Welcome to this week’s Baker Ing Bulletin, where the promise of AI replacing call centers is looking as certain as a delayed delivery through a Mediterranean port.

As we sift through the chaos of modern commerce and technological wonders, we find that the only certainty is uncertainty—and perhaps the occasional coffee break.

So, grab your mug and settle in as we explore credit without the corporate spin.

Let’s dive in, shall we?

Mediterranean ports, including Tangier-Med in Morocco and Algeciras in Spain, are buckling under the pressure of severe congestion. A major factor behind the traffic jam? The significant uptick in traffic and volumes initiated by changes in shipping schedules starting in 2024. This shift comes as a direct response to the European Union’s new FuelEU Maritime Regulation, part of the sweeping Fit for 55 initiative aimed at cutting down maritime carbon emissions. The law expected an increase in transshipped cargo and the utilisation of feeder vessels, targeting these ports as likely hotspots for ramped-up transshipment activities.

The ditching of the traditional Red Sea/Suez Canal routes for longer detours around Africa is adding fuel to the fire, causing a surge in container volumes. Barcelona, for instance, saw container volumes leap by a staggering 17 percent year-on-year in February 2024. This boom is straining storage yards to the brink and pushing port capacity to its limits, leading to extended wait times and warnings of potential overcrowding.

Manufacturers and retailers, who typically rely on the seamless operation of global supply chains, are currently up against severe delays. These aren’t just minor setbacks; they are substantial disruptions that can bring production lines to a screeching halt and leave shelves starkly empty. For example, consider a manufacturing operation dependent on the punctual delivery of components to keep its assembly line humming. With shipments marooned at overloaded ports, production could stutter or cease entirely, causing a domino effect of delays in product availability and a severe dent in cash flows. This scenario compels us to overhaul credit strategies—extending payment terms is transitioning from a courtesy to a critical necessity to keep clients solvent in these stormy times.

Similarly, the construction and automotive industries, which rely heavily on a varied assortment of components, are trapped in the same quagmire. Delays bring more than just spiraling costs; they risk missed deadlines and potential contractual penalties, which muddle financial forecasts and complicate credit assessments. In response, credit managers are recalibrating their risk models to account for these new challenges; proactively leveraging analytics to predict and mitigate the potential financial turmoil triggered by port congestion.

The congestion at Mediterranean ports is expected to persist, with analysts forecasting continued delays due to both ongoing diversions and adjustments in global trade routes. This means the role of trade credit has just become more pivotal than ever. Ultimately, this congestion is not merely a logistical hurdle; it is a critical test of agility and foresight for credit management. As businesses around the globe grapple with these disruptions, credit managers are leading the charge to guide our organisations safely through this storm.

A potential game-changer is on the horizon for British agrifood exports, as a deal to harmonise veterinary standards with the EU could ignite a 22% surge in shipments across the channel. According to a study from Aston University and the University of Bristol, this aligning of regs could not only boost exports but also lift EU imports by 5.6%, promising smoother sails for goods that have faced choppy waters since Brexit.

For industries reliant on smooth import and export processes, such as the food and drink sector which employs over 4.2 million people in the UK, this agreement could mean quicker turnaround times, improved cash flow, and a reduction in the credit risks currently exacerbated by border delays and checks.

Since Brexit, EU border checks have been applied to UK exports, contributing to a 5% drop in exports to the bloc between 2019 and 2022—a period during which global exports actually grew. The potential easing of these barriers through a veterinary agreement could reverse this downtrend, offering a much-needed boost to the sector.

The credit implications here hinge on improved predictability and reliability in supply chains. Credit managers might now start considering the possibility of varying payment terms in light of reduced delivery uncertainties, and potentially lower provisions for bad debts, assuming the agreement leads to smoother trade flows.

The strategic response requires not just adjusting credit policies in anticipation of these changes but staying closely engaged with policy developments. Understanding the nuances of these negotiations and the potential for regulatory alignment—or divergence—will be key to navigating the evolving environment. As negotiations unfold, the ability to swiftly adjust credit policies in response to any new agreements will be crucial to managing new opportunities and risks.

Whilst the prospect of a UK-EU veterinary deal offers a beacon of hope for revitalising agrifood exports, it demands a review of our approach to trade credit, but with emphasis on flexibility, proactive risk assessment, and strategic alignment with evolving trade policies.

Heads up from the World Bank: commodity prices are stubbornly high and could keep inflation at uncomfortable levels. Despite a welcome drop in these prices last year, they’ve hit a plateau. In fact, the forecast isn’t looking too rosy, with prices projected to trim down by just 3% in 2024 and another 4% in 2025. This means they’ll still be a hefty 38% higher than the pre-pandemic norm. Ouch!

