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Commodity trade costs surge as industry seeks up to $500bn in extra finance

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Commodity trade costs surge as industry seeks up to $500bn in extra finance

Excessive rates of interest, unstable costs and the battle in Ukraine have made it considerably costlier to finance commodity commerce, forcing the business to hunt for an additional $300bn to $500bn in working capital to maintain uncooked supplies transferring world wide.

Altering commerce patterns have made the worldwide circulate of uncooked supplies much less environment friendly and extra pricey to finance and are additionally prone to push up the value of commodities for customers, in accordance with a brand new examine by consultancy McKinsey.

“For the reason that finish of 2020, we’ve got seen a doubling of the working capital necessities within the commodity buying and selling sector,” mentioned Roland Rechtsteiner, McKinsey accomplice and lead creator of the report. “We may see an identical enhance by the top of subsequent 12 months, if [further] adjustments in commerce flows materialise.”

The commodity buying and selling sector, which strikes uncooked supplies like oil, fuel, sugar and gold world wide, is the engine of the worldwide financial system. Nevertheless the price of the financing required to maneuver these cargoes has risen considerably due to volatility in costs and rising rates of interest.

On high of this, Russia’s invasion of Ukraine has trigged a profound shift in international commerce flows — usually leading to longer, much less environment friendly delivery routes.

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One instance is coal, the place costs have almost tripled over the previous 12 months. Europe is importing from Colombia, South Africa, Australia and different locations, changing coal that was beforehand introduced from Russia. As cargoes need to journey additional, financing prices rise.

“This 12 months the normal commerce instructions modified,” mentioned Rechtsteiner. “That places us in a suboptimal system when it comes to effectivity, and will increase prices.”

The McKinsey report predicts common delivery occasions will enhance 8 per cent, power costs rise three-fold, and curiosity prices will rise seven-fold, between the top of 2020 and 2024 and that working capital necessities for commodity buying and selling globally will enhance between $300bn and $500bn in consequence.

Over the previous 12 months, even the world’s largest buying and selling homes have needed to enhance their strains of credit score and search new sources of finance. Trafigura elevated its credit score strains by $7bn to round $73bn by the top of final 12 months.

In the meantime Glencore disclosed that, in the course of the first half of 2022, it needed to publish an extra $2bn to fulfill margin necessities on commodities exchanges, contributing to a “important” enhance in working capital in the course of the interval.

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Governments have additionally had to offer emergency assist for credit score strains to utilities, notably in Europe, the place energy and fuel costs have been extremely unstable over the previous 12 months.

From Germany to Austria and Finland, governments have stepped in to again credit score strains for energy producers and suppliers which have needed to meet larger margin calls due to worth swings.

The transition from oil and fuel to electrical energy and renewables may additional exacerbate the “regionalisation” of commodity commerce flows, in accordance with Rechtsteiner.

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Finance

Online event: Digital Finance Platform – Launch of phase II & data hub

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Online event: Digital Finance Platform – Launch of phase II & data hub

When: 21 March 2024 between 09:30 and 11:00

Don’t miss this online event that will launch the second phase of the Digital Finance Platform, a collaborative space bringing together innovative financial firms and national supervisors to support new thinking in the EU’s financial system.

A key novelty in this second phase is the Data Hub, which provides participating firms with access to synthetic supervisory data for the purpose of testing new solutions and training artificial intelligence and machine learning models.

The event will also take stock of the current state of play of digital finance and look forward to the way ahead.

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Finance

Charting the AI revolution: Accelerating adoption of AI in finance – The CFO

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Charting the AI revolution: Accelerating adoption of AI in finance – The CFO

The finance function within organizations is undergoing a significant transformation as the pace of technological advancement is unprecedented, with CFOs at the forefront of this change. They are faced with navigating through the complexities of integrating Artificial Intelligence (AI) into their operations. The adoption of AI in finance is not merely a trend but a strategic imperative that promises enhanced efficiency, accuracy, and insights. This article delves into the ways CFOs can accelerate AI adoption in their finance functions, the challenges they might face, and strategies to overcome these hurdles for a seamless transition into the AI-powered future.

