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Alix McCabe: Imagine shipping more than $10 million worth of meat overseas, only to end up embroiled in an international trade dispute.



Joe Pernica: The clock was definitely ticking. Nobody had thought that the product was not going to be delivered and paid for, but Russia did what Russia did. Sanctions internationally were imposed, Russia retaliated, and we found ourselves with product that couldn't be delivered to Russia.



Alix McCabe: Plug your nose and prepare yourself for the story of Ronald a Chisholm Limited and the Russian trade embargo. Welcome to Wheel of Risk, a new podcast series proudly presented by Allianz Trade. I'm your host, Alix McCabe. On every episode, we spin the wheel, land on a new worry, and then tackle it head on by hearing from business leaders who've been through it all before. Plus, we bring you expert advice to help you keep your business safe, secure, and well ahead of the competition. Go ahead, spin the wheel. We've got you covered.


It's not every day that companies get caught up in a high profile global trade dispute, but when Russia enacted an embargo against the US, Canada, and several other western nations back in 2014, food merchant Ronald a Chisholm Limited suddenly found itself in the middle of a tense international conflict. It could have been a significant financial blow for the Toronto based company. It had tens of millions of dollars worth of goods already in transit, goods that were effectively stranded overseas. But thankfully, this story has a happy ending. And to share it with us, it's my pleasure now to introduce Joe Pernica, the Chief Operating Officer at Chisholm. Joe, welcome to Wheel of Risk.



Joe Pernica: Thank you. Good afternoon.



Alix McCabe: Joe, thank you so much for being part of our podcast. I can't wait to hear more, but first I'd also like to introduce my colleague who will be joining us to provide his own insights. Steve Georgetti is Director of Risk Underwriting for the Americas at Allianz Trade. Steve, thank you for being here.



Steve Georgetti: Thanks, Alix. Glad to be here.



Alix McCabe: So just a reminder, Steve, we will get to your thoughts in the second half of the pod, but first, let's dig into what happened to all that meat. Joe, maybe you can start off by giving us an overview of what your company does.



Joe Pernica: Sure. Chisholm was established in 1938, so the company's over 80 years in operations. Chisholm's a global commodity trader. We deal primarily in meat and dairy products.



Alix McCabe: Okay.



Joe Pernica: Customers and vendors number in 70 countries. So it gives us the ability to give our customers access to global market intelligence, global pricing, and I guess also global choice of product. A large component, which really does tie into this Russian situation that we experience of our business is our logistics department. It's pretty critical to have a strong logistics department when you're dealing in the trading market. We have over 25 people in that space, and that's proven really important to us during COVID. With all the supply chain disruptions that people have read about, we've experienced it and it is fairly significant. So our history with people and our relationships allow us to have access to modes of transport that at times were scarce. So we were able to ensure that our customers were getting product on a relatively timely basis. Not saying that it was perfect, but it was as best it could be done in the circumstances.



Alix McCabe: That's an important advantage for a company like yours to have, especially during those supply chain issues that we experienced so much during COVID.



Joe Pernica: It definitely is it. It's a distinguishing factor.



Alix McCabe: So now that we have some of the background about the company, tell me if you don't mind about the situation surrounding this embargo back in 2014. I understand you had a lot of meat and nowhere to send it. Take me through what happened, Joe.



Joe Pernica: Yeah. Back in August 2014, Russia, it was a pretty large market for Chisholm at the time when the sanctions were imposed in August 2014. As you had mentioned earlier, we had 10 of millions of dollars on the water in transit going to Russia. Clearly, nobody had thought that the product was not going to be delivered and paid for.



Alix McCabe: Sure.



Joe Pernica: But Russia did what Russia did and sanctions internationally were imposed. Russia retaliated, and we found ourselves with product that couldn't be delivered to Russia. At that time also, the market took about a 30% or more drop in price. So it was a combination, almost a perfect storm of a lot of product not going to where it was supposed to go in a falling marketplace.



Alix McCabe: Yeah.



Joe Pernica: So the company had to figure out what to do and what to do quickly. Product like food doesn't get better with age.



Alix McCabe: No.



Joe Pernica: So once the team learnt of what was going on, they had to figure out what to do at the product, and the options are, well, you got to resell it somewhere. Now the global reach we have was helpful in our being able to find other markets deliver this product too. So as part of our loss mitigation plan, it was, okay, where do we sell this? Who can we sell it to? So traders got very active in calling around to their customers, literally around the world.


Now once we identified the customers, we still had, I'll come back to logistics to deal with. It had a lot of coordination to be done of the boats that were going to Russia or vessels no longer going there, being redirected to another port, and then coordinating to get the product off the boat that was originally on and coordinating vessels to try and ship the product to the new marketplace. So...



Alix McCabe: Wow.



Joe Pernica: You can imagine, again, the logistic gyrations that went on.



Alix McCabe: How common is a scenario like this in your business? Because as I hear you talking about it, it's stressing me out. But so it is common or no?



Joe Pernica: No, it's not common at all. Political situations like this with embargoes of this order of magnitude is definitely not common.



Alix McCabe: You mentioned magnitude, Joe. So how sizable was it in comparison to what you normally do in terms of your business?



Joe Pernica: Oh, this was a lot of product on the line for sure. I mean, this was not an insignificant transaction. Russia was a sizable market for us at the time. So yes, it was something that caught our attention.



Alix McCabe: You had been doing business with Russian customers for a while though, without issue. Is that accurate?



Joe Pernica: Yeah. I mean, you'll always have your market condition issues. You'll always have customers that can be problematic, et cetera. But...



Alix McCabe: Sure.



Joe Pernica: This was the first time that something like this occurred in the Russian market of a political nature where we just couldn't deliver and had to re- route.



Alix McCabe: Right. Do you have a sense of what the reaction was like internally when this all went down? Was it stress? Was it disbelief?



Joe Pernica: Yeah, it was definitely stress. It was disbelief living in through this nightmare. You can imagine logistics team being called and said, "Hey, we got to now deal with all this product." And then the traders being told, "Now you got to go sell all this product in a falling market with people on the street knowing that there's some vulnerability for the product coming out."



Alix McCabe: Sure.



Joe Pernica: Right? It's in quotes maybe a " Buyer's market." So there's a lot to be done.



Steve Georgetti: So Joe, I have a question for you. So at the time, going back, I was actually head of claims, and you can imagine the stress internally here when we hear rumblings of a potential eight figure claim coming in, that's not every day we see that either. But I'm curious to know from your perspective, when you have a perishable good meat sitting on the open sea, how much time do you have to make a decision before it starts to spoil or rot?



Joe Pernica: We have time. We have time. Because they're in reefers, they're in frozen state. It's not fresh product, so it could go sit in a port in a plugin. Now one of the challenges is there's only so many plugs and many ports to be able to accommodate freezers like containers that are frozen, but it's frozen product. So it could sit there for quite a while.



Alix McCabe: But I guess it's like you said, I mean, food doesn't get better with age unless it's maybe wine or...



Joe Pernica: Yeah.



Alix McCabe: Or cheese in some cases. So the clock was ticking.



Joe Pernica: I mean, the clock was definitely ticking. Everybody had to articulate what we wanted to do and why we wanted to do it so that the insurer could understand and make their own informed decision, " Well, does this make sense or are we better off reaching out to maybe some other alternative people to get some thoughts on the best route here?" So when we heard about it was one, figure out our loss mitigation strategy and two, get hold of the insurer to bring the insurer into this loop as quickly as possible.



Alix McCabe: Sure.



Joe Pernica: Kind of one more thing on one of the twists, I guess. It's not uncommon when these sorts of embargoes or sanctions happen for countries to allow the product on route to be delivered. And in this case, that didn't happen. The ports were closed and it all had to be rerouted. So that was, I won't say unique to this situation, but oftentimes you don't have to deal with the re- routing. You may have to deal with the price because maybe there's going to be some haggling, et cetera, but not the re- routing. In this case, the re- routing was essential.