For credit managers navigating these choppy financial waters, this is crucial intel. High costs for industrial metals and energy resources, which are pivotal in everything from building to powering up new tech, mean companies in these fields find themselves pinched. If raw material costs eat into profits, businesses may struggle to pay their bills on time, cranking up the credit risk.

And let’s not glance over the simmering geopolitical tensions, especially in the Middle East. These hotspots could drive commodity prices even higher, especially for oil and gold. The World Bank has thrown a spotlight on this, suggesting that if these tensions boil over, we could see Brent crude prices skyrocket past $100 a barrel. This isn’t just a bump in price—it could propel global inflation nearly 1 percentage point higher.

What’s a credit manager to do in these volatile times? Vigilance and adaptability are key. It’s essential to delve into how these high commodity prices weave through the economy, impacting everything from production costs to what consumers pay on the shelf. Understanding the full picture will help us adjust credit terms wisely, perhaps offering more lenient terms to those hammered by rising costs or tightening up where risks are too great.

The steadily high commodity prices highlighted by the World Bank indicate a prolonged period of inflationary pressures that trade credit must navigate. By staying attuned to global commodity trends and their impacts, we can better safeguard our portfolios against potential disruptions and ensure credit practices recognise we’re in this for the long-haul.

The head of Tata Consultancy Services has made a startling assertion that could reshape global customer service quicker than we thought: artificial intelligence will render traditional call centres nearly obsolete within a year. As AI technology advances, the demand for human-operated call centres, a major employment sector in countries like India and the Philippines, is anticipated to dwindle significantly.

Krithivasan explained that the integration of generative AI into customer service could drastically reduce the volume of incoming calls as AI systems become capable of preempting and resolving customer issues before they escalate to human operators. This shift toward AI-driven customer service platforms, including sophisticated chatbots that can analyse transaction histories and interact effectively with customers, signifies a major transformation in how companies manage customer relations.

The impending shift has wide-reaching implications for trade credit, particularly for firms dealing with telecommunications and customer service outsourcing. As AI begins to supplant human roles, companies in these sectors may face reduced operational costs but also potentially huge disruptions in their service models. Credit managers will need to closely monitor these developments, adjusting credit risk assessments and strategies to account for the financial volatility that may accompany such a transition.

For industries reliant on the stability and predictiveness of BPO (Business Process Outsourcing) revenue streams, the move towards AI could equally mean renegotiating contracts or shifting towards more technologically advanced solutions. This may involve fostering partnerships with AI development firms or investing in internal AI capabilities to stay competitive.

Moreover, the implications extend deeply into the collections functions of businesses, agencies, and BPOs involved in trade credit. As AI reduces the need for human interaction in call centers, similarly, AI can streamline and automate many aspects of the collections process. This automation could lead to significant efficiency gains but also reduce the need for staff in less complex roles. Collections agencies might leverage AI to handle routine simple communications and low-value negotiations with debtors, using algorithms to personalise payment reminders, negotiate terms, and even initiate settlements based on predefined criteria.

The role of credit managers will be crucial in navigating these changes. We will need to leverage detailed analytics to predict how shifts in the BPO sector might impact financial stability and operational risk. Proactive engagement with clients to understand their transition plans and the extent of their familiarity and their reliance on AI will be essential. Additionally, staying informed on technological advancements and regulatory changes affecting AI implementation will help us make informed decisions to protect commercial interests and support client transitions.

As AI technologies continue to advance at a rapid pace and integrate into all sectors, credit managers must gain an understanding of the implications for global service models, and prepare for the financial and operational shifts that will follow. This will be essential for maintaining robust credit management practices in an increasingly automated world.

The newly launched RiskPulse Dashboard for Software Technology 2024 offers a critical lens through which tech professionals and enthusiasts can view the evolving sector. Now available for download, this resource is tailored to arm credit managers and decision-makers with essential insights into key metrics that are shaping the sector.

Designed to streamline complex data into accessible insights, the dashboard facilitates swift, strategic decision-making. It provides a snapshot of the sector’s current state and its trajectory, helping professionals navigate the opportunities and challenges presented by rapid technological advancement.

But there’s more! This Dashboard compliments the upcoming release of our comprehensive Software Technology 2024 Report next week. This detailed analysis will enhance the dashboard’s insights by delving deeper into the forces driving innovation and change in the tech world. From emerging technological trends to market dynamics. Register now to be notified of its release.

For credit managers, tech strategists, and all who take an interest in all things tech, the RiskPulse Dashboard and the forthcoming Software Technology 2024 Report are essential guides.

And that wraps up this edition of The Baker Ing Bulletin. We’ve dissected the dynamics of trade credit and the digital shifts shaping our markets, sprinkling in our insights like a seasoned chef with a secret spice.

For your regular rundown on the nuances of net terms and the drama of defaults, bookmark https://bakering.global/global-outlook/

Until next time, stay sharp, stay solvent!