Companies Facing Rising Supply-Chain Costs Amid Inventory Challenges​​​

Companies face new increases in logistics costs this year as they try to reset their supply chains and rebuild inventories amid continuing disruptions and rising inflation, freight-sector experts say, the Wall Street Journal reported. The renewed cost stresses follow a year in which business logistics costs rose 22%, straining shipping budgets as companies struggled to adjust to rapidly changing consumer demand, according to the latest annual Council of Supply Chain Management Professionals State of Logistics Report, released on Tuesday. U.S. business logistics costs increased in 2021 to $1.85 trillion, representing 8% of the country’s overall economic output, the highest share of logistics spending relative to gross domestic product since 2008, according to the report. Transportation costs rose about 22%, according to the report, while inventory-carrying costs — which measure the value of the goods a retailer has against the cost to store them — jumped nearly 26% over 2020. The inventory costs reflect the long lead times for orders that companies have been using to get ahead of supply-chain disruptions, as well as delivery delays that have left retailers and manufacturers holding goods out of step with demand. Companies “have a lot of stuff sitting in places that are different than where they want it to be,” said Steve Bobb, chief marketing officer at BNSF Railway Co. The report puts a detailed financial frame around the broad upheaval in supply chains triggered by the COVID-19 pandemic. Abrupt lockdowns that began in early 2020 decimated production and led to significant changes in consumer buying patterns, as well as product shortages that experts say continue to roil supply-chain planning and raise logistics costs. (Subscription required.)

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Commentary: Is the Era of Cheap Money Over?*​​​

According to a few expert narratives, the Fed has kept interest rates artificially low for the past 10 or maybe even 20 years that led to inflated bubbles everywhere, as investors desperately looked for something that would yield a decent rate of return. Now the narratives are pointing to the era of cheap money being over, according to a New York Times commentary. However, interest rates weren’t artificially low, they didn’t cause the bubbles, and the era of cheap money probably isn’t over, according to the commentary. Short-term interest rates are set by the Federal Reserve, and long-term rates reflect expected future short-term rates. Until 2021, inflation consistently came in more or less at the Fed’s target of 2 percent a year. There was the great housing bubble of the mid-2000s, which set the stage for the global financial crisis. We then went on to have what was pretty clearly a crypto-meme stock, etc., bubble. If you want to claim that low interest rates were responsible for those bubbles, however, you need to come to terms with the fact that there were some other impressive bubbles before rates got low, according to the commentary. Bubbles, even crazy bubbles inflated in part by fraud, can happen even when the Fed hasn’t been keeping interest rates low to support a weak broader economy. Still, interest rates have gone up a lot in the past few months. Does this mean that the cheap-money era is over? Since 2000 and especially since the global financial crisis, businesses have persistently been unwilling to maintain a level of investment spending that used all the money households wanted to save, unless interest rates were very low. This condition has the unfortunate name of “secular stagnation” — unfortunate because it’s widely and wrongly construed as an assertion that it means slow growth, not low interest rates. The idea of secular stagnation was introduced in the 1930s, but the postwar boom made it seem irrelevant. Then Japan began experiencing persistent weakness and very low interest rates in the 1990s, and in the aftermath of the 2008 financial crisis, the whole advanced world found itself in a similar condition.

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*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Bankruptcy's Maine Event: Sessions on Regulatory Issues in Energy Restructurings, Health Care M&A, Lifecycle of a Subchapter V and More!​​​

Attendees will join a faculty comprised of 16 active and retired judges, top practitioners and leading academics at ABI’s 2022 Northeast Bankruptcy Conference and Consumer Forum, taking place July 14-17 at the Samoset Resort in Rockport, Maine. The conference is eligible for up to 10.25/12 hours of CLE/CPE, including 2.75/1.3 hours of ethics, and will again offer a separate three-day Consumer Forum at a reduced registration rate. Enjoy engaging panels and relaxing networking with fantastic coastal views. Register today!

Poll: Student Loan Forgiveness Isn’t a Long-Term Fix, Most Americans Say​​​

The 43.4 million Americans with student loan debt want to ensure that future generations aren’t stuck with their current problems, Bloomberg News reported. In an NPR/Ipsos poll released on June 17, 82% of respondents said they believed making college more affordable should be a bigger priority to the federal government than forgiving existing student debt. About 4 in 10 said they had student loan debt, and of that cohort, 59% agreed that bringing down the price of higher education should take precedence. At the same time, a majority of respondents supported federal student loan forgiveness of at least $10,000. An even higher proportion of debt-holders supported forgiving some or all the debt. Tuition at a private four-year college costs $38,070 per year on average, according to the College Board, the nonprofit that administers SATs and other exams. Public universities for in-state residents run $10,740 per year on average. The average federal student loan balance in the U.S. is currently $37,113. Those with student loans are awaiting some kind of announcement from the federal government about repayment or forgiveness. Currently, the pandemic forbearance period is scheduled to end Aug. 31, although Biden is reportedly contemplating broader executive action to forgive at least $10,000 in debt per person.

