Risk management often requires a counter-intuitive approach, challenging ourselves to think through whether we have accurately assessed the possible risks that face our businesses. Planning for a range of outcomes requires an evaluation of downside risk. This runs counter to the optimistic view we naturally have for our efforts in building individual enterprises. Yet the recent bankruptcy of Toys-R-Us highlights why, even when times are good and indicators seem positive, “black swan” events can happen. The time to plan for those events is ahead of the crisis.
Imagine the scenario: It is August 2017. As the CEO of a toy manufacturing company, your firm is coming up on the biggest, most lucrative season of the year – the December holidays. Irrespective of tradition, the bringer of gifts will need some 21st century manufacturing support — your toy company is just the one for the job!
Knowing the retail toy sector is largely seasonal, your company team understands the traditionally longer manufacturing lead times needed to stock store shelves. They have worked hard, marketed and won contracts from the major toy retailers in advance of the big season. Your company also anticipated the early holiday shoppers and made sure products will be delivered by the middle of September. It is this holiday-season Accounts Receivable that will fund your firm’s working capital throughout a good portion of next year.
Now ask the question: Do you need trade credit insurance on those Accounts Receivable? Is it a luxury or a necessity? There is market concentration with a historically large buyer that could not possibly file for bankruptcy right before the holiday season, the best time of the year. You decide to gamble with that thought in mind.
Your CFO, however, has been reading the trade press on the difficulties facing the retail sector, as the major box stores wither under cost competition from online retailers. She recommends you take a look at insuring buyer risk, just in case retailing has indeed crossed a Rubicon and become an online enterprise. The is not really the news you want to hear going into the busiest season of the year — but then again, you made her CFO because she is willing to bring you the hard news. With a quick call to your credit insurance broker, you are able to line up a trade credit solution covering the risk concentration associated with a large buyer. As it turns out, this one call can be the move that saves your toy company. Unlike many of your competitors, you will now get paid for the shipped merchandise.
When everything is going well, accounts receivable are being paid and aging accounts are small, trade credit insurance might look like a luxury. However, it is also a good time to review your options and risks with an experienced trade credit insurance expert at Securitas Global. The premium rates can be lower with greater underwriting capacity. Even more importantly, markets recognize the value of supporting existing clients on credits like Toys “R” Us. Just prior to the bankruptcy filing, our Securitas Global team heard comments from vendors with respect to getting trade credit insurance on Toys-R-Us that included: “It’s expensive” and “We’re concerned, but we don’t think they’ll file yet.” When it became clear there would be a loss, and insurance was no longer available since underwriters will not insure a certain loss, the cost of protection became secondary. The conversation became one of whether any available coverage options existed.
The moral of the story: The time to put trade credit insurance in place is before there is a known risk. As one client shared “I have too much invested in my business to risk it because one of my customers can’t pay me.” Securitas Global can develop a customized solution to cover your needs at the right price point. We work with clients to determine their level of risk and how to allocate it then devise a policy that will cover their specific needs. This can include coverage for overseas buyers and ways to mitigate political risk. By insuring accounts receivable, we are able to preserve your firm’s working capital and support credit access.
Securitas Global Risk Solutions is delighted to announce that Pamela Bates has joined our team to provide customized solutions to mitigate credit and investment risk in global markets. Pamela will be based in Virginia, where, in addition to risk mitigation, she will provide strategic and policy advice to assist our clients in navigating international business opportunities. Working for the U.S. Department of State for over two decades as a foreign service officer, Pamela managed U.S. diplomatic efforts on energy, information technology and government procurement issues. In addition, she earned an MBA from the Wharton School. Pamela brings the skills, knowledge and network to support our clients’ international expansion goals.
International markets provide outstanding opportunities for U.S. exporters to diversify their customer base. Securitas provides risk mitigation strategies to help reduce the uncertainty associated with approaching new markets. Pamela will concentrate on solutions ranging from mitigating private sector credit risk, sovereign contract frustration risk, financing international trade, protecting equity investments against political risk, along with government relations strategies, to bring products to global markets.