Strategies for Accelerating AI Adoption

To expedite the integration of AI within finance functions, CFOs can adopt several strategic approaches.
Initially, focusing on automating the financial fundamentals is paramount. By automating manual processes across accounting and finance functions, organizations can significantly enhance productivity. This step is crucial in addressing the ongoing accountant talent shortages and improving business visibility through more frequent reporting.
Furthermore, centralizing data and training your own AI models is another vital strategy. An integrated solution, such as a cloud ERP system, can unify data across the business, providing a single source of truth. This approach not only saves time on manual data integrations but also ensures that AI can be as effective as possible.
By starting small and encouraging AI experimentation, CFOs can gradually build a robust foundation for AI within their finance functions, driving long-term change and efficiency.

Overcoming Challenges in AI Integration

Integrating AI into finance functions is not without its hurdles. One significant challenge is the lack of understanding and trust in AI technologies among small businesses, as highlighted by UK Tech Minister Saqib Bhatti. To overcome this, promoting trust and transparency in AI applications is essential. This involves providing increased support and educational resources to help businesses navigate the complexities of AI. Additionally, addressing environmental concerns associated with AI, as noted by Tom Dunning, CEO of Ad Signal, is crucial. Businesses must be mindful of the carbon emissions caused by AI and seek solutions to mitigate its environmental impact. Collaborating with industry and government to ensure the safe development of AI and equipping staff with the necessary skills to harness AI’s benefits positively are also key strategies. By tackling these challenges head-on, CFOs can facilitate a smoother integration of AI into their finance functions, unlocking new avenues for growth and efficiency.

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The Future of AI in Finance

The integration of AI into finance heralds a transformative era of efficiency, insight, and growth. As CFOs navigate this journey, the focus on strategic adoption, overcoming challenges, and learning from success stories will be pivotal. The future of finance is undeniably intertwined with AI, promising a landscape of unprecedented opportunities.

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Teacher using 'Lattimore Bucks' to teach personal finance

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Teacher using 'Lattimore Bucks' to teach personal finance

CHARLOTTE, N.C. — Every Monday, Renaissance West STEAM Academy math teacher Shelby Lattimore starts her class by charging her students for their seats, not with U.S. currency but with “Lattimore Bucks.” It’s a project she started last year as a way to improve attendance.

“It’s not just about having them here,” Lattimore said. “It’s about having them here for the whole day from start to finish, ready to rock and roll. On top of the fact, just to get them accountable for their behavior and taking accountability for certain things in the classroom.”


What You Need To Know

  • Shelby Lattimore started using “Lattimore Bucks” in her classroom to help curb attendance problems
  • Each student has a classroom job, they get paid every week with Lattimore Bucks
  • With their bucks they pay for rent, as well as fines if they misbehave.
  • They also can buy rewards to teach them personal finance lessons

Each student is assigned a job in the classroom, which rotates every two weeks.

“These are their jobs,” Lattimore said. “If they’re underlined, they get paid $10. So those are the harder jobs they have to do every day. And then the ones that are not underlined, like this one, he just has to change my calendar. He just has to change the day on the board, like once in the morning so he doesn’t get paid as much.”

With their salaries, her students pay their rent for their seats. 

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“Their rent was inflated as of January, from $5 to $7,” Lattimore said.

And if students misbehave, they’re fined. 

“Like if you purposely lose your pencil, rip your notebook, things of that sort and then of course disrespect,” Lattimore said. “And their fines are a dollar.”

The more Lattimore Bucks they save, the more rewards they can buy. That is, as long as they have enough to pay their rent.

“Let’s say they have $10, but they want to buy lunch with a friend. If I do 10 minus 5, you’re not, you don’t have $7 for your next rent. So they cannot buy anything past their rent that they have to keep in their wallet,” Lattimore said.

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While the project may have started to improve effort in the classroom, Lattimore says it’s morphed into a much bigger lesson for her students. 

“Some of their parents, you know, thank me all the time,” Lattimore said. “We talk about all the time in Charlotte, generational poverty is a huge statistic here, especially in the kids and the families that we serve in my school.” 

She’s instilling lessons of personal finance and budgeting into the lessons every day.

“So just starting the mindset of how can I hold onto money? How can I make long-term decisions with my money? It all starts from a very young age in a safe environment before they’re out in the real world,” Lattimore said.  

It’s done in hopes of setting up her students for the future.

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“Even my students from last year, they are telling me that they’re saving their money, and they’re budgeting their Christmas money for a pair of sneakers or whatever they want,” Lattimore said. “So they’re holding onto the lesson. So I can only imagine a couple of years from now when they’re adults, how that will affect their family.”

Lattimore says other teachers she knows have started similar programs in their own classrooms. She says the concept can be used at any school for any grade level as a simple way to teach basic finances.

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