Week in Review
What We're Reading:
March 29, 2021
Greensill’s future receivables product a ‘rogue outlier,’ industry says. The future receivables product at the heart of Greensill’s controversial dealings with GFG Alliance is highly unusual and beyond the risk appetite of the wider trade and supply chain finance industry, insiders say. (Global Trade Review)
US, Chinese diplomats clash in first high-level meeting of Biden administration. The first high-level U.S.-China meeting of the Biden administration got off to a fiery start on Thursday, with both sides leveling sharp rebukes of the others’ policies in a rare public display that underscored the level of bilateral tension. (Reuters)
Irish assets worth 100 billion euros leave London due to Brexit. Securities settlement for Irish assets worth more than 100 billion euros ($119 billion) has left London for the European Union in the latest adjustment in markets to Brexit. (Reuters)
UK ports suffering post-Brexit container logjams. Post-Brexit trade disruption and ongoing congestion are causing critical build-ups of containers at U.K. ports, according to the latest data from Container xChange. (Global Trade Magazine)
Lebanon crackdown on black market money-changers fails to stem dollar crisis. The dollar exchange rate against the Lebanese pound rose again on Tuesday despite the measures taken by the security forces to pursue black market money-changers. (Arab News)
Cashless Venezuela? Maduro mulls digital payments amid shortage. Venezuelan President Nicolas Maduro has targeted the public transit system—where roughly three-quarters of all circulating cash is spent—as the first stage of his ‘digital bolivar’ plan. (Aljazeera)
Troubles ahead for the US–South Korea alliance. Biden’s efforts to nudge Seoul into the Quad may be self-defeating unless Moon Jae-in’s North Korea hopes are engaged. (Interpreter)
The US’s schizophrenic recovery: Banks’ earnings on the rise as the government bails out families. Talks of a “K-shaped” recovery after the pandemic crisis started in 2020, predicting that some sectors of the economy will benefit disproportionately by the pandemic, while everyone else bears the costs for it. Banks and the world of finance are surely to be on the benefiting end. (Global Risk Insights)
Authorities issue fresh guidance on trade finance money laundering risks. Financial crime authorities are upping efforts to tackle trade-based money laundering (TBML), urging lenders to watch for complex corporate structures or trade flows, circular payment arrangements and inconsistencies in documentation. (Global Trade Review)
The new EU trade strategy: What’s actually new? The new EU trade strategy unveiled by the European Commission contains much to be welcomed, but not much that is new. (EurActiv)
US warns banks over ties with sanctioned Chinese officials. The U.S. added more than a dozen Chinese officials to a list of people that banks must avoid, putting global financial institutions on notice that they risk running afoul of American sanctions. (AJOT)
7 Common Mistakes When Preparing Letters of Credit. You’ve established that a letter of credit is the best form of payment for your international sale. Now, you must pay special attention to make sure you correctly complete not only the letter of credit, but the entire process. Here are the common mistakes exporters make when completing letters of credit. (Shipping Solutions)
The digital bots coming for office jobs. Software bots are getting smarter and more capable, enabling them to automate much of the work carried out in offices. (Axios)
What Corporate Treasury Looks Like Post-Pandemic
Michele Marvin, Global VP, GTreasury
Corporate treasurers have manned a vital lookout position for their enterprises throughout the pandemic, navigating oft-tumultuous and unpredictable economic shifts. As businesses now inch closer to more normal operations, expect treasury to continue to fulfill a role of heightened intra-organizational visibility while adapting to new realities for what’s required from their job.
Here are the five trends that treasurers can expect to play out in 2021, as a post-pandemic world appears closer across the horizon:
Treasury must continue to deliver accurate cash visibility and forecasting.
For many businesses hit hard, a waning pandemic will hopefully bring sales and production back to pre-pandemic levels. Organizations will continue to require frequent and accurate-as-possible cash forecasting to guide effective decision-making throughout this period of recovery. Treasury teams may continue to be called upon to deliver forecasts as often as weekly or daily; even as conditions stabilize, I think it’s unlikely that quarterly (or monthly) forecasts will be the norm. To facilitate this increased frequency, treasurers will increasingly pursue appropriate technologies fit for rapid-fire forecasting, particularly in the area of AI-based tools.
By and large, treasurers surveyed from the pandemic’s onset proved quite accurate in foreseeing a drawn-out pandemic recovery timetable and the lingering impacts that have indeed since occurred. The data shows they’ve also proven effective in leading their companies to make strategic preparations accordingly. Those deft approaches ought to continue through the end of the pandemic while undergoing iterations to adapt to changing circumstances as necessary. In many ways, the outcome each company can expect is rooted in the capabilities and foundation for success that treasury teams have already implemented.
