In 2023, corporate bankruptcy filings are predicted to increase
Funding that kept many struggling companies afloat during the pandemic has ended, and further speculation is fueled by ongoing global supply chain issues, rising inflation, and an impending recession. Against this backdrop of uncertainty looms a massive wall of corporate debt, with more than $200 billion worth of high yield bonds due in 2023 alone.
This ‘perfect storm’ of macroeconomic conditions, which has ravaged markets for the last month, is on Corporate America’s doorstep and will decimate their already tenuous global supply chains. While bankruptcy does not necessarily result in a company closing, it weakens its financial resilience, especially in volatile economic times.
How Did We Get Here?
In the early months of the pandemic, businesses struggled to keep their lights on and workers employed. In June 2020, the Biden administration launched the Paycheck Protection Program (PPP) which granted nearly $800 billion in low-interest loans to small businesses. Almost a year later, PPP funds were nearly depleted, raising questions regarding businesses’ ability to survive without them.
The start of 2022 was marked by corporations desperately looking for new sources of funding. In addition to this, supply chains continued to struggle with manufacturing delays, trucker shortages, and lack of workers. As corporate stability decreased, bankruptcy numbers started to rise:
| January – June 2022 | Of companies declaring bankruptcy, 60% were private |
| January – August 2022 | Tech companies lay off 32,000 employees |
| February – March 2022 | Chapter 11 bankruptcy filings increase 38% |
| June 2022 | The busiest month for large bankruptcy filings since March 2021 |
Let’s Look at a Real-World Example
Despite 90 successful years in the cosmetics industry, Revlon’s substantial debt load, a chaotic supply chain and shifting consumer patterns due celebrity competition, all proved to be challenges they couldn’t overcome. Additionally, vendors who had outstanding invoices requested upfront payments or payments on the outstanding amount to combat the spike in raw materials prices.
To put it into perspective, Revlon lipstick requires 35 to 40 raw materials per tube. In the face of these high demands, Revlon struggled to maintain its products and sales.
As of late March 2022, Revlon’s long-term debt totaled $3.31 billion. Nearly two months later, the company filed for Chapter 11 bankruptcy. The company’s market value was $100 million, far below its soaring debt totals. The company’s financial woes continued later into 2022. In October, the New York Stock Exchange delisted Revlon from trading, and the very next day, the company’s shares lost half their value.
Revlon’s bankruptcy perfectly illustrates that right now, that perfect macroeconomic storm is wreaking havoc and causing major disrupting to supply chains. Not next year or in six months, but now. With medium-term fundamentals that look almost as bad as their short-term outlook, they were a classic example of a company that has been able to kick its debt can down the road because of a historically accommodative credit market.
Companies, particularly in retail which has high exposure to distress, must take immediate action to evaluate the financial health of their third parties, whether it be in their supply chains or elsewhere.
Where We’re Headed
Revlon’s COVID-19 downfall is only one example of supply chain disruptions’ catastrophic impact. From extreme weather to limited inventory, disruptions will continue challenging corporations.
In the first half of 2022, 60% of bankruptcy filings came from private companies. That’s a startling statistic when you consider that small private companies account for a large percentage of most supply chains. It won’t be long until businesses feel the ripples of disruption through their supply chain as these companies begin to struggle.
Suppliers with poor financial health are almost 3X more likely to provide very poor delivery performance, but corporations don’t have to sit idly by as bankruptcy lurks in shadows of their supply chains. Now’s the time to be proactive.
You’ve invested heavily in building a specialized supply chain that provides your business with the components that make it unique and differentiated in the market. Let RapidRatings help you protect it. We give you full transparency on your suppliers’ financial health and resiliency, so you know which suppliers can handle operational strains, and which suppliers will be impacted by disruptions, like a bankruptcy.
Learn more about the rise of corporate bankruptcies and its impact on supply chains.
Sources
- Large Chapter 11 Bankruptcies Maintain Sleepy Pace in First Half (cfo.com)
- Tech Layoffs: US Startups And Tech Companies With Job Cuts In 2022 (crunchbase.com)
- Bankruptcy filings are creeping back up in early 2022 | Reuters
- US Bankruptcy Tracker: June on Track for Busiest Month of Year (bloombergtax.com)
In the days before Candy Crush and our daily Wordle, there was Minesweeper. We’ve all played, right? It was the clickable grid with hidden mines scattered throughout and by using logic, you determined where the flag should be placed without detonating any mines.
Why are we talking about a game from the 90’s? Let’s imagine your supply chain as a minefield. RapidRatings acts as a “minesweeper”, flagging the areas of risk surrounding the “landmines”, so you can navigate safely. While we also use logic to flag risks, we use predictive analytics to identify and mitigate risk, and devise strategies for surviving interruptions in supply chains.
