ICBA

Global Economic Trade Issues Affect Diverse and Disparate Companies, Part one in a three Part Series: CONTAGION

Administrator — Tue, 06 Jul 2010 17:59:46 +0000

By Ron Doyle

What does “contagion” mean in the context of trade credit insurance, the global economy and credit risk? Contagion is defined as a tendency to spread – as in the spreading of a harmful idea or practice.

The world financial news each day has many stories about different sectors of the economy: banking, mining, manufacturing, etc. When reading these items, it is often difficult to see how, or if, the problems in one geographic area or industrial sector will affect a seemingly unrelated company in another region.

In the recent recession, many Canadian exporters experienced payment defaults related to goods sold to Mexican buyers. In these cases, buyers were deemed to be creditworthy when the sales were made, but when the payments were due, they were unable to meet their commitments.

This scenario is a good example of contagion:

A number of Mexican banks speculated on the value of the U.S. dollar and lost material amounts.
The losses caused the Mexican banks to tighten the credit markets.
Importers found their lines of credit reduced, causing cash flow problems.
At the same time, the Mexican peso suffered a major devaluation against the U.S. dollars making it harder for importers to meet their U.S. dollar obligations.
The North American and European economies crashed into recession, primarily due to bank problems related to asset-backed securities.
Global inter-bank lending virtually dried up.
Consequently, the exporters weren’t paid because banks around the world had toxic assets on their Balance Sheets.

The frightening aspect of the foregoing example is that it didn’t develop over years, but over a few months – during the time an order was accepted until the time the payment was defaulted. If Mexico were a major export market for a company, these defaults were catastrophic. If the companies had not purchased trade credit insurance, they would have failed.

(Ron Doyle is a founder of Millennium Credit Risk Management – credit and political risk insurance specialists – www.mcm.ca. ICBA is the world’s largest team of independently-owned, specialist trade credit insurance brokerages. Partners combine local service with global coordination to provide credit and political risk insurance solutions for multinational companies.)

In The Trade Credit Insurance Industry hence: “Those who can, better teach.”

Administrator — Fri, 02 Jul 2010 15:08:19 +0000

By Rob Downey

Who among us has not heard a small-minded triumphalist say, in extolling their personal merits after some passing victory, “Those who can, DO; those who cannot, TEACH.”? When I had time for it, I used to say in correction, ”Those who can, TEACH; those who cannot, needed BETTER TEACHERS at some point along the way.”

Now more than ever, those who CAN had better TEACH! Almost everything we used to know for sure about credit, credit insurance and trade finance is changing; almost everything we used to be able to safely take for granted – from rating agency competence to sovereign stability to reserve requirements – has been challenged or destroyed wholesale. The teachers within your company should be encouraged and brought to the fore. This is their season again; comes ‘round their hour anew.

Economic uncertainty and countries “at risk” fuel nightmares for many in international trade

Administrator — Wed, 09 Jun 2010 18:24:28 +0000

By Mark Attley

Over the last several weeks, Export Development Canada (EDC), Canada’s export credit agency has been presenting its Spring 2010 economic update to audiences across Canada.

Peter Hall, EDC’s Chief Economist, presents a complex topic in easy to understand terms – although I will let you be the judge of that, should you care to read the 132-page report. The report provides a Canadian perspective, along with insightful commentary and data on the global economy. While Peter is cautiously optimistic, he refers to five key risks, any one of which could derail the emerging global recovery.

Can the needs of small business be met by accounts receivable and trade credit insurance?

Administrator — Mon, 17 May 2010 20:44:39 +0000

By Ron Doyle

Many smaller companies do not have the capital to support their accounts receivable exposure, nor do they have sophisticated credit systems and dedicated staff. The lack of capital to support the accounts receivable creates a greater need for bank support and more comprehensive coverage.

Companies often cite two reasons why they can’t absorb major bad debt losses. Firstly, bad debt write-offs can quickly erode the net worth of a business. And, the second reason: cash flow is critical to a business and bad debts can impair cash flow directly or indirectly by reducing a company’s ability to get financing for their receivables through the bank.