If treasurers aren’t yet equipped with the automation and treasury management systems necessary to match their cash reporting workloads, their organizations will be more vulnerable to shifting circumstances. Corporate treasurers in this position face compounding limitations: spending all available bandwidth on completing manual cash reporting processes leave no resources to implement new automation. To avoid or escape this cycle, treasurers should work with software and service providers to rapidly realize the automation they require.
Treasury must become more efficient.
Many treasury teams have become leaner over the course of the pandemic. At the same time, the cash forecasting and risk assessment that treasury provides has been crucial for enabling companies to maintain vital liquidity. That function will remain essential throughout the pandemic’s aftermath.
To accomplish more with less, treasury teams should pursue solutions that increase their efficiency via broader automation and smoother integrations. The pandemic has also driven the shift to distributed workplaces, which will persist going forward. Facilitating efficient distributed workforces will require treasury systems to be able to deliver continuous remote access to information, seamlessly and in real-time. Treasury teams that have digital automation projects in development ought to expedite those efforts now, and then release new features in stages where possible. The value of optimized processes and automation cannot be understated for corporate treasury in the post-pandemic environment.
As the pandemic subsides, merger and acquisition activity will rise.
Enterprises will have low-cost access to cash and equity as the pandemic wanes, which many will tap to pursue mergers and acquisitions. Treasurers will conduct the critical work of assessing the cash positions and risk profiles of potential merger partners and acquisition targets while ensuring the necessary liquidity to complete these transactions.
Treasurers must prioritize preparedness for benchmark rate reform.
LIBOR continues to be a moving target but is due to be replaced with new benchmark rates after 2021. Corporate treasurers are well-advised to prepare for this transition sooner than later, realigning all standing loans and contracts to the new rates. Those companies that aren’t yet on pace for a smooth transition will need to accelerate their work in this area.
Well before the deadline, treasurers should review all loans, credit, and investments tied to LIBOR, and arrange replacement rates and fallback provisions with lenders and servicers. Similarly, all new contracts will need to include appropriate fallback provisions. The new benchmark rates will also require treasurers to train and become experts in their new operating environment.
Singular platforms able to seamlessly integrate data and technologies across treasury ecosystems will be all the more valuable.
Treasury and risk management systems able to integrate cash, payments, risk, fraud, ERP, BI, and additional capabilities on a single platform are crucial to eliminating friction in payments and data workflows. Treasurers can discover vast benefits by using systems that unite the universe of fintech solutions they rely upon. Treasurers should vet and select solution ecosystems able to automate bank transfers, deliver simplified connectivity to banks and accounts across the globe, and transfer information along with payments. Those able to drive accurate decision-making, ease new feature implementation, improve treasurers’ user experiences, and provide strategic enhancements also deserve treasurers’ attention. The right technology strategy will open the door for treasurers to far more easily introduce valuable new capabilities and efficiencies.
Make no mistake about it: For corporate treasurers and the systems and processes they oversee, the aftermath of the pandemic necessitates maintaining vigilance and continuing to optimize practices.
Reprinted with permission from CTMfile.
|Blockchain Technology & Decentralized Finance
Speakers: Anjon Roy and David Wasson, SIMBA Chain
|NACM and FCIB Present Author Chat:
Leadership Reflections: 52 Leadership Practices in the Age of Worry
Author: Dr. Lisa M. Aldisert
|Regulatory Compliance 101:
What is regulatory compliance and why is it important?
Speaker: Chris Doxey, CAPP, CCSA, CICA, CPC, Doxey Inc.
|Global Expert Briefings - Trade Risk
Speaker: Jay Tenney, Trade Risk Group
Bankruptcies Expected to Increase 26% Globally
Phasing out of aid packages and the normalization of the bankruptcy legislation is expected to cause significant deterioration in the global insolvency outlook this year.
Despite the deep recession caused by the COVID-19 pandemic last year, the expected spike in global bankruptcies did not occur. Globally the number of bankruptcies fell by an estimated 14% in 2020 with some of the larger European economies—Spain, Germany, France and the United Kingdom—experiencing declines of 14%, 17%, 40% and 27%. In the Netherlands, bankruptcies decreased by 17% in 2020, compared to the already low level in 2019.
Turkey and Ireland were the only two countries examined where bankruptcies increased last year. In Turkey, companies faced tighter financing conditions and limited government support. In Ireland, the increase was only 1%.
Two factors can explain the striking trend of declining bankruptcies. Firstly, many countries made changes to their insolvency regime in order to protect companies from going bankrupt. Secondly, governments across the world have taken fiscal measures to counteract the adverse economic effects of the pandemic and support small businesses, in particular.
Increase in Bankruptcies Expected Worldwide
Despite the rollout of vaccines and positive growth figures, we expect a 26% increase in bankruptcies at global level in 2021. An increase is expected in all major regions and countries reviewed, except for Turkey, where bankruptcies were already on the rise in 2020. The largest increases are expected in Australia, France and Singapore.
