What We're Reading:
Xi’s visit to Hong Kong cements the end of its legacy as a hub of democracy, global trade. The Chinese Communist Party has heralded the 25th anniversary of the transfer of power over Hong Kong from the U.K. to Beijing as a celebration of a “new era” and the culmination of its two-year effort to bring the economic powerhouse into greater lockstep with China. (US & World Report News)
EU countries approve climate measures after long talks. European Union countries reached a deal following hard-fought talks that dragged into early Wednesday to back stricter climate rules that would eliminate carbon emissions from new cars by 2035. (AP)
Russia in historic default as Ukraine sanctions cut off payments. Russia defaulted on its international bonds for the first time in more than a century, the White House and Moody’s credit agency said, as sweeping sanctions have effectively cut the country off from the global financial system, rendering its assets untouchable. (Reuters)
Oil producers usually tame soaring prices by turning on the taps. Here’s why that may not work this time. Oil-consuming nations wait with bated breath as the OPEC cartel meets once again this week to decide whether to pump more crude into the market to tame runaway prices. (CNN)
Steel import tariffs extended for two years. International Trade Secretary Anne-Marie Trevelyan said the plans departed from the UK’s “international legal obligations” but was in the “national interest” to protect steel makers. (BBC)
Philippines: What the future holds under Ferdinand Marcos Jr.’s rule. A series of arrests and crackdowns on media outlets in the weeks before the presidential inauguration of Ferdinand Marcos Jr. foreshadows a continued climate of intolerance for dissent and shrinking civil liberties in the Philippines, warn activists and human rights defenders. (DW)
Job cuts are rolling in. Here’s who is feeling the most pain so far. As the Federal Reserve pumps the brakes on the economy, many American companies are retrenching. There is a growing fear that as the central bank aggressively hikes interest rates to fight high inflation, it could tip the U.S. economy into a recession, and executives are cutting back. (NPR)
Beijing hits out at NATO strategy for ‘malicious attack’ on China. China issued a strong rebuke at NATO, calling out what it said was “cold war thinking and ideological bias,” after the Western military bloc said Beijing posed “serious challenges,” to global stability. (The Guardian)
Russia abandons strategic Snake Island, the early symbol of Ukrainian defiance. Russian troops have left their positions on a captured Ukrainian island, defense officials said Thursday, a major setback to Moscow’s invasion that weakens its blockade of Ukraine’s ports. (CBS)
Firms say government price cut plan ‘slap in face.’ The Federation of Small Businesses said asking struggling companies to “soak up additional costs just isn’t realistic.” It’s one of a number of groups who have criticized the plan for a taxpayer-funded ad campaign which involves firms slashing product prices from July. (BBC)
US dollar retains dominance in 2022 while China’s yuan gains share among global currency reserves. The dollar’s share of total allocated reserves was 59% in the first quarter of 2022, unchanged from the fourth quarter and down slightly from 59.4% a year ago. The Chinese yuan’s share of global reserves was 2.9%, up from 2.8% in the fourth quarter and 2.5% a year ago. (Markets Insider)
EU and New Zealand agree free trade deal. The agreement will eliminate all tariffs on EU exports to New Zealand and improve access to the bloc for products from the country’s powerhouse meat and dairy industries, as well as fruit and vegetables. (The Financial Times)
Crypto rules to make Europe a global leader as prices plunge. Europe prepared to lead the world in regulating the freewheeling cryptocurrency industry at a time when prices have plunged, wiping out fortunes, fueling skepticism and sparking calls for tighter scrutiny. (AP)
Bad Debt in Singapore Increases Substantially
Annacaroline Caruso, editorial associate
Debts written off as uncollectable increased by 50% in Singapore over the last year, according to the Atradius Payment Practices Barometer for Asia. Payment defaults were mostly caused by liquidity problems, customer disputes and administrative efficiencies.
“Companies polled in Singapore spent more time and resources chasing unpaid trade debt arising from trading on credit with B2B customers,” the report reads. “The impact of the pandemic remains a major concern for Singapore companies, along with safeguarding cash flow levels and keeping pace with rising demand for products and services.”
Bad debt is especially prevalent in the agri-food industry—a sector which has “the lowest percentage of companies that believed that having credit insurance influences decision-making on longer payment terms, which put them at greater risk of trading with customers that had poor credit quality.”
“Given the ongoing uncertainty in the market, we don’t expect the bad debts trend to recover quickly,” Roeland Punt, regional sales director for Asia at Atradius, told Business Times. “The anxiety about the longer time it takes business to collect overdue payments from B2B customers remains acute. The credit management processes of companies will be put to the test, and those businesses which have a flexible and holistic approach to the issue will be better well placed to navigate the troubled waters that may lie ahead.”
The top five challenges to Singapore business profitability are the ongoing impact of the pandemic, keeping pace with rising demand, maintaining adequate cash flow, containment of costs and shrinking profit margins. But despite these issues, businesses show some degree of optimism, Atradius said.
“A majority of companies across all industries in the Singapore market anticipate an increase in trading on credit terms with B2B customers to grow market, while it is a minority who predict no change in their customary trade credit policy,” the report reads. “This positive outlook is backed up by the belief that payment practices of B2B customers will improve during the coming months.”
