Magazine article Business Credit

Combat and Credit-An Unstable Mix for International Sales

Magazine article Business Credit

Combat and Credit-An Unstable Mix for International Sales

Article excerpt

Credit professionals involved in sales overseas have a number of factors to consider in addition to those involved when selling domestically. While the U.S. and the UK present a very stable political situation and banking system, sales overseas present a higher degree of uncertainty in those areas; this is categorized as country risk. Within the category of country risk, perhaps the most difficult situation confronting credit professionals occurs when military conflict erupts in a region that can drastically affect not only financial arrangements in a sale, but the ability to ship products into an area. Most recently, those who sell products into the Middle East region have been facing these circumstances during the fighting between Israeli Defense Forces (IDF) and Hezbollah in Lebanon.

Arranging an end to the hostilities is vital not only to quell the violence and end the humanitarian hardships in the area, but also to prevent an even larger conflict that could involve Hezbollah-backing Syria and Iran. After just one month, Lebanon's infrastructure has been devastated, IDF has installed a sea blockade of Lebanon's ports and northern Israel is on the verge of an economic collapse. Israeli officials predict that several more weeks of rocket attacks could shut down the economy there, just as the attacks have in certain parts of Lebanon due to IDF bombings and invasions.

Not surprisingly, the conflict has negatively impacted the business credit environment in Lebanon and other middle eastern countries. In a written statement dated August 2 to Business Credit magazine, credit insurer Euler-Hermes ACI stated, "Owing to the deterioration in the economy as a result of the Israel-Hezbollah conflict we have moved the country grade of Lebanon from C to D (our highest risk category), reviewed our cover on Lebanese buyers and are not currently increasing exposure."

Stephan Witter, CICP, Manager of the Credit & Risk Department for Cooper Crouse-Hind's European operations in Germany, pointed out in an August 2 interview with NACM that another major credit insurer cancelled credit lines to Lebanon. In the early days of the conflict, when it appeared fighting would be limited and of short duration, credit terms on sales to Lebanon weren't as affected. Eddy Sumar, CCE, CICE, International Trade Financing Manager, Rain Bird International, Inc., said in a July 26 interview that his company was still proceeding with limited sales into Lebanon: "Our credit department feels it's still okay." He noted that credit terms on sales to Lebanon, even before the conflict, required a Letter of Credit (LC). "We have a distributor; and with Lebanon we deal with LCs from a French bank or an Arab bank," Sumar said. Speculating on a wider-ranging conflict, Sumar said that if it encompassed Syria and Iran, "then everything will go into a freeze."

In an interview on August 1, Regine Hilgers, European Credit Controller, ISP (Switzerland) AG said that her company put some orders to Lebanon on hold, because with the Lebanese ports blockaded by IDF, products going by sea can't reach their destination. She noted one customer offered to get an LC, but was unable. "We did not ask for the LC because we could not ship to him, anyway," Hilgers added. However, her company granted credit for a shipment into Lebanon on 120-day terms to another company. "It's a well-known international company," Hilgers said. "We've done business with them before and we have good relations." Some other distributors of her company's products are being sold on secured terms such as cash against documents, as they have in the past. However, some products must be shipped differently. One order was shipped through Jordan. She pointed out that there are various options to shipping other than the usual methods, such as a distributor picking up the goods at their Belgian manufacturing facilities or having the products shipped to another country closer to Lebanon. …

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