Momentum is gathering on calls for “an emergency, temporary federal commercial trade credit insurance backstop,” with 22 trade organisations now urging the US government to take action ahead of the upcoming holiday season.
The groups include the American Apparel & Footwear Association (AAFA), which has been leading the push, and is now joined by the Council of Fashion Designers of America, the National Retail Federation, the Retail Industry Leaders Association, the US Fashion Industry Association (USFIA) and the US Footwear Manufacturers Association (USFMA).
A letter sent last week to Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross and Federal Reserve chair Jerome Powell again raises concerns that in order to preserve their own balance sheets, credit insurers are dramatically scaling back the credit limits they can offer.
“Many retailers and vendors are now overextended as a result of the unprecedented shutdowns and interruption we have experienced over the past three months. This means that US jobs, including many US manufacturing jobs, supported by our supply chains are at risk. The available credit insurance capacity now represents only a fraction of what was available just a few months ago, and the situation continues to deteriorate.”
The groups warn the implications will mean many US companies are forced to absorb nearly all the risk of new business – or will walk away from an order or try to negotiate a smaller one simply because the transaction is now considered too risky.
They add: “The spring and early summer are critically important for our supply chains in anticipation of the upcoming holiday season. Ordering for the fall is already starting to begin. For many retailers and their supply chains, the holiday sales season is the most important portion of the year; and a failure to fully restore credit to the supply chain now could extend the severe economic drag from the last few weeks of shutdowns well into the next year, harming millions of Americans who depend on these supply chains for their livelihood.”
Commercial trade credit insurance protects sellers of goods and services against losses from customers unable to pay due to insolvency or other reasons. It also makes it possible for sellers to use their accounts receivable as collateral to borrow working capital from banks.
Tens of thousands of US companies use this product to support their trading operations, providing credit to the US supply chain and supporting tens of millions of US jobs. In normal times, suppliers can purchase commercial trade credit insurance up to a predetermined amount, based on the financial strength of a given buyer.
Policymakers in Germany, France, the UK and Canada are among those who have taken steps to remedy this problem for their companies by supporting the trade credit insurance market.
“It is within this context that we are appealing for a similar initiative in the United States,” the letter explains.
“An emergency, temporary federal reinsurance backstop would help restore the missing capacity in the commercial credit insurance market so that new orders can be placed and new business can be conducted.
“With the retail sector supporting 1 in 4 US jobs and with retailers of all sizes anchoring supply chains that support employees and their families, distribution centres, factories, and communities throughout the United States, it is imperative that we take action now.”
For further information on the finance trap, see: