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Retail port imports down in November, decline expected to continue

Segment

IFRS 9 Impairment How It Impacts Your Corporation And How We Can Help

The Market Intelligence Platform


Retail port imports down in November, decline expected to continue

After months of record-setting stockpiling ahead of a rise in tariffs on Chinese goods, retail maritime shipments have finally begun to slow, a trend that is expected to continue until at least the first quarter of 2019, according to the National Retail Federation.

The industry group said in its Jan. 8 monthly "Global Port Tracker" report with maritime consulting firm Hackett Associates that 1.81 million 20-foot equivalent units, or TEU, of retail goods were imported in November, an 11.4% drop-off from a record-setting October but a 2.5% year-over-year rise from November 2017.

A TEU is one 20-foot-long cargo container or its equivalent.

A record 2.04 million TEU of retail goods were imported in October, which the groups attributed to last-minute holiday orders as well as stockpiling to beat a scheduled rise in tariffs to 25% from 10% on $200 billion of Chinese imports, including furniture, lamps, fish and mattresses on the consumer side.

That tariff increase, announced in September and originally scheduled to come into effect Jan. 1, was postponed after the two countries agreed to hold 90 days of negotiations toward a resolution of their ongoing trade dispute. The Trump administration has warned, however, that the tariff rate hike, as well as subsequent tariffs on consumer goods, could go into effect should a deal not be reached by March 2.

"There have been record-high levels of imports over the past several months, primarily due to raised inventories ahead of expected tariff increases," Hackett Associates Founder Ben Hackett said in a news release. "But we are projecting declining volumes in the coming months and an overall weakness in imports for the first half of the year."

The NRF and Hackett also forecast 1.79 million TEU for December, which would be a 3.7% year-over-year increase, as well as 1.75 million TEU for January and 1.67 million TEU for February, both of which would mark 0.9% year-over-year decreases.

Although November is the latest month for which concrete import data is available, the groups project that 2018 will be a record-setting maritime import year, with 21.6 million TEU expected to be shipped in through the busiest American ports over that span.

Jonathan Gold, the NRF's vice president for supply chain and customs policy, said the pressure on retailers to stock up on merchandise has now passed with the holiday season in the rearview mirror. However, retailers are still closely monitoring uncertainty regarding tariffs on Chinese goods as talks between the two economic powerhouses intensify this winter.

"Retailers have also brought in much of their spring merchandise early to protect consumers against higher prices that will eventually come with tariffs," Gold said in a news release.

The "Global Port Tracker" report covers 14 U.S. ports, including Los Angeles/Long Beach, Charleston, Miami and Oakland.


Credit Analysis
IFRS 9 Impairment How It Impacts Your Corporation And How We Can Help

IFRS 9 is a reporting standard for financial instruments that replaces IAS39 (the previous incurred loss standard) with the introduction of provisions for expected credit losses (ECLs) on all financial assets, such as those held to collect contractual cash flows, or held with the possibility of being sold.

The date for adoption was January 1, 2018 and is mandatory for public non-financial corporations (and financial institutions) across a number of jurisdictions outside the United States, including many European countries.

The two key changes introduced by the IFRS 9 accounting standard are:

  • Calculation and provisions must be performed on all affected financial assets, not just the impaired ones, as per the standard it replaces
  • New expected credit loss calculations

Additional challenges will be presented when making assessments for low default asset classes, and companies may find it difficult to access models and sufficient data history.

Impact for non-financial corporations

Non-financial corporations will have some material exposure to many of the financial assets that are defined under IFRS 9. These include investment portfolios, intercompany loans, lease receivables, contract assets, and trade receivables, as illustrated below and further explained in our webinar on IFRS 9 for non-financial corporates.

This, together with the need to assess losses on performing and non-performing assets, might have a material impact on the profit and loss (P&L) of such companies.

ECL calculations under IFRS 9

The IFRS 9 accounting standard introduces new expected credit loss (ECL) calculations that require more data and new models. The key requirements are:

  • Significant increase in credit risk (SICR): Expected loss needs to be assessed at each reporting period to identify a SICR since initial recognition
  • Explicit macro-economic forecasts need to be considered using factors such as the relevant GDP growth, unemployment rate, and stock market index growth figures
  • Credit risk metrics such as probability of default (PD), credit rating, credit score, and loss given default (LGD) need to be adjusted to point in time (PiT), versus through the cycle (TTC)
  • Calculations need to be extended over the lifetime of the assets for underperforming exposures, or in standardized calculations

General versus simplified approach

When performing ECL calculations for trade receivables, the company can choose to take a general or simplified approach (the company is presented with a choice between the two depending on the type of exposure).

  • The general approach uses the 12-month ECL calculation for performing assets (Stage 1 assets) and lifetime calculation for the assets whose creditworthiness has deteriorated since recognition (Stage 2 assets)
  • The simplified approach uses the lifetime ECL calculation for all performing and non-performing assets

The simplified approach can have a bigger impact on P&L expense, as all losses are calculated over the lifetime of the asset, while the general approach can have more impact on P&L volatility, as assets might move between stages incurring 12-month and lifetime calculations.

How S&P Global Market Intelligence can help

A best practice approach used by many financial institutions, which non-financial corporations can also use to comply with the new provision, is to use the existing TTC metrics and convert them into PiT metrics to reflect the current credit cycle, as well as include the required future macroeconomic considerations.

S&P Global Market Intelligence has developed models and tools to help your business undertake the relevant ECL calculations. These models can also be used to assess the creditworthiness of your counterparties and recovery of your exposure in the context of your core business process such as customer credit, supply chain risk, vendor management, and selection and transfer pricing.

The calculation method involves four steps:

  1. We calculate the TTC metric, i.e. the S&P Global Market Intelligence Fundamental PD, CreditModel™ score, for the concerned entity.
  2. We apply our macro-economic model, which weights user defined macro-economic scenarios to produce weighted average forecasted PDs.
  3. We apply a credit cycle adjustment, which converts the TTC risk metric into a PiT PD, leveraging the difference between observed default rates from S&P Global Ratings’ rated universe over last year versus over the past 30+ years.
  4. In addition, as a best practice, we also offer the option to incorporate market-based forward looking information. This is done by further adjusting the PD with the analysis of PD Market Signals country and industry benchmark trends over the past three months versus the past year.

In addition to this quantitative approach available on the Credit Analytics platform, we also offer scorecards that cover low default asset classes for PD, LGD, and point in time adjustments.

Learn More About Credit Analysis
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