September 20, 2021

 

Week in Review

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What We're Reading:

China applies to join Pacific trade pact in bid to boost economic clout. China has filed an application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the country's commerce ministry said on Thursday, as the world's second-biggest economy looks to bolster its clout in trade. (Reuters)

Container cost surge of 445% collides with constrained supply chain. While the historically tight, and expensive, market for moving freight across land regularly makes headlines in the trucking community, the situation at ports and at sea threatens to send tidal waves through consumer prices.(CCJ)

From zippers to glass, shortages of basic goods hobble U.S. economy. Along with the shortages come hefty price increases, which has fueled fears of a wave of sustained inflation. (Reuters)

UK delays post-Brexit border checks, citing pandemic impact. Britain announced Tuesday it is delaying the start of post-Brexit border checks on food imports from the European Union, saying trade disruption from the coronavirus pandemic has already piled pressure on businesses. (Associated Press)

China locks down Xiamen City to control Covid Delta outbreak. China locked down a coastal city of 4.5 million people to halt an outbreak of the Covid-19 Delta variant after it detected a dozen cases.(Business Mirror)

Problems continue to plague El Salvador’s bitcoin rollout. One week after El Salvador became the first country to make bitcoin legal tender, problems continued to plague the system Tuesday. (Business Mirror)

North and South Korea conduct missile tests as arms race heats up. North Korea and South Korea test fired ballistic missiles on Wednesday, the latest volley in an arms race in which both nations have developed increasingly sophisticated weapons while efforts prove fruitless to get talks going on defusing tensions. (Reuters)

Indonesian court finds president guilty in air pollution lawsuit. An Indonesian court on Thursday ordered President Joko Widodo and other top officials to take measures to improve air quality in the capital Jakarta, ruling in favor of a civil lawsuit filed by activists. (Business Insurance)

Africa banks on free trade to boost regional economy. While Africa appears to be closer than ever to realizing its untapped economic potential, some barriers remain to unlocking what has been described as multi-trillion dollar free trade opportunity. (Treasury Today)

World Bank cancels flagship ‘Doing Business’ report after investigation. Probe faults leaders including Kristalina Georgieva, now IMF managing director, who disagrees with findings. (Wall Street Journal)

Global trade volumes rebound but UK 'lagging,' report finds. Global trade is recovering strongly after a pandemic-induced downturn in 2020, but progress is uneven, with the UK, Africa and the Middle East among those lagging behind, a major UN report finds. (Global Trade Review)

Argentina primary defeat puts Peronists in tough spot-on policy. Argentina's Peronists are caught between a rock and a hard place after a crushing defeat in midterm congressional primaries on Sunday. (Reuters)

UK pledges to restore pounds and ounces as Brexit benefit. Bringing back imperial measures on list of deregulation targets along with financial services, agri-science and tech. (Financial Times)

High steel prices have manufacturers scrounging for suppliesCompanies hunt for metal and hire help to find supplies; steel industry says ‘we are producing as much as we can.’ (WSJ)

France is outraged by U.S. nuclear submarine deal with Australia. French officials accused President Biden of acting like his predecessor, saying they were stabbed in the back and not consulted. (New York Times)

Food fraud and counterfeit cotton: the detectives untangling the global supply chain. Amid the complex web of international trade, proving the authenticity of a product can be near-impossible. But one company is taking the search to the atomic level. (Guardian) 

Which Supply Chains Have Been Most Disrupted by the Pandemic?

Annacaroline Caruso, editorial associate

Supply chains around the globe have been increasingly disrupted since the beginning of the pandemic in 2020, resulting in raw material shortages and slow shipping speeds. However, certain industries are bearing the brunt of supply chain issues, while others are hardly impacted. 

According to a new Citi survey, the automotive industry in Asia is struggling the most, with 52% of respondents calling COVID-related disruptions “very significant.” Other industries are not far behind: apparel (43%), manufacturing (42%) and food and beverage (27%) sectors also reported serious supply chain problems.

Some possible reasons these industries have been hit especially hard include a failure to prepare for a demand surge and labor shortages in production lines. These industries must come up with new strategies to cope with the negative impacts: production stoppages, trade restrictions and limited access to raw materials. 

Some companies in these hard-hit sectors are being forced to overhaul their supply chains. Of the respondents, 48% of supply chain managers in North America noted “diversifying supply chains to source from a range of suppliers to sell in a wide range of markets” as their top strategy to mitigate supply chain issues, the report states. 

Information technology, electronics and pharmaceutical industries reported far less change, or even no change at all in their supply chain strategies, according to the survey. “All industries have not responded equally, with some … finding it much harder to make dramatic shifts to their supply chains owing to sophisticated processes, high sunk costs and the need for specialized production facilities, which cannot be easily established in a new location,” the report reads. 

Different regions have been hit unequally as well. According to Citi, a third of supply-chain managers in the Asia-Pacific say they are not making significant changes to their supply-chain strategies in the region, as compared with North America or Europe, where all respondents reported some kind of change. 

“There are very different perceptions over the severity of supply-chain disruptions, and the extent of change required in supply-chain strategy and the main drivers for these changes,” Citi said. “This perhaps indicates there was less panic among managers based in Asia-Pacific, either because they understood the extent of disruption caused by the pandemic better or because they have dealt with major supply chain disruptions before and know how to deal with them, or both.”

 

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Germany Corporate Payment Survey 2021: Learning to Live with the Pandemic

Coface

German companies seem to have adjusted to the pandemic environment, according to a survey by trade credit insurer, Coface. More companies are offering payment terms compared to last year, when the figure had fallen sharply. Although, Germany experienced a strong recession in 2020 and early 2021, payment discipline continued to improve in 2021 compared to already good results in 2020. Furthermore, the average duration of payment delays shortened by over a week.