Alix McCabe: Let's talk a little bit about the financial implications. How could this embargo have impacted your company's bottom line in terms of revenue loss?



Joe Pernica: Well, it would've been significant. When you've got tens of millions of product out there and the markets down by a good 30 points, you can do the arithmetic to say it's not an insignificant number.



Alix McCabe: Sure.



Joe Pernica: Obviously the trade insurance was a critical mitigating factor to the loss, so it would've been a significant number. It wouldn't have been a number that caused the company to say, " We're going to stop doing business," but it would've been a significant number.



Alix McCabe: Well, thankfully, you had the foresight to put safeguards in place for situations like this. I'm interested to know, has Chisholm ever had to make a claim of this nature before prior to this scenario?



Joe Pernica: No. Political risk claims are clearly not common, particularly of this size, because if you've got this much product on a political risk claim, it's going to be a big country. It's not going to be a little state in that maybe a third world developing country where all of a sudden there's political unrest or something that causes you not to be able to deliver. But you're not going to have anywhere near this order of magnitude of product on the way.



Alix McCabe: So Steve, I can see you're eager to weigh in on this. It's not every day we see eight figures worth of meat on the line, right?



Steve Georgetti: For sure. That's not common.



Alix McCabe: Okay. So we'll be back with Steve's analysis in just a moment. I'm Alix McCabe and you're listening to Wheel of Risk, a new podcast series brought to you by Allianz Trade. In the fast-paced world of business, there's no shortage of things to keep you up at night, but all business is about risk, trust, and reward, and we are here to help you minimize the former and maximize the latter. To learn more about how a partnership with Allianz Trade can benefit your organization, please visit Allianz-Trade.us/ podcast. That's Allianz-Trade.us/podcast.


Welcome back. Today we're talking to Joe Pernica, the Chief Operating Officer at Ronald a Chisholm Limited about the ramifications of having a huge meat shipment caught up in a Russian trade embargo. Now that we've heard Joe's story, I'd like to bring back my colleague, Steve Georgetti, to provide some extra contacts and analysis. So Steve, the world is an unpredictable place. I imagine you've seen clients run into politically risky situations before, but how does this story compare? And also, how often did trade embargo's impact global commerce in your experience?



Steve Georgetti: Yeah. I mean, this story was unique. As I stated earlier, I was in claims when this happened, and this by far was the marquee political risk event that we had, and honestly, one that I refer back to quite often. So to Joe's point earlier, it's not very common at all. But more globally, you do see a lot of protectionist measures in place, whether they're embargoes, which is the most stringent, right? Because it's blocking the import or export of goods. But more commonly, you see them in tariffs. You look across the world, you have them on steel, you have them on lumber, you have them on technology. You have countries that put up subsidies to prop up certain businesses or industries. So from a political landscape, it is common. The embargoes as such, are something that are not, I would say, as common as the other two that I mentioned, but we surely do see them.



Alix McCabe: So we've heard from our guests today how the embargo affected Chisholm directly, but can you describe how conflicts and political events can disrupt global trade maybe more broadly?



Steve Georgetti: Yeah. I mean, it's very disruptive. And what you see is a political event suddenly turns into a credit event. So if we look at the Russian Ukrainian conflict as a reference point, clearly there was a huge upheaval in a lot of commodity markets. If you look at the price of wheat, effectively, you saw a skyrocket in the price of that commodity. So imagine if you're, I don't know, a bread company in the US and wheat from the Ukraine was one of your primary inputs. The impact that has on your business could be exponential. It drives inflation. A lot of the inflation we see today can come back to that. So yes, political events certainly do cause a lot of upheaval. But I would argue it's the upheaval it also causes in the credit markets, that is actually, when you think of the ripple effect, is far more impactful for sure.



Alix McCabe: I like what you said that a political event can quickly become a credit event. I mean, it makes sense. So given the complexity of the global trade environment, what would be some of your recommendations for support for companies that are operating in this space?