Having previously lived and worked in France, Germany, Switzerland, and Brazil, Pamela has an extensive network of contacts around the world. She speaks Spanish, Portuguese, and French, along with English. While a State Department employee, she taught classes on diplomatic tradecraft, including how to evaluate sources of risk. In addition to her MBA, Pamela earned a Bachelor’s degree in Economics and Environmental Studies from Bowdoin College in Maine and a Master’s degree in International Affairs from the Johns Hopkins University, School of Advanced International Studies.
The Export-Import Bank of the United States (EXIM) is the official export credit agency of the United States. Its mission is to support American jobs by facilitating the export of U.S. goods and services. It does so by assuming credit risk, primarily through two programs – extending export credit insurance for exporters and providing working capital guarantees. These programs are available to companies of any size with 80% of authorizations are to SBA defined small business.
The Current State:
EXIM is congressionally authorized through 2019. While this seems several years from now, it’s important to note the last two authorizations have been tenuous, including a period in 2015 when its charter lapsed for six months. President Obama and congressional Democrats generally supported EXIM through this period, however there was an influential group of House Republicans that held up authorization process.
In addition to upcoming the re-authorization debate, EXIM also lacks three board members. Therefore, it does not have the quorum required to approve authorizations over $10MM.
The new administration brings renewed and increased speculation regarding the future of EXIM. President Trump campaigned on a platform of reduced government and seemed less friendly toward global trade. However, he heavily emphasized his business background and experience, which included strong support of U.S. manufacturers and small businesses, both of which he believes are critical to economic growth.
Against this backdrop, members of the Securitas team attended the EXIM 2017 Annual Conference on April 7-8 to learn more about the bank’s future.
Key Takeaways:
95% of global population and 80% of global GDP is outside the U.S.
According to the Organization for Economic Co-operation and Development (OECD), there are 32 countries with Export Credit Agencies (ECAs) that compete with the U.S.
Exports will become even more critical in helping the U.S. grow its GDP, reduce the debt and balance the budget.
In order to compete globally against China, the U.S. needs to increase its support of exports. For example, the U.S. EXIM Bank supported $10 billion in authorizations in 2015. In comparison, China supported $500+ billion in exports through EXIM-China, China Development Bank and Sinosure).
Jobs created by export-related business tend to pay an estimated 18% more according to the International Trade Administration.
During a panel discussion regarding the future of EXIM, congressional members Jack Ryan, R-PA and Chris Collins R-NY both indicated President Trump fully supported the bank and recognized the need to support U.S. exporters though tax policy and regulation reform. They further indicated his commitment to a fully functioning bank by filling the vacancies on its board with immediate appointment approval of three new board members.
While there is still internal debate within the Republican caucus regarding the future of EXIM, it does appear the agency has the backing of President Trump and will continue to be an important tool in the U.S. government’s toolbox to support exports.
We’re honored to recognized for this award, and want to thank our clients, associates and friends as it wouldn’t have been possible without you. Thanks again!
A project team consisting of five MBA students from the McDonough School of Business completed a project in correlation with Securitas, which examined the feasibility of developing an aquaculture feed production plant in South Africa.
The project team had a period of twelve weeks, culminating with a week in Johannesburg, South Africa, to deliver its presentation.
The objective was to determine whether investment in a fish feed plant could deliver a nominal rate of return of 18% or higher and, if so, which partners Securitas should work with to pursue the venture. Oceanwise Ltd. (Oceanwise), a South African aquaculture producer of Dusky Kob fish, was identified as one potential partner, and an American animal feed manufacturer, was another.
Two different investment options were identified: A smaller bolt-on retrofit production line and a new greenfield plant, were analyzed to gauge their potential profitability.
To evaluate this business opportunity, market forecasts for the aquaculture industries in numerous Sub-Saharan African countries were developed to gauge the size of the region’s potential customer demand. Nigeria and Ghana were revealed to be much larger markets than South Africa, though the prospect of serving these markets via export poses considerable challenges.