An upward trend in the use of credit insurance could help stabilize DSO and decrease potential losses in the coming year. “This expected improvement in B2B payment practices is a reason why most businesses polled in Singapore do not envisage significant swings of their DSO despite the current challenging trading environment,” per Atradius. “It may also reflect the significant numbers of companies polled who said they would continue using or take up credit insurance during the coming months.”
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Bangladesh: Economic Risks Contained, for Now
The PRS Group
Bangladesh is standing out as a bastion of stability in a region that in recent weeks has witnessed significant political upheaval in both Pakistan and Sri Lanka, in the latter case occurring against the backdrop of a balance-of-payments crisis that forced the government to default on some $12.6 billion of dollar-denominated debt. The incumbent AL regime headed by Prime Minister Hasina Wazed has drawn flak over its exploitation of security risks (and more recently the health threat posed by COVID-19) to provide a pretext for what critics both at home and abroad see as evidence of Hasina’s authoritarian inclinations, but with Russia’s invasion of Ukraine creating a crisis in Europe, the US and the EU will be disinclined to further complicate their already significant diplomatic challenges in Asia by picking any fights with Bangladesh.
Russia’s invasion of Ukraine in late February has produced global reverberations in the form of higher prices for food, energy, and fertilizers. With higher prices for fuel also increasing the cost of generating electricity, private suppliers are pressing the government to permit an increase in power tariffs. Any rise in electricity prices would add to pressure for compensatory spending on subsidies to contain the cost of food, fuel, and other essentials. Unfortunately, the fiscal room for maneuver is limited by the weakness of revenues, which averaged just 10% of GDP over the last five years, a reflection of the country’s extremely narrow tax base.
The near-term economic outlook is further clouded by the potential for severe fuel shortages and political unrest in Sri Lanka to disrupt the transshipment of RMG exports, about 40% of which pass through the port in Colombo. At the same time, soaring inflation is increasing the likelihood that monetary authorities in the US, the EU, and elsewhere could feel compelled to adopt a more aggressive approach to policy tightening that adversely affects broader global demand. On that basis, it is likely that real GDP growth for the fiscal year that concludes at the end of June will be closer to 6% than the government’s target of 7%.
The crisis in Sri Lanka and the mounting difficulties in Pakistan have raised concerns about the possibility of similar trouble for Bangladesh. In fact, the risk of serious problems is low, at least for the time being. Although import cover has been reduced from eight months to six, that is still twice the minimum cushion considered to be “safe.” Moreover, both the overall debt and the debt-service schedule are manageable.
The analysis above is taken from the May 2022 Political Risk Letter (PRL). The best-in-class monthly newsletter, written by the PRS Group, provides concise, easy-to-digest briefs on up to 10 countries, with additional recaps updating prior month’s reports. Each month’s Political and Economic Forecasts Table covers 100 countries, with 18-month and five-year forecasts for KPIs such as turmoil, financial transfer and export market risk. It also includes country rating changes, providing an excellent method of tracking ratings and risk for the countries where credit professionals do business. FCIB and NACM members receive a 10% discount on PRS Country Reports and the PRL by subscribing through FCIB.
Labor Talks Add Fire to Global Supply Chain Snags
Diana Mota, editor in chief
Some 8,000 port workers at German ports participated in a temporary strike last week following a breakdown in negotiations, according to news reports. The “24-hour strike was the second, following one held during the late shift earlier this month that represented the first seen in several decades,” reported Sourcing Journal Media, LLC.
“The strikes, while temporary, hit an already constrained supply chain locally and worldwide that’s been impacted by the war in Ukraine, China’s zero-COVID policy, an eight-day trucker strike in South Korea that ended June 15 and a $100 million container depot fire in Bangladesh earlier this month,” the news outlet said.
Labor negotiations between union representatives and port operators will enter their sixth round of talks this week, and the stoppage of work “has greatly slowed down the flow of trade,” said CNBC’s Lori Ann LaRocco, during her supply chain alert on Friday.
Labor issues at ports go beyond Germany, however. “Antwerp recently had a strike by unions demanding better pay, and Rotterdam has been impacted by labor slowdowns and rail problems,” LaRocco said. Getting imports and exports out of these hubs is difficult, and “the congestion is impacting empty container availability for exports across Europe,” she added.
The constricted supply of containers “is going to push up prices and exacerbate inflation,” LaRocco reported. “U.S. importers have to request European vessel space at least five to four weeks in advance, which is unusual; and if you can get a container, arrivals of these imports are seven to nine days late. This is creating what I've been called a domino effect of congestion spilling into other European and American ports.” The backup is likely to last for months, she said.
Global schedule reliability across 34 different trade lanes and more than 60 carriers remains between 30% and 40%, according to Sea-Intelligence. “International traders and shipping companies are beefing up contingency plans such as switching to China-Europe freight trains to deal with congestion at some major ports in Europe, which has been intensifying amid low efficiency at ports and other factors,” according to Global Times.
Week in Review Editorial Team:
Diana Mota, Editor in Chief
Annacaroline Caruso, Editorial Associate