Coface’s survey on the country’s corporate payment experience includes 819 company responses and took place July through August.

Although the business outlook from surveyed companies is “very positive,” this assessment comes after a recession in 2020 so it must be put into perspective. Of the participants, 41% have a positive economic outlook for 2021. While the share of respondents with a positive outlook for 2022 remains high, it falls to 32%, reflecting lower certainty. 

The effects of COVID-19 remain a major risk, with companies perceiving disruptions of global production chains as the main risk for their exporting operations in 2021.

"The extremely good results regarding payment delays are slightly unnerving, bearing in mind that Germany has experienced its worst recession since 2008,” said Christiane von Berg, Northern Europe Economist at Coface. “However, we suspect that these favorable results were mostly thanks to government support.” 

According to the survey, German companies have been a bit more relaxed in 2021 and provided more payment terms to their customers. In 2020, companies were very cautious: The share of companies that offered payment credits dropped from more than 80% in the pre-COVID-19 period to 62%. This trend has reversed in 2021 as 74% of companies are offering payment terms. German companies operating on the domestic market are the main driver of this reversal: While only 57% of companies offered payment terms in 2020, this share increased to 73% in 2021.

Short payment terms (between zero to 60 days) still dominate the German business landscape. Of the companies surveyed, 88% requested payments within 60 days in 2021, which is almost unchanged from 2020 and 2019. The distribution of time-ranges for payment terms also is nearly unchanged, which explains why the average payment term decreased only marginally from 33.5 days in 2020 to 32.6 days in 2021.

Looking at sectors, construction still has the shortest payment terms: Almost 75% of participants expect their invoices to be paid within the first 30 days with an average at 24.4 days. In 2021, seven out of 11 sectors offered payment terms longer than 90 days, while ultra-long payment terms (above 120 days) have become very rare.

Strong increases of average payment terms—of almost 10 days—were observed in the construction and the textile-clothing sectors. Conversely, machinery (8.2 days), agri-food-wood (7.3 days) and automotive (6.3 days) reported the strongest declines in payment terms. Textile-clothing became the most generous sector and is now asking for payments to be settled up to 47 days after the delivery on average.

The uncertainty around the COVID-19 crisis appears to have declined in 2021, but companies remain vigilant. More companies are offering payment terms in Germany, but those have shortened slightly, suggesting that companies are still eager to cash-in as early as possible.

Election Guide

Lloyd’s Report Aims to Help Corporates Tackle Shifting Geopolitical Risks

Ben Norris, deputy editor, Commercial Risk Europe

A new report from Lloyd’s has laid out key steps companies can take to help manage emerging geopolitical risks and says the challenges thrown up by the new landscape may radically change the relationship between insurers and risk professionals.

The report, Shifting powers: meeting the challenges of the geopolitical landscape, produced in partnership with the University of Cambridge’s Centre for Risk Studies, identifies emerging geopolitical risks and provides businesses with practical advice on how they can be mitigated.

It finds that geopolitical power centers have shifted since the financial crisis, driven by five macro trends, including rising populism and the decline of the U.S.’s role as a conflict mediator. It also focuses on the 10 most-pressing risks these trends present today, which include cyberattacks, social unrest and the migration crisis.

The report suggests 10 questions that risk managers can ask to help their organizations mitigate geopolitical risks. These are:

  1. Does your company have someone with clear responsibility for managing geopolitical risks?
  1. Are you monitoring upcoming elections and considering how key infrastructure in your key regions could be affected?
  1. Have you put measures in place to guard your IP and trade secrets against a major cyberattack?
  1. Could your reputation stand up to increased environmental scrutiny?
  1. Have you reviewed likely changes to customer sentiment in affected regions?
  1. Given the trend toward home working, can you move your offices out of city centers?
  1. Have you considered your supply chain exposure?
  1. Do you review your legal contracts with suppliers and customers from the perspective of geopolitical risks?
  1. Have you reviewed your medium- and longer-term strategies for exposure to infrastructure projects?
  1. Have you explored how a long-drawn-out conflict would affect your business, compared to a short duration event?

The report goes on to discuss a “significant” geopolitical protection gap when it comes to insurance that leaves vital supply chains, smaller businesses and emerging economies highly exposed to disruption.

But it says the challenges thrown up by the geopolitical risk landscape may lead to innovation and a “transformation in the relationship between insurers and risk professionals, by fostering improved data stewardship and threat monitoring across high-risk areas.”

“The changing nature of geopolitics poses a significant challenge to an industry traditionally associated with protecting physical assets,” Andrew Coburn, chief scientist at the University of Cambridge’s Centre for Risk Studies, commented. “Insurers must innovate to safeguard the dependencies and complex operational practices that underpin global commerce from a host of geopolitical risks as they intersect with technology, public opinion, climate change and other factors.” 

The report details the existing insurance solutions available to help businesses stay resilient during periods of crises and uncertainty, and identifies opportunities where the insurance industry can help develop new solutions to address these risks.

Lloyd’s said it aims to use the research to support businesses with the resources and knowledge required to help protect their organizations.

“The geopolitical landscape is more complex, intricate and interconnected than ever before,” Bruce Carnegie-Brown, chairman of Lloyd’s, said. “Lloyd’s has a unique role as a hub of risk expertise and innovation, and we are delighted to have partnered with the University of Cambridge’s Centre for Risk Studies to identify ways we can help businesses manage these geopolitical challenges. Lloyd’s, and the wider insurance industry, can play a central role in addressing geopolitical risk, and in doing so create a safer, more sustainable world.”

Reprinted with permission by Commercial Risk.

 

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Week in Review Editorial Team:

Diana Mota, editor in chief, and David Anderson, member relations