Retailers Say Credit Insurance Plan Could Increase Liquidity During Pandemic Downturn

WASHINGTON, July 11 -- The National Retail Federation issued the following news release:

The National Retail Federation welcomed a report released this week calling for a federal backstop for trade credit insurance, saying the proposal could help provide liquidity badly needed by retailers as they recover from the recession brought on by the coronavirus pandemic.

"With retailers already ordering merchandise for the holiday season, vendors need guarantees that they're going to be paid regardless of the volatility of the current economy," NRF Senior Vice President for Government Relations David French said. "Trade credit insurance normally provides that guarantee, but it has become increasingly difficult to obtain. This proposal would solve that problem and help retailers make sure they have the inventory they need for a successful holiday season."

"We support a backstop for trade credit insurance, but a swift response is essential and the congressional calendar is already strained," French said. "While Congress considers this proposal, we have asked the Treasury Department and Federal Reserve to move forward with a short-term, federally backed loan facility that could be enacted almost overnight. Doing so would provide the immediate cash flow retailers need right now and would support a return to normal trade terms and normal business operations."

Trade credit insurance is widely used by vendors supplying industries ranging from airlines to retailers to guarantee payment for products sold on credit, protecting $600 billion in sales each year.

Writing on behalf of insurance firms Atradius, Coface and Euler Hermes, economists Robert Litan and Yong Xu on Thursday released a 24-page report (https://www.econone.com/wp-content/uploads/2020/07/A-Strong-Recovery-Requires-a-Healthy-Trade-Credit-Insurance-Industry.pdf) spelling out plans for a temporary federal backstop program for trade credit insurance. Major U.S.-based insurers have already cut back coverage by 14 percent since the beginning of the year, which is expected to reduce economic output by $46 billion and reduce hiring by 155,000 jobs across the economy, according to the report. The shortage of the coverage could increase as the pandemic continues, the economists said.

NRF was among 22 trade associations representing retail, manufacturing and services industries that signed a June 23 letter to Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross and Federal Reserve Chairman Jerome Powell calling for a federal trade credit insurance backstop similar to the one proposed in the study. The letter said insurance for merchandise being ordered now is "critically important for our supply chains in anticipation of the upcoming holiday season."

Last week, NRF and 20 other retail and manufacturing associations sent a separate letter to Mnuchin and Powell asking for the creation of a "special purpose vehicle" lending program, saying the lack of insurance has "severely limited the normal flow of goods" already.

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June 23, 2020

To: The Honorable Steven Mnuchin, Secretary of the Treasury, Department of the Treasury, 1500 Pennsylvania Avenue, NW, Washington, DC 20220

The Honorable Wilbur Ross, Secretary of Commerce, Department of Commerce, 1401 Constitution Avenue, NW, Washington, DC 20230

The Honorable Jerome Powell, Chairperson, Board of Governors, Federal Reserve System, Eccles Federal Reserve Board Building, Washington, DC 20551

Dear Secretary Mnuchin, Secretary Ross, and Chairman Powell:

Representing a wide cross section of U.S. industries and sectors - encompassing retail, manufacturing, and services - we are writing to ask your support for the establishment of an emergency, temporary federal commercial trade credit insurance backstop that will thwart an emerging credit crisis to enable and sustain the safe restart on which we and our members are working.

Commercial trade credit insurance protects sellers of goods and services against losses from customers unable to pay due to insolvency or other reasons. Commercial trade credit insurance also makes it possible for sellers to use their accounts receivable as collateral to borrow working capital from banks. Tens of thousands of U.S. companies use this product to support their trading operations, providing credit to the U.S. supply chain and supporting tens of millions of U.S. jobs.

In normal times, suppliers can purchase commercial trade credit insurance up to a pre-determined amount, based on the financial strength of a given buyer. In times of economic stress, however, credit insurers are forced to dramatically scale back the credit limits they can offer to preserve their own balance sheets. This is now happening, and this is why we need your help.

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 U.S. jobs, including many U.S. 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 short-term implications of this acute problem are devastating, particularly for the many U.S. companies that will be forced to absorb nearly all the risk of new business or walk away from those business opportunities simply because a transaction that was routine in January is now considered too risky.

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. As you know, 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.

Policymakers in Germany, France, the UK, Canada, and other jurisdictions 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. 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 U.S. jobs and with retailers of all sizes anchoring supply chains that support employees and their families, distribution centers, factories, and communities throughout the United States, it is imperative that we take action now.

Through your work over the past 90 days, you have helped ensure that the U.S. jobs engine of our retail sector, and the many industries that depend upon it, was able to stay largely intact. The next 30 days, and in particular how quickly we can get our commercial trade credit insurance markets functioning again, will determine how many U.S. jobs that engine can create and sustain.

Thank you for your swift attention to this urgent request,

Accessories Council

American Apparel & Footwear Association (AAFA)

American Import Shippers Association (AISA)

California Fashion Association (CFA)

Council of Fashion Designers of American (CFDA)

The Council of Insurance Agents & Brokers (CIAB)

Fashion Accessories Shippers Association (FASA)

Fashion Jewelry and Accessories Trade Association (FJATA)

Footwear Distributors & Retailers of America (FDRA)

Gemini Shippers Association

Halloween & Costume Association (HCA)

Juvenile Products Manufactures Association (JPMA)

National Retail Federation (NRF)

North American Association of Uniform Manufactures and Distributors (NAUMD)

Outdoor Industry Association (OIA)

Promotional Products Association International (PPAI)

Retail Industry Leaders Association (RILA)

Sports & Fitness Industry Association (SFIA)

The Toy Association

Travel Goods Association (TGA)

U.S. Fashion Industry Association (USFIA)

U.S. Footwear Manufacturers Association (USFMA)