These forecasts are mainly based on expectations of gradual phasing out of local fiscal support measures and reopening of bankruptcy courts and proceedings. Consequently, many companies rescued last year by the above-mentioned measures will likely file for bankruptcy in 2021. It is worth mentioning that the countries with the highest expected increase in insolvencies in percentage terms this year are most likely the ones with unusually low insolvencies in 2020.
Bankruptcy Levels Expected to Remain High
Bankruptcy levels in almost all countries examined, except for Germany, Greece, New Zealand and Romania, are expected to be higher at the end of 2021 than before the outbreak of the COVID-19 pandemic. Spain and the Netherlands are among the countries forecast to experience the largest increase in bankruptcies, taking together the forecast of 2020 and 2021. This is due to a relatively strong reaction of bankruptcies to GDP fluctuations traditionally observed in these countries.
Three forces are expected to shape global insolvencies development in 2021: the strength and breadth of economic growth this year, the gradual phasing out of government stimulus and other support schemes, and whether temporary changes in bankruptcy legislation reduced or just delayed filings. Their combined impact will greatly influence actual insolvency numbers and trade credit risk in 2021 and 2022.
China’s Crackdown on Western Brands Hits Burberry, Nike, H&M and More
The list of Western brands that have been boycotted, blocked or erased from Chinese social media and mapping software continued to grow on Friday, as a growing diplomatic row over human rights in the country’s cotton-growing region threatened to disrupt one of the world’s most important retail markets.
As of Friday, the London-based luxury retailer and designer Burberry had been added to the list of multinational companies that had been targeted, capping a week of retaliation from the Asian country that has also engulfed H&M, Zara, Nike, Adidas, Uniqlo and LaCoste.
Although the roots of the diplomatic dispute are tied to labor practices and the production of cotton from the Xinjiang region, a vast and rugged territory that lies about 2,000 miles west of Beijing, retailers and brands have found themselves at the frontline of the fight.
On Friday, just days after the U.K. imposed sanctions for alleged human rights abuses in the region, Reuters reported that China had sanctioned “organizations and individuals in the United Kingdom” for spreading “lies and disinformation” about Xinjiang.
As a result, the report said, Burberry’s contract with brand ambassador and actress Dongyu Zhou was terminated, and its iconic plaid design was even removed from a popular local video game because the company had not “clearly and publicly stated its stance on cotton from Xinjiang.”
In other instances, the disappearance of retailer profiles from mapping apps and repression of search results have been used to pressure businesses.
Timing and Importance
The timing of the cotton conflict comes on the heels of existing pressure on retailers to manage supply chain constraints caused by port delays, shipping container shortages and, most recently, the blockage of the Suez Canal.
In its earnings report last week, Nike said it was experiencing delays of more than three weeks in getting its shoes into the U.S. from its factories in Asia, causing a double-digit decline in its inventory and a rare revenue miss.
“Starting in late December, container shortages and West Coast port congestion began to increase the transit times of inventory supply by more than three weeks,” Nike CFO Matthew Friend told investors on the company’s earnings call. “The result was a lack of available supply, delayed shipments to wholesale partners and lower-than-expected quarterly revenue growth.”
At the same time, several other global apparel brands and retailers this month, including both H&M and Burberry, have touched on the resilience of Chinese consumers and the growing importance the region plays in their overall sourcing of revenue.
Still, companies like Nike and Adidas are trying to lay low during the present spate of state-backed brand retaliation, despite having previously announced that they don’t use cotton or yarn sourced from Xinjiang cotton.
With over 1,500 apparel manufacturers and nearly 200 retailers and brands among its members, the Better Cotton Initiative, whose aim is to transform the sustainability and labor practices of the industry, has gained influence over a quarter of global production of the clothing industry’s most widely used ingredient in just 10 years.
“As both the world’s largest cotton producer and a major consumer of cotton, China is a key country for Better Cotton. Sustainable cotton production is a major challenge here, with 24 million farmers depending on cotton cultivation to earn a living and the environmental footprint this represents,” the group’s website states.
Just one month ago, the group released a report that highlighted the efforts and comments of H&M, as its members sourced 13% “better cotton” last year, despite the significant impacts of the pandemic. “H&M Group wants to lead the change toward circular and climate-positive fashion, and one of the key tools to do this is to shift from conventional cotton to cotton sourced in a more sustainable way,” said Cecilia Brannsten, environmental sustainability manager, H&M Group.
In the ensuing weeks of that study, the retail retaliation by China against the group’s members has only grown and accelerated.
Reprinted with permission by PYMNTS.com.
Week in Review Editorial Team:
Diana Mota, Associate Editor and David Anderson, Member Relations