Even though there has always been risk in supply chains, the pandemic exposed them as volatile “minefields” that companies must successfully navigate. Some macroeconomic “landmines” lurking in your supply chain includes rising interest rates, rising labor and capital costs. A volatile economy has been further exacerbated by Russia’s invasion of Ukraine and events in the U.S., such as a drought-stricken Mississippi River, mass truck driver shortages, a potential rail line strike, and most recently, the diesel shortage.
Flagging those landmines can be a difficult task on your own. Evaluating each supplier’s operational capacity and risk and finding a way to minimize the risk without interfering with your day-to-day operations, is time and resource consuming. Fortunately, RapidRatings flags the risks, alerts you to potential “landmines” in your supply chain, and gives you the tools you need to protect your supply chain. Because you cannot measure what you cannot see.
How does RapidRatings do it?
We simplify the obtainment of necessary financial data to provide an accurate financial assessment. Our predictive and accurate analytics enable us to then use this data to assess the global public and private companies that touch your business.
Utilizing our best-in-class resources, you will be able to take immediate action when potential disruptions are detected:
- Financial Health Ratings (FHR) is the gateway to understanding a company’s underlying strengths and weaknesses:
The FHR is able to project reliable forecasts of the 12-month and long-term outlooks of the companies that touch your business and predict probabilities of default with proven, high accuracy. - Actionable and easy-to-read reports enable you to mitigate supplier risk and monitor suppliers:
RapidRatings generates over 15 unique analytic reports to fully provide the insight you need to understand the potential risks of a third party. Our multiple report options help you evaluate the financial health of your third parties – understand the individual company risk, portfolio-level risk, and macro factors for evaluating entire sectors and countries. - Industry-leading customer service provides expertise in building a supplier risk management strategy and plan:
Getting started with the process can be overwhelming if you do not know whom to involve, where to begin, or what to do with the information you receive. We will partner with you to create simple and effective action plans to ensure effortless and successful onboarding.
In today’s economy, one of the most important strategies for surviving supply chain disruptions is to understand the financial risks faced by both you and your suppliers. If you have a clear understanding of what you’re up against, you will be able to make informed and unhurried decisions that may save your business.
Our solution gives you full transparency on your supplier’s financial health so you can protect your supply chain. Because you cannot measure what you cannot see.
Start managing your supply chain minefield today.
With the summer winding down, one thing is certain… the holiday season is just around the corner. In recent years, that has meant a rise in supply chain disruptions and delays. Although things don’t look as bad as they did last year, there will still be challenges. As labor and material costs rise, interest rates increase, and supply chain problems persist, truck driver shortages will also exacerbate the situation.
How the Trucker Driver Shortage will Hit Your Supply Chain
A shortage of truck drivers? What impact will that have on your business? The trucking industry plays a critical role in any supply chain. During the last year, the industry transported 10.23 billion tons of freight nationally, or 72.5% of domestic tonnage. A shortage of these drivers will lead to delayed product, missed deadlines and ultimately a loss of revenue.
Sources: American Trucking Association, Business Insider, The White House, CCJ, McKinsey
The Numbers Tell the Story
Even as the industry continues to work overtime to keep the economy on track, they face their own challenges:
- The industry is short 80K drivers as a result of the pandemic when many DMVs and training programs were closed
- Yet the economy relies on the 72.5% of goods that are shipped domestically.
- High turnover rates, exceeding 50%, among long haul driver combined with port blockages are exacerbating the situation.
- This is leaving businesses and consumers high-and-dry as supply chain disruption hits hard.
As the trucking industry strives to address these issues, what can you do now to ensure the resiliency of your supply chain?
Supply Chain Investment
You’ve invested heavily in building a specialized supply chain that provides your business with the components that make it unique and differentiated in the market. Suppliers sometimes tell you what you want to hear, but not what you need to hear.
Right now, many of those suppliers are under threat with rising material costs, inflation and labor shortages. Most of these suppliers are private companies and you have no visibility on their ability to deliver your goods on time, on spec and as per the terms of the contract. This puts the investment you’ve made in developing your supply chain at risk and can have serious implications for your business’s revenue.
Protecting Your Investment
RapidRatings’ Financial Health Rating Exchange gives you complete transparency into your suppliers’ financial health. It provides clarity and insights based on their actual financial statements so that you can make informed decisions. This process uncovers key areas of risk in both the present and into the future. So, you have line of sight on issues before they arise and can take corrective action. You’ll also have visibility on suppliers who have the capacity to handle more business from you enabling you to make strategic buying decisions. Ultimately, your supply chain is more resilient, and its performance is optimized.
To learn more about protecting your supply chain, request a demo now.
Okay, not really, but we can predict when a supplier’s financial health is at risk. We use our predictive analytics, to provide insights into third-party partners, suppliers, and vendors. You can make better risk management decisions when you have an accurate and forward-looking view of a company’s financial health.
It’s officially the halfway mark of 2022! What better time to conduct our own mid-year review and revisit our Diversity & Inclusion (D&I) efforts and share our progress. As we continue to expand and look to what’s next, we should also remember where it started.