Global ICBA trade credit insurance alliance members celebrate ten years

Administrator — Tue, 04 May 2010 19:40:34 +0000

By ICBA staffICBA Chairman Emmanuel Portier & Michel Mollard EULER HERMES GROUP Board Member (click on the photo to see a slideshow of the evening)

Paris au Printemps! What better place to celebrate the 10^th anniversary of the ICBA than by returning to the city where it all began. Taking time out from their annual general meeting & conference ICBA members hosted executives from leading insurance companies at the George V Hotel in an evening celebrating the growth and success of the ICBA, a unique group of individually owned and operated credit insurance brokerages.

For ICBA's global team, when implementing long-term trade credit insurance solutions, winning isn’t everything; competing is

Administrator — Wed, 07 Apr 2010 15:48:58 +0000

By Rob Downey

A successful NCAA Division I and U.S. Olympic men’s basketball coach is reputed to have said, "I don’t recruit winners." Instead, he looked for the competitive kid, the one who indicated a willingness to prepare daily for a chance to succeed at a more intense challenge than any previously experienced.

If you have learned nothing else in coming through the global financial downturn, you have learned at least what the famous coach implied: "winners" are a dime a dozen. That is, many of the people in your purview – whether peers, supervisors, clients, lenders, or underwriters – were winners in 2007, i.e., they were at their best when times were good. Some of these erstwhile winners were probably “found out” during the 2008-09 crisis, uncovered by the advent of hardening circumstances.

Mix the Global Financial Crisis (GFC) and high credit insurance claims, and the result: Credit Over-Cooked

Administrator — Thu, 25 Feb 2010 22:05:27 +0000

By Kirk Cheesman

While the Australian economy, generally speaking, was stimulated during 2009 to a quick recovery, there were more underlying insolvencies and bad debt occurrences than ever before.

ICBA Australia’s claims statistics for 2009 show credit insurance claims jumped by close to 300% on the previous year.

Keeping the above in mind, there are a few current items to note:

1. Many businesses, during the GFC, reduced staffing levels, stock and overheads to cope with the reduction in trade.

Credit insurance brokers improve performance and results by using yesterday’s progress as the zero point and aiming higher each day

Administrator — Tue, 23 Feb 2010 16:04:06 +0000

By Rob Downey

Commercial airline passengers benefit everyday from flight crews who, by law, tradition and training, follow pre-flight checklists. My view is that the use of checklists to maintain high standards in the performance of important recurring team tasks should be studied in business schools. What has this got to do with trade credit insurance, trade finance and the management of political risks? ICBA USA uses a wide variety of lists in our global brokerage business to assist, educate, and guide ourselves as well as our global credit-insured clientele.

One of the most recent and striking confirmations of the efficacy of using lists as touchstones to guide high performance comes from the medical profession. In case you have not heard it, I synopsize below the story of how empowered nurses armed with checklists in the Intensive Care Unit (ICU) at Johns Hopkins Medical Center managed to dramatically improve patient outcomes at what was already one of the world’s finest hospitals.

ICBA members collaborate to solve buyer capacity issues for a major ICBA member client

Administrator — Thu, 11 Feb 2010 22:01:41 +0000

By Mark Attley

It's a marketer's function to present and communicate the attributes of an organization in the most favourable light possible to the target audience. Since the "proof of the pudding is in the eating", how good we say or think we are is irrelevant unless our customers experience it and tell us so. ICBA's mantra is "trade credit solutions for multinational companies" and when two or more ICBA members collaborate to bring a solution to a client, then we are fulfilling our mandate and "walking the talk".

2009 was the credit insurance industry's annus horribilis (if the queen can have one so can we) with credit availability drying up. As the economy starts to expand in 2010, there are signs that insurers' appetites are improving, but buyer capacity continues to be the challenge in industries where prices are volatile and beginning to rapidly increase.

ICBA brokers can help to insure you against the next political risk crisis

Administrator — Thu, 21 Jan 2010 19:10:44 +0000

By Ron Doyle

Kevin Carmichael in his article on monetary policy in the Globe and Mail’s Report on Business of Friday, January 15, 2010, refers to the high levels of worldwide government debt, resulting from huge stimulus packages, as the biggest threat to global recovery. The article refers to the World Economic Forum Global Risk Report 2010, in which the London based group raises concerns over the high degree of interconnectedness between all areas of risk and warns that unless we address these risks they may cause the next crisis.