Steve Georgetti: Yeah. I mean, the classic answer is always to know who you're doing business with. But in the political event, I'm sure Joe knew who he was doing business with. Russia is not a small country. I'm sure the buyer was a significant one if they were purchasing tens of millions of dollars. Right? So that goes out the window. So really for me, it's okay if you're a business owner, leader, you're in the C- suite, what can you do to protect against that risk?


And for me, that's where credit insurance can come in as a big way to hedge against that. There's not a lot that you can do to protect yourself against political risk and credit and political risk insurance is one of them. But more broadly, what you do have with our services and offering is the risk expertise. Joe talked about those markets that he needed to potentially turn around and export to. The beauty of the teams that we have at Allianz is we're there to help guide and partner and advise on, " Great, I need to go to this market. Who are some prospects that could potentially take on those goods?" Clearly Chisholm was very sophisticated, but more broadly, a lot of our clients are not, and that's where we play a really pivotal role.



Alix McCabe: Thanks for your perspective, Steve. Joe, any other thoughts on what we just heard from Steve?



Joe Pernica: I guess, one thing I can add for you there, as far as another helpful part of the trade insurance company that has the global reaches that when we're reaching out to sell to certain customers, they have the capacity to provide trade insurance coverage on that customer quite quickly. In this case, I guess it was lost mitigation, so we may not have had to necessarily ensure that customer, but it's really just piggyback on Steve's comment about their ability to identify customers to sell to. It's also just part generally of having a company that has that global reach as well, to be able to have us be able to sell into a customer and get credit coverage quite quickly.



Alix McCabe: Thanks for that, Joe. Steve, back to you. How would you say Allianz's trade can help guide clients through political instability?



Steve Georgetti: In terms of guiding them through, I always tell my team all the time, you have to speak to the client. You have to understand their business model and how they operate, really put yourselves in those shoes. Then you bring that back to what we do, the information that we procure, which is vast, global past due trends, global claims and collections trends. And you put a story together and you try and navigate, no pun intended, where is the best place and future opportunities to either mitigate your risk or to sell into future markets? And I think that for me is the value outside of, you hear Joe talk about the loss protection, that's what, you sleep well at night because of that insurance. But really if we were an insurance only offering, I'm not sure we'd be as successful. It really comes down to the quality of the people and the partnership that we create with our clients to form that relationship.



Alix McCabe: I don't think we're at risk of expiring like old meat, but we are running a little low on time. So I'd like to give you both a chance to share your key takeaways from this conversation before we wrap up today. Steve, you can go first. What can other companies that operate globally do to safeguard themselves against political instability like the situation that was experienced here? And also, are there any red flags that they need to look for?



Steve Georgetti: Yeah. I mean, one thing that is for sure is that political instability is a constant in our world. Time and time again, you will see political events that then, as I said, turn into economic events. And so acknowledging that will happen is the first step. But you heard Joe say that this came out of nowhere. And as a business leader, the question then becomes, how do you best mitigate against that risk? And for me, credit insurance plays a huge factor in that because if you put yourself in the shoes of Joe, what red flags could you have imagined? Right? You were doing business with this company in Russia for probably a lot of years. Everything was fine until it wasn't. And I think that's the instability that I was referencing. So having a partner like Allianz I think makes a real difference.



Alix McCabe: International relations have become increasingly unstable thanks to things like the pandemic, supply chain disruptions, political instability, et cetera. So what will be the knock on effect of global trade in your opinion?



Steve Georgetti: Political instability will be a constant as a result of that, protectionist measures will continue to increase. You look at the number of sanctions that were imposed as a result of the Ukrainian and Russian conflict, the list is very, very long. It's not shortening. Tariffs will continue to come and go. Most recently with China and the US in terms of steel. And subsidies will always be there to prop up certain markets or businesses. So I think the knock on effect is we will continue to see this type of behavior from economies, from governments. They all have a very specific reason as to why they do it. So the question is, if you're an executive is, how can you prepare for this? And so that's what I would, if I was an executive in a business is thinking about is, okay, I know this is going to happen, what am I going to do when it happens?



