Winter Update
It's 2021! And, it has been for a whole month.

So much has been happening since the calendar changed to the new year, but it seems like people have a little more optimism and hope. As we prepared for this newsletter, there was a lot happening politically, in the business community, and of course, in NACM. This is a snapshot of what we wanted to share with you. To keep up with current news and NACM events, make sure to check our website and Twitter feed regularly.
Shifts: Temporary and Permanent
By Chris Kuehl
Managing Director, Armada Corporate Intelligence

We know from our experience with past recessions there will eventually be a recovery. People will get their jobs back or will get new ones. Business will make profits again and will expand again. There will be revenue for the governments at all levels again. But we also know that not everyone will be employed and that many businesses will have lost money and failed. The world of the credit manager gets very complicated at this point. Every business was affected by the lockdown recession, but some will recover much faster than others and that demands the ability to see into the future and forecast the future success or failure of the company requesting credit.

In the immediate future the focus is on what 2021 will look like. At least there has been an end to the political uncertainty that dominated the bulk of the last year. The result of the election was a victory for Joe Biden but Democrats did not see the “blue wave” predicted. Congress is likely to remain divided. This means an extension of the inertia that has been the norm. Grand plans by the Democrats will be thwarted by the GOP and vice versa. There are many in the business community that actually prefer this kind of gridlock as it means less opportunity for major change. It is early days for the Biden presidency, but the initial impression is that he will be tilting in the moderate direction – at least as far as the economy is concerned. 

Supply Chain Diversification
This crisis started for the US as a supply chain issue. That was back in the day when the virus had not affected the US but was sweeping through Asia. The whole premise of the Just-In-Time system was challenged as global cargo slowed to a crawl. Over 70% of companies doing business overseas have placed supply chain diversification as a priority. In addition to a diversity strategy there has been a return to warehousing and inventory management as the reliability of that old supply chain is in question. The explosion in demand for warehousing is unlikely to fade and business will now have to learn to cope with the financial implications of holding more inventory and for longer periods of time. The construction sector has seen a dramatic increase in demand for these facilities.

The shift in consumer patterns had begun before the pandemic. Online sales have been pushing the brick-and-mortar store into the background but the restrictions that have been placed on retail have accelerated that process. This has been bad for the traditional store but has been a boon for the online purveyor and especially for the parcel delivery operations that have exploded in order to keep pace with demand. The growth of warehousing has been connected to online expansion as well as there has been a growing need for distribution centers. 

How We Work
Another major adjustment that has been required of all of us relates to how we work and where. There had been talk of working remotely for many years. The requirement to work remotely has been a dominant feature of the lockdown and appears to have become a long-term strategy. The push now is towards some kind of hybrid system that allows time in the office as well as at home. The advantages of remote work include reduced expenses for the company and for the workers as they have reduced commutes. In many cases there has been an increase in productivity, but studies are showing that this is taking place among the higher paid employees and senior level managers. The lower-level workers and those with limited skills are not improving and their productivity is falling. This will matter to the office building sector of construction. 

Expectations for Oil and Metals
Where will oil prices be next year and what can be expected as far as metals? Producers expected a year similar to 2019 at the start of the year. There had been some accumulation of supply to meet expected demand and when that demand evaporated the producers scaled operations back. The price of oil fell to the 20s and 30s and didn’t get back to the 40s until mid-summer. This has been the same pattern for the industrial metals and other commodities. The expectation for 2021 is that demand will rebound enough to allow producers to reduce some of their inventory overhang and even to resume production. Prices will likely rise a bit as demand returns but the pace of that demand recovery will be crucial. If there is a sharp rebound the demand will exceed supply quickly and producers will not be able to keep up at first. It could take months before some kind of equilibrium gets established. 

The best that can be said at this point is that 2021 will be marginally better than 2020. How much better will depend on factors such as the speed of vaccine distribution and the speed of the lockdown’s end. Most importantly the progress will depend on the consumer and their willingness and ability to resume old patterns.

Chris Kuehl, PhD is the NACM Economic Advisor and Managing Director of Armada Corporate Intelligence. In addition to providing the Credit Manager's Index, Chris often contributes articles to NACM National and NACM Heartland.
Three Things Learned in 2020
By Ty Knox
NACM Heartland Board Member

If you are expecting an article filled with gloom and doom, this is not going to be it. Certainly, 2020 served up its share of challenges, but it has also presented plenty of silver linings.

My company, EFCO Corp., is in the construction business. We fell under the “essential” category, so there was no down time as we switched from fully in the office to a hybrid situation. While we complied with COVID-19 guidelines, we did have people working in the office. This is the lens I used as I thought about the benefits of business in a pandemic.

Both professional and personal lives have been impacted by the pandemic. Often it is just one or the other that is disrupted, but this wasn’t one of those times. Our staff, like most companies, represents a broad spectrum of ages. Some were concerned about their kids and school being closed. Others had older parents they were worried about protecting. We have staff with underlying conditions that were concerned for themselves. We quickly realized to continue to move forward, we would have to be accommodating.

Actually, the word we use at EFCO is pivot. For example, the invoicing needs to get out, but the employee has children learning remotely and this is not a task that can be completed at home. Because we don’t allow the conference rooms to be used (social distancing), we were able to put the children in a conference room with their laptop. The employee would pop in to check on her kids, the kids continued to learn, and we got invoicing out in a safe manner.

An important takeaway I have from the pandemic is that people aren’t afraid of change, they are more concerned about the transition. There is no doubt that change is difficult, but transition is where the uncertainty lies.