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Cost of Owning a Home Surges Above the Cost of Renting One​​​

Housing costs, pushed higher by soaring home prices and rising mortgage rates, outpaced rental costs in April, making owning a home more expensive on a monthly basis than renting one, according to a new report, the New York Times reported. The report, released this month by John Burns Real Estate Consulting, an industry advisory firm based in California, showed that having a mortgage cost $839 more per month than having a lease — a difference nearly $200 higher than at any time in the past two decades. Just a year ago, the difference between owning and renting was virtually flat, according to the firm’s data. The imbalance has pushed many would-be homebuyers out of the market, said Danielle Nguyen, a senior manager of research at the firm who wrote the report. “Those who are looking to buy a home are steering toward renting because they are being priced out,” she said. Nationally, the cost of owning is 31 percent higher than renting, but the disparity is greater in metropolitan areas where housing prices have surged, the report said. In the Raleigh-Durham area in North Carolina, for example, the cost of owning was 42 percent higher than renting in April. The gap was 40 percent in Nashville, 38 percent in Denver and 35 percent in Tampa, Fla., and Phoenix.

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Big Changes to 401(k) Retirement Plans Getting Closer with Senate Vote​​​

Americans could wait longer to start emptying retirement accounts and face fewer restrictions on emergency withdrawals under a bill advanced unanimously Wednesday by the Senate Finance Committee, the Wall Street Journal reported. The bipartisan bill is broadly similar to a measure passed by the House on a 414-5 vote in March, though it contains larger retirement-savings subsidies for low-income and middle-income workers. The Senate’s move this week increases the chances that Congress will make changes to U.S. retirement law this year. Paul Richman, chief government and political affairs officer at the Insured Retirement Institute, which represents the insurance industry and supports the bill, said that the legislation could be included in a larger fiscal bill after November’s midterm elections. The House and Senate must also resolve their different approaches. The bipartisan measure would build on retirement-policy changes enacted in 2019 that, among other things, raised the age people were required to start withdrawing money from retirement accounts to 72 from 70½. According to Boston College’s Center for Retirement Research, roughly half of American households haven’t saved enough and risk seeing their standards of living decline after retirement. (Subscription required.)

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Commentary: Should You Buy Now, Pay Later? Tread Carefully*​​​

“Buy now, pay later” options were popularized by Afterpay, a financial tech firm based in Australia and founded in 2014. Throughout the pandemic, as people hunkered down at home and sought to fill voids with material possessions, installment payment plans gained traction, according to a New York Times commentary. Afterpay, which Square acquired for $29 billion in 2020, spawned copycats, including Affirm, Klarna and Fingerhut. This month, Apple announced that it would offer a similar program. While the financing programs offer upsides like interest-free payments, there are potential dangers. The rule of thumb for financial security is to be aware of your budget and in control of your spending, personal finance experts say. But buy now, pay later programs seem intended to make people perceive a product to be cheaper than it truly is and lose control of their spending, according to critics. In December, the Consumer Financial Protection Bureau opened an inquiry into these programs, expressing concern that people could accumulate debt with multiple purchases. “They can be helpful to consumers in the sense that they don’t carry interest if paid on time, but consumers can end up buying more than they planned,” said Laura Udis, a program manager at the bureau.

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*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Upcoming abiLIVE Webinars to Examine Preference Action Defenses, Bankruptcy Filing Trends​​​

Be sure to mark your calendars for two key upcoming abiLIVE webinars:

ABI's Unsecured Trade Creditors Committee will be hosting "A Case Study on Common — and Uncommon — Defenses to Preferences" next Tuesday, June 28, which will delve into the prosecution and defense sides of a recently settled preference case in which the presenters were involved. Speakers include Kara E. Casteel of ASK LLP (Eagan, Minn.), Eric S. Chafetz of Lowenstein Sandler LLP (New York), Bruce S. Nathan Lowenstein Sandler LLP (New York), Gary D. Underdahl of ASK LLP (Eagan, Minn.) and Keara Waldron of Lowenstein Sandler LLP (New York). Click here for complimentary registration.

On July 12, Epiq is sponsoring a key webinar titled "Bankruptcy Filing Trends for the First Half of 2022 and What Lies Ahead" featuring experts looking at filing trends through June 30 and thoughts on what could happen with bankruptcies moving forward. Speakers on the program include ABI President Hon. Kevin Carey (ret.) of Hogan Lovells (Philadelphia), Deirdre O’Connor of Epiq (New York) and ABI's Ed Flynn (Alexandria, Va.). Christopher Kruse of Epiq (San Francisco) will serve as moderator for the program. Click here for your complimentary registration.

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