Week in Review

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Week in Review

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April 20, 2020

Banks brace for big loan defaults by U.S., global customers. The major banks in the U.S. are anticipating a flood of loan defaults as households and business customers take a big financial hit from the coronavirus pandemic. (Business Mirrors)

Fight over commercial rent gets ugly with default wave looming. Shuttered retailers are pushing back on demands from landlords while shopping malls have struggled to collect with the virus hammering the economy.  (Bloomberg)

China refuses to be beholden to U.S. dollar even as pandemic creates shortage. A shortage of U.S. dollars created by increased demand during the coronavirus pandemic threatens Chinese companies’ ability to raise new funds to pay off existing debts. (SCMP)

Chile's economy, battered by 2019 protests, confronts coronavirus. Chile´s export-driven economy, once the envy of Latin America, will see a painfully slow recovery after being battered by the one-two punch of mass protests in late 2019 and the slow-moving coronavirus crisis, market watchers said. (Reuters)

Covid-19 pandemic pushes Africa towards recession. The outbreak of Covid-19 has left Africa facing the prospect of its first recession in 25 years, with countries dependent on oil exports or struggling with political instability on the frontline. (Global Trade Review)

South Korea ruling party wins vote held amid virus fears. The ruling liberal party secured a resounding victory in South Korea’s parliamentary elections, which had the highest turnout in nearly three decades despite the coronavirus sickening thousands and forcing social distancing at polling places. (Business Mirror)

The effects of COVID-19 on sanctions and export control. The global outbreak of the novel COVID-19 virus and resulting pandemic have disrupted nearly all fields of commerce throughout the world. While the situation continues to develop and has had broader implications, the effect both on U.S. and EU sanctions and export control policies is notable. (Global Trade Magazine)

“Challenging year ahead” for U.K. exporters despite funding boost. The British government’s decision to more than double the permanent funding of UK Export Finance (UKEF) has been welcomed by industry groups, but any potential benefits risk being outweighed by falling demand from the EU and the unfolding coronavirus crisis. (Global Trade Review)

Free trade in free fall: How companies can navigate the pandemic. While these are dark days in trade, there are ways to immediately protect your company and your supply chain.. (Global Trade Magazine)

Alternative trade financiers ramp up support during coronavirus fallout. With the effects of coronavirus hitting exporters and importers across the globe, a new study claims that businesses operating in trade are increasingly looking to alternative finance providers for trade finance support. (Global Trade Review)

WHO and China: Compounding politics and policy. The World Health Organization has been heavily criticized for appeasing China instead of leading the Covid-19 fight. (Interpreter)

The coronavirus outbreak might be nearly over in China, but economic hardship is not. China reported today a 6.8% drop in gross domestic product (GDP) for the first quarter of 2020 compared with the same period last year. Even as life has started going back to normal in most of China, the road ahead for its economy still looks challenging. (Quartz)

Asian lenders lag in Libor transition, virus adds to delays. Few Asian banks will be able to make loans this year using new rates designed to replace Libor benchmarks, key software vendors say, leaving them facing a scramble ahead of Libor’s demise as the coronavirus pandemic further complicates transition plans.. (HSN)

Container shipping: Coronavirus crisis hits sea traffic hard. Hamburg and its sea port has seen a dramatic drop in business. Almost a third of shipments come from China, but exports have been drying up amid the pandemic. (DW)

10 terms you need to know to get paid for your export. What’s the most rewarding, and sometimes frustrating, aspect of being an exporter? For many, it’s simply getting paid on time and in the correct amount.. (Shipping Solutions)



The Great Reopening Debate

Chris Kuehl, Ph.D., NACM Economist

There has been a great deal of tactical confusion when it comes to the COVID-19 pandemic. It has been apparent from the very start this was a dual threat. The virus was expected to behave similarly to viral attacks in the past, but with additional complications. It has the ability to spread far faster, and it can hide very effectively.

Around 95% of those who contract the disease get a mild version. It is estimated that roughly half of those who are infected show no symptoms at all. They become unwitting carriers. To deal with this kind of spread, the world had little alternative to the imposition of isolation and quarantine. This created the second problem. For many, this issue has been far worse than the infection. The percentage of people affected by COVID-19 remains very low, but the percentage of people affected by the lockdown of the global economy is nearly 100%. Around 22,000 people have died in the U.S. from COVID-19, and 16 million people have lost their jobs. The conversation has now shifted toward how to lift the quarantine.

The first efforts to return to some semblance of normal have been in Asia because this is where the disease got its start and where there seems to have been a slowdown in infection and death rates. China, South Korea, Japan and others have attempted to restart their economies with mixed results. The travel bans have been lifted, factories are functioning again, retail outlets are open and there has been less concern over social distancing. There are still closed schools and large public gatherings have continued to be banned. Most importantly, the consumer has remained wary and has not returned to old habits as quickly as hoped.