For example, before the pandemic, companies were largely inclined not to allow personnel to work from home for a variety of legitimate concerns. The pandemic has demonstrated in many cases employees can actually be more efficient when they work from home. It allows us more latitude to measure to metrics and not micromanage. 

Embracing change has allowed us to focus not so much on the transition, but where we want to be and how we can best get there. 

I have worked at EFCO for a long time, and thought I knew my team pretty well. However, when I began focusing on accommodating their needs during the pandemic, our relationships have grown individually and as a team as we have gotten to know each other better, and this has made our department stronger. 

By creating a heightened level of empathy, we now have a synergy that didn’t exist pre-COVID.  It wasn’t that our culture was bad, but I believe we are functioning better as a team than we ever have. This has benefited our customers, as well as the opportunity to develop relationships with potential clients. It is a clear demonstration that a good, functioning culture pays dividends.

As our management team meet in December for strategic planning, we agreed that we believe COVID will impact our business throughout the entire year. We hope things will cool down in the fall, but we do take comfort in knowing there are silver linings if you know where to look, and we will keep looking. I hope you do, too.

Ty Knox is a long-serving member of the NACM Heartland board of directors. He has also served on the NACM National board of directors, serving as Chair last year.
Change in Credit Congress Dates
Ways the Biden Administration Will Impact Agriculture
By Chad Hart
Professor of Economics and Extension Economist, Iowa State University

As President Biden awaits the confirmation of his Cabinet, his choice of Tom Vilsack looms large over the agricultural community. We can address expectations of former Secretary Vilsack when he is most likely confirmed. Until then, we can glean a few agricultural and trade policy projections from the President’s statements and previous actions. Three areas where the President has already signaled his direction are trade, climate change, and renewable energy.

On the trade front, President Biden has already stated he will maintain the Phase One trade deal with China and the associated tariffs from the U.S.-China trade dispute, at least for the short term. Thus, we will not see a major change in existing trade policy early in the administration. But we should also expect to see a major change in trade negotiations moving forward. The President has shown interest in re-entering multinational trade talks, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (better known as TPP), to establish a broad coalition to confront China on trade issues. His administration will also likely be more willing to engage quickly in more robust trade discussions with China, looking to establish additional “phases” to the existing trade deal. We can expect a renewed focus on maintaining the structures of the World Trade Organization to support global guidelines for trade regulations.

On the climate change front, President Biden has signed an executive order to rejoin the Paris Agreement on climate change. He has also named John Kerry to a newly created position on global climate policy. This renewed interest in climate change policy for the U.S. presents both opportunities and challenges for agriculture.  Many of the opportunities for agriculture will come from the potential for new markets in renewable energy and carbon capture. But these will come at the cost of tighter environmental regulations and increased scrutiny on agriculture’s carbon and greenhouse gases balances. His long-term plan includes conservation efforts for 30% of the U.S. land and water resources by 2030 and heightened focus on cover crops and anaerobic digesters to reduce negative externalities from agriculture.

Renewable energy looks to be a major plank in the President’s climate change plan. The push for digesters is linked with the potential for agriculture to be a bigger player in the electricity market-space, while looking for agriculture to continue to be a vital cog in liquid fuel markets. The President’s plan includes a statement “doubling down” on liquid fuels, specifically advanced biofuels. Given the lower usage of small refinery exemptions during the Obama-Biden administration, we can expect to see a return to fewer exemptions from the Renewable Fuels Standard.

Based on these three issues, we can see both positives and negatives for the agricultural economy under the Biden administration. The balance of the impacts will depend on the ability to create new markets for renewable energy and carbon, while maintaining and continuing to grow traditional markets.
2-2 An Advanced Look at the UCC Process
2-2 How to Improve Your DSO: Ramp-up Your Collection Cycle
2-4 LC Series—Understanding the Letter of Credit Process: What Every Exporter Needs to Know
2-9 The UCC – A Powerful but Underused Collection Tool in Construction Lending
2-9 How to Reduce Supplier and Buyer Friction
2-10 NACM Heartland Board of Directors Meeting
2-11 LC Series—Roles and Responsibilities of Banks in the Payment Process
2-15 NACM Heartland Steel Meeting
2-16 An Advanced Look at the Lien and Bond Claim Process
2-16 The Power of Procure to Pay (P2P) Metrics and Dashboards
2-17 National Ag Retail Meeting - Hays, KS
2-17 Project Management Principles That Drive Continuous Improvement
2-18 LC Series—Letter of Credit Documentation: How to Avoid Discrepancies
2-18 NACM and FCIB Present Author Chat: Francis Eberle, Ph.D.
2-23 National Ag Retail Meeting - Evansville, IN
2-24 The Leadership Toolkit
2-25 NACM Heartland Construction Meeting
2-25 LC Series—Choosing the Right INCOTERMS for Letters of Credit: Why International Commercial Terms Matter and the Role They Play
2-26 National Ag Retail Meeting - Willmar, MN

3-2 Implementing a UCC Program: Overcoming Obstacles
3-4 National Ag Retail Meeting - Ames, IA
3-8 Certification Exam Date: March 8
3-9 (Free) A Creative Approach to Accounts Receivable Insurance
3-12 National Ag Retail Meeting - Angola, IN
3-15 - 3-17 2021 CRF March Forum
3-16 Implementing a Lien/Bond Claim Program: Overcoming Obstacles
3-18 NACM and FCIB Present Author Chat: Whit Mitchell
3-19 Application Deadline for the May 16 Test Date
3-25 NACM Heartland Construction Meeting
3-30 UCC Remedies Upon Debtor’s Default

4-15 NACM and FCIB Present Author Chat: Dr. Robert T. Sicora
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