, I need to discover what exactly it is and the best pathway for you to develop that potential.

That’s why when I begin coaching someone new, I always say, “You know, 90% of the success we’re going to have working together is credited to you. I only get 10%. You get 90% because it’s your potential, not mine! It’s who you are and what you decide to do to become the best version of yourself that’s going to create results.”

Coaching and development as a core competency of leadership really means working to bring out the best in those around us in the workplace. As a leader, one of your big jobs is to think about, explore and identify unrealized potential in your employees—to see the trajectory of where they could go if they meet their greatest potential.

Sometimes it might be helping someone to overcome a problem or work on a weakness. But, in reality, you should spend about 70-80% of your energy, time, and focus with employees on further developing and creating opportunities for their strengths and only 20-30% of time on their weaknesses.

A lot of times, this is where leaders get stuck—they spend so much time trying to fix people, but that’s not where an employee’s greatest potential is. It’s understanding someone’s unique traits and helping them grow those traits to meet their potential. I think great leaders often see this before an individual does. They can identify what the person is capable of becoming and guide them through that process.

Listening is the first place to begin. You need to be able to gather a clear understanding of someone’s potential to create the basis on which you develop and coach them. Great listening is the ability to identify how a person is perceiving their current circumstances, their future potential, and even what’s happened to them in the past. You need this baseline of understanding about how someone thinks and sees their situation. Once you have that, you can listen for what they want their situation to be, where they want to go, what they want to accomplish, and draw it out. Doing this helps them understand how their current behaviors and actions are either helping or hurting them on the way.

Awareness is critical. Once you see someone’s potential, you have to help them see it. Meaning, you need the ability to help them create awareness about themselves, what their unique potential is, and how they could develop it. To do this, your mentee needs to understand their role, their job, and the relationship between what they do well and what their job asks for—and these are not always aligned. They also should be aware of how they fit into the culture of the organization and connect with their team. This is crucial. Sometimes people aren’t developing the way they should because they are in the wrong environment or on the wrong team. One thing that will always hurt an employee is having them in a job that doesn’t play to their strengths.

Planning is also an essential skill as you guide employees through the growth and development process. Creating pathways with accountability and clarity will give them the confidence to reach their goals and see how they are going to get there with specific and measurable achievements along the way. It’s a growth pathway that has enough structure but isn’t overly structured.

Feedback throughout the process is the final skill, and one that so many leaders are nervous about but that is an area rich with opportunity. Research from the University of Washington gives us a very simple formula: For every one piece of corrective feedback, also share three pieces of positive feedback. Catch people doing something right—tell them what they’re doing well. It gives them a sense of security and safety but makes them want to keep growing.

Reprinted with permission Price Associates.

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