Now the Europeans are working towards relaxing restrictions. There have been two schools of thought as to how to resume normal patterns. One has been to open up parts of the region that have not experienced significant infection rates. This would mean that lockdown would continue in urban areas and areas of human concentration. The fear is that people from the locked down areas would seek to migrate to the less affected areas and thus spread the virus. The second option is to expand the list of “necessary” businesses. Most nations left many places open as they were deemed essential—grocery stores, drug stores, hardware stores and the like. The steps being taken in Europe include opening up most all retailers. There is still reluctance to open restaurants, but pressure is mounting given the large number of people working in that sector who have lost their jobs.

In addition to decisions regarding what to reopen will be decisions regarding the conditions under which these restarts will take place. One of the changed sectors will be travel. The airlines have not shut down by mandate, but passengers are few and far between. The future of flying will be altered similarly to how it was changed by the 9-11 attacks. The emphasis now will be on health with officials inquiring about a passenger’s health, where they have traveled and perhaps going as far as checking people’s temperature before allowing them to board. There have been discussions of requiring people to have a recent set of test results before being allowed to travel. All of these decisions will impact hotels, theme parks and conference venues. Anything that people once traveled to.



Managing Data and Customer Relationships

During the Pandemic 

FCIB members took advantage of an opportunity to discuss and listen to how the companies of peers and the shared service centers that they oversee are responding to the pandemic.

Several credit professionals on the member call last week noted that they are seeing a shift away from automatic processes for now. With regard to shared service centers, “we had started down the path of trying to automate as much as possible,” said Ed Bell, CBA, ICCE, of W.W. Grainger, with respect to pre-pandemic conditions. “To do that, you have to rely on data and you usually have to rely on third-party data. Unfortunately, that data even in good times is somewhat dated, but still very useful. However, in today’s economic situation yesterday’s news isn’t even good enough. You now have to know what’s going on nearly hour to hour.”

The consensus was that automation can’t keep up to the point that some credit professionals have said that they are considering turning it off. Technology does not explain how to manage “what we are facing today,” Bell said. “We have to rely on our people. Our people in our contact centers are taking on the challenge of getting back to doing what our automation had started doing for us.” One of the reasons, he has always focused on education and certifying staff is so that they can make better decisions. “It’s really important that people know what to do and how to react,” he added.

Credit Manager Brett Wegner agreed. “We have seen a transition over the last several years in shared service centers to more transactional activity that relies more on technology and automation and a move away from relational activities that generations ago we relied on to spot challenges and make adjustments.”

Today it’s almost come full circle, Wegner said. “We have to rely on the relational aspect of the role and not rely on the transactional nature of the role and the technology that comes with it. That’s a skill set. People have those relationship skills.”

The current situation requires personally checking in with customers, Bell and Wegner said.

Brandy Sailers, CCE, ICCE, of Hypertherm explained that her company has always relied on relationships to manage collections as opposed to technology. She has found that those relationships are helping keep her informed about her firm’s customers as the customers look to them for answers. “Our mantra has always been people pay people before they pay companies, and we want to be the people they pay. Because we have those relationships, they are calling us.”

The next conversation among FCIB members takes place 1 p.m., April 23. If you are an FCIB member, register and take advantage of your newest benefit at no additional cost.

Can China Shield Its Economy

from the Impact of COVID-19?

Economic activity in China could decelerate faster than expected this year and miss the Communist Party of China’s (CPC) growth target of 5.6%, said trade credit insurer, Coface.

In recent months, the Chinese economy has faced multiple headwinds, such as the consequences of the trade war with the United States, as well as structural factors, like the country’s demographic situation; 15% of the Chinese population is over 65 years old, Coface added. In this context, the COVID-19 pandemic is an additional shock that will add significantly to existing challenges.

The aforementioned 5.6% growth target is a key threshold for China and the CPC, with the party considering this a "moderately prosperous" level of society. China defines this goal as a doubling of 2010 nominal per capita income figures. Despite the current circumstances, the CPC is hoping to achieve this objective before its 100th anniversary in July 2021.

At this stage, the government appears to remain confident in meeting the requirements for 2020. However, it is more likely that this milestone will have to be postponed until 2021. The spread of COVID-19 across the world, notably to key markets for China such as Europe and North America (30% of its exports), will drag on Chinese economic activity this year.

Chinese authorities have taken action to compensate the pandemic’s impact on the economy. For example, the People’s Bank of China has, so far, focused on rather prudent and targeted measures such as interest rate cuts. Notwithstanding the added flexibility enabled by these decisions, China will have to resort to aggressive monetary, as well as fiscal easing if it wants to manage the stabilization of its economy.

Unlike 2009, there is less room for maneuver. In particular, foreign exchange reserves are not sufficient to cover outflows, putting downward pressures on the yuan.

On the fiscal front, additional infrastructure investments aimed at offsetting the shock will add to indebtedness at the local level, resulting in pressures on the already-stretched banking sector and highly indebted corporations. In this context, an increase in bond defaults and corporate insolvencies, accompanied by restructuring efforts in the banking sector, are to be expected.




 Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations