October 30, 2014


News Briefs

  1. Trans-Pacific Partnership, Mired in Unpopularity, DOA?
  2. Political Risk Taking Toll on Nations' Outlooks
  3. Credit Insurer: Majority of Very Late Payments Uncollected by Businesses in the Americas
  4. Real Estate Backslide Continues
  5. Fed Ends Asset Purchase Program amid Improving Economy, Rates Unchanged

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Trans-Pacific Partnership, Mired in Unpopularity, DOA?

Lead negotiators in the massive Trans-Pacific Partnership (TPP) trade agreement broke from their latest talks with positive news of "significant progress." But one would be hard-pressed to find an analyst who believes it, as secrecy continues to be the big story of the multilateral negotiations. In addition, fewer and fewer are predicting the TPP will be finished before the end of the Obama Administration, if at all. 

A joint statement released October 27 from the ministers and heads of the delegation for the TPP indicated that discussions in previous days on issues like market access and investment rules had been fruitful. But, to the dismay of most that are monitoring the advance, there continued to be little to nothing in actual detail or specifics provided.

About the only specifics that have been widely released, if they are to be trusted, have come from the highly controversial WikiLeaks. WikiLeaks releases from earlier this month allege that, while the general public has almost no access to real information, large corporations are being given opportunities to review the existing text. The Julian Assange-led outfit also alleged that the United States has pushed hard to keep industry advantages, through means such as restricting access on pharmaceuticals and extending patent periods, including those on cancer and Ebola treatment drugs, because of profitability implications.  Other anecdotal whispers coming out of the negotiations indicate that smaller, emerging Asian Pacific nations included in the potential pact continue to be unhappy with efforts by the US and Japan to significantly sweeten their sides of the deal at other members' expense. Apparently, even the nations likely to gain the most from what is likely to emerge in the final agreement are having trouble building support at home.

"The TPP negotiations are utterly stalled right now and, despite the assertions of the diplomats, it seems unlikely that much will change," said NACM Economist Chris Kuehl, PhD. "There is very little support from the nation that was supposed to be championing this effort (US). Democrats who oppose trade deals assert that the TPP will cost jobs, benefit other nations at US expense and do little to offset the influence from China. The Tea Party wing of the GOP opposes it as corporate welfare and a boost to foreign nations. There are very few in Congress who feel like sticking their necks out for this deal. Japan looks at this deal and wonders why opening up its nation to US exports is a good idea when the plan isn't expected to give Japan more than a little additional access to the US."

- Brian Shappell, CBA, CICP, NACM staff writer

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Political Risk Taking Toll on Nations' Outlooks

The effects of political risk on international sales and credit may have seen a temporary lull in early 2014, but as was evident at the 25th Annual FCIB Global Conference and in the latest Coface study, the issue is as much a concern as ever.

Coface's latest Panorama Country Risk Update showed rising concern regarding instability in two emerging economies, Turkey and Russia. Both countries, bordering areas where active militant engagement is in full swing, received assessment downgrades. Turkey's risk assessment fell from an "A4" to a "B," while Russia slipped from a "B" to a "C." Neither has a particularly strong outlook for a near-term improvement, according to Coface. Venezuela also received a downgrade, though massive political instability and anti-Western sentiment in the oil-rich Latin nation has long been more the norm than the exception.

Coface also downgraded Ghana, which has struggled to contain the Ebola outbreak and fears, both real and exaggerated, of its spread. Among other nations whose ratings held stable, but experienced an outlook downgrade, was Sierra Leone.

Most of the positive movement in the latest Country Risk Update came from a few nations in Europe. Spain, which continues an attempted economic comeback even as Italy and France again falter, received the only rating assessment upgrade, from a "B" to an "A4." Unlike many export-dependent European economies, the brighter picture has been driven by domestic demand. Belgium and the Netherlands were placed on the positive watch list. Coface noted, "In both countries, growth has returned, supported by exports and an upturn in investment."  Coface said all three are enjoying a significant decrease in company insolvencies.

The only non-European country to be moved onto the positive watch list was Cambodia.

- Brian Shappell, CBA, CICP, NACM staff writer

FCIB Now Surveying: Middle East

FCIB's International Credit and Collections Survey is the only monthly survey of its kind. The easy-to-answer survey asks credit and risk management professionals to share payment trends and collection experience in categories like:

  • Top payment method
  • Average number of days granted
  • Average number of past due accounts
  • Average payment delay

The unique survey results, in conjunction with invaluable archived data, give participants critical insight into current and past global credit practices. Participation* enters you into a raffle for a chance to win a complimentary live or recorded one-day webinar of your choice from FCIB's Webinar Training Series.

Click here to participate. The deadline to complete the survey is November 15.

*International Certified Credit Executive (ICCE) applicants and renewals earn 1 participation point per post, per month.

Thank you for your participation!

Credit Insurer: Majority of Very Late Payments Uncollected by Businesses in the Americas

More than half of the value of B2B receivables over 90 days past due were written off as uncollectable by businesses in Brazil, Canada, Mexico and the United States (the Americas).

The September 2014 edition of the Atradius Payment Practice Barometer, a survey of B2B suppliers in Brazil, Canada, Mexico and the US, found that, on average, 38.4% of the total value of survey respondents' receivables were unpaid by the due date. The survey noted 5.2% of the value of invoices extended more than 90 days overdue, and 2.7%—or approximately 52% of the total value of invoices that were 90 days past due—were written off as uncollectable. This compared to an average of 35% for Europe.

Survey respondents in the Americas maintain a strong focus on credit management, as 81.5% of the respondents in the region reported employing credit management policies to mitigate B2B trade credit risks. Approximately 50% of the respondents check their buyers' creditworthiness, request secure forms of payment, or both.

Replies to the survey also highlight that late payments led to a marked disparity between the average payment terms for the region (28 days) and the average Days Sales Outstanding (48 days). A key credit management factor, as this gap highlights, the risk of non-payment with large spreads between the two can present a real reason for concern. It underlies why nearly one-third of the survey respondents said that maintaining sufficient cash flow this year has been the greatest challenge to their business' profitability.

David Huey, regional director of Atradius Trade Credit Insurance NAFTA commented: "The economy may be showing signs of recovery, but late payments, defaults and business failures remain facts of life. The survey results simply underline the need for all businesses to be vigilant in their credit management."

- Atradius N.V.

The complete report highlighting the survey findings of the 2014 Atradius Payment Practices Barometer for the Americas can be found in the Publications section of the Atradius website.

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Real Estate Backslide Continues

The significant deceleration of US housing activity continued in August, according to the latest data from S&P Dow Jones Indices. Some other metrics, however, point to a slight hope for a turnaround by year's end.

The S&P/Case-Shiller Home Price Indices showed 5.5% and 5.6% year-over-year gains in the 10-City and 20-City Composite Indices in August. Figures for both categories had tracked at a more respectable 6.7% in July, but even that was viewed as a disappointing drop from June. All 20 of the largest US metropolitan markets saw slower growth rates in the latest round of research including Las Vegas. Despite reporting the second highest growth rate overall (10.1%) in August, Las Vegas experienced the sharpest decrease in the pace of home price growth in a continuing slide from its early 2014 rebound. Granted, Las Vegas continues to try to dig out of one of the worst single-market holes left from the real estate crash last decade and remains a big boom-and-bust market. David Blitzer, chairman of the index committee at S&P Dow Jones Indices, stressed that all of those markets at least continued to grow, not contract, even though Cleveland came dangerously close to the line (0.8% annual growth in August 2014).

Monthly statistics showed a 0.2% monthly increase between July and August. There were gains of 0.5% or better in Detroit, Dallas and Denver. However, there were three markets that posted price declines (San Francisco, San Diego, Charlotte). Despite the wave of negative data, Blitzer appeared more upbeat this month than in previous ones, particularly as other housing data "perked up."

"September figures for housing starts, permits and sales of existing homes were all up," he said. "Continued labor market gains, low interest rates and slower increases in home prices should support further improvements in housing."

- Brian Shappell, CBA, CICP, NACM staff writer

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Fed Ends Asset Purchase Program amid Improving Economy, Rates Unchanged

Information received since the Federal Open Market Committee met in September suggests that economic activity is expanding at a moderate pace. Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing. Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has continued to run below the Committee's longer-run objective. Market-based measures of inflation compensation have declined somewhat; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced. Although inflation in the near term will likely be held down by lower energy prices and other factors, the Committee judges that the likelihood of inflation running persistently below 2% has diminished somewhat since early this year.

The Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0% to 1/4% target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress—both realized and expected—toward its objectives of maximum employment and 2% inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations and readings on financial developments. The Committee anticipates, based on its current assessment, that it likely will be appropriate to maintain this target range for the federal funds rate for a considerable time following the end of its asset purchase program this month, especially if projected inflation continues to run below the Committee's 2% longer-run goal and provided that longer-term inflation expectations remain well anchored.

The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may for some time warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

- Federal Reserve

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Credit and Collections Analyst – Project Hire at The Walt Disney Company in Glendale, CA
Credit Supervisor at WESCO Distribution in Phoenix, AZ
Accounts Receivable/ Credit at The Tranzonic Companies in Richmond Heights, OH
Credit Manager at Tesoro Corporation in San Antonio, TX

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