Alix McCabe: It's good advice. Finally, Joe, I think we're all dying to hear how your story turned out. So what was the fate of the embargoed meat?



Joe Pernica: Well, it found its way to about 20 different markets around the world, Australia, North America, Europe, Asia. We were able to, in our minds, maximize the value we could get for the product by not having to try and just sell it into one little local market and saturate it.

 We were able to literally reach out to customers that we have around the world to try and get the best dollars for that product, and were able to do it in a way that was effective and efficient. So keep the cost down and actually doing or executing on the recruiting and reselling, and then find a buyer who's prepared to pay the best price under the circumstances. And that's what we did.


And in the end, because we had developed the plan in a sense in conjunction with Allianz, that they knew exactly where we were going. They were lockstep with us. There was no questions when we submitted our claim as to what are these numbers, where did they come from. It was tied up in a bow because we both knew what we were going to be putting down on the claim, and our claim was not disputed and was paid in a very timely manner.



Alix McCabe: That's good to hear. Joe, what lessons have you learned that you could maybe share with others in the business world who could find themselves in your shoes at some point?



Joe Pernica: Well, I think one thing is that trade insurance is a critical risk mitigation tool for every company. It's just a function of what type of trade insurance coverage do you need. If you're a global trading company, then political risk is for you, it's got to be up there. You don't ever expect to claim on that, but it would be something if you didn't have, you might stay awake at night.And this just goes really for any business relationship, but just to maintain that honest, open, and transparent relationship with your trade insurer so that they understand your business, they know who you are, they know when you come to them and you say something, it's credible. That's huge. You can then come with your plan and you'll get a lot of buy-in out of the gate.


Obviously, you're going to still have to extend what you're doing, but you'll have that credibility and we'll move along much faster. And I think the other thing when you do that is what I'd referenced on the Russia claim is when you actually follow your claim, it can be processed and nobody walks away with hard feelings like, "Well, why are we arguing about this and why arguing about that?" It's a much smoother process. And I guess the last thing, if you got a problem, bring it up right away. This is our issue. Don't try and figure out, " Well, how am I going to present this? What am I going to do?" Get your head together. Don't go disorganized, but bring it to the insurer's attention right away. Because back almost a comment that you had said, claims also don't get better with age, so you best just move this along and get it done with quickly.



Alix McCabe:: Joe, I am so glad you were able to save most of that shipment and the revenue that came with it. Thank you so very much for sharing that story with us and for being part of Wheel of Risk today.



Joe Pernica: Well, thank you. It was enjoyable.



Alix McCabe: Before you go, I do have one more request.



Joe Pernica: Okay.



Alix McCabe: Would you mind spinning the wheel to help us pick our next episode?



Joe Pernica: It'd be my pleasure.



Alix McCabe:: Okay.



Steve Georgetti: Come on, Joe. You ate your Wheaties this morning.



Alix McCabe: Here we go.



Joe Pernica: Here we go. Spinning.



Alix McCabe: Oh wow. You've hit troubled times. A story about the economy, inflation and recession. A perfect topic for our season finale, I'd say.



Steve Georgetti: Sure is.



Joe Pernica: Yeah. Right on point.



Alix McCabe : My guest today has been Joe Pernica, the Chief Operating Officer at Ronald a Chisholm Limited. I'd also like to thank Steve Georgetti, director of Risk Underwriting for the Americas at Allianz Trade. Steve, I appreciate your insights.



Steve Georgetti: Thanks, Alix. Great to be here. And Joe, nice to be here with you as well.



Joe Pernica: Well, thank you. My pleasure.



Alix McCabe: I'm Alix McCabe and this is Wheel of Risk, brought to you by Allianz Trade. Thanks so much for listening, and if you like what you heard or learned something useful, say so by giving us a review on your podcast platform of choice. Bye for now.