Are Logistic Companies Waking up to Trade Finance?

The logistics industry has a complex structure of players that enable products sourced globally to get to the last mile destination. There are freight forwarders, Regional and Global Ocean Carriers, air freight, Non Vessel owning 3PLs and others that provide a range of services.

Most logistic providers have not progressed with supply chain finance solutions. Until recently, UPS was the only game in town.  Few people know that UPS bought a bank back in 2001, First International Bancorp, and got into the factoring business. Today, they focus on three finance solutions:

  1. Global Asset Based Lending
  2. Small business lending through their partnership with Kabbage
  3. Provide in transit inventory finance

Global Asset Based Lending

When a U.S. based customer has internationally located inventory (owned, operated or managed by UPS), UPS Capital is able to lend against that inventory, if the inventory is positioned in a UPS distribution center, or is in transit using UPS transportation capabilities.  Global Asset-Based Lending enables the borrowing base to increase because advances can be made against foreign receivables. If a firm has $5M of inventory located in the USA, and $5M in non US locations, many financial institutions would calculate the total availability of funds to be $5m  and provide an advance rate of 70% or $3.5m.  With UPS, the US and non US inventory would be included, so the advance rate would be $10M x 70% or $7 million.

Small Business Partnership with Kabbage

UPS partners with Kabbage to do small business credit lines. Kabbage has recently increased their small business credit lines up to $150,000 as long as you have a UPS account.

Cargo Finance

UPS also offers Cargo Finance, where you can borrow against your in-transit inventory on an unsecured transactional basis with credit lines up to 1M and advance rates up to 70% of the in-transit inventories value.

These finance solutions are focused on ways to preserve or enhance transportation spend with clients and are typically focused on small and medium customers.

Now Maersk Line, part of A.P. Moller-Maersk , is offering to finance shipments and remove the paper trail from financing deals. Maersk takes security over goods shipped through any shipping line under A.P. Moller Maersk, so your containers are the only collateral need because it is carrying the goods on its vessels.

Maersk will receive an assignment of proceeds from the buyer upon the release of their purchase order. In many ways, this is similar to how networks finance suppliers, ensuring they will get paid direct from the buyer. Maersk will finance up to 80% advance to the shipper. For Maersk the business is still in its early days with a total of $140 million in trade finance since early-2016 to customers in India, Singapore, UAE, Spain, the Netherlands and the United States.

Core to any transactional trade finance product is information richness and the potential ability to manage collateral.   Logistic companies play a critical role here because they have data around physical moves, control information (eg. pending orders, pending receipts, etc.) and can manage collateral.

But logistic companies are not banks. And while they may have access to capital markets, they may not want to use that access to fund a growing book of finance.  Banks and non banks may be better suited here as partners given their inherent advantages.

Its been a combination that has never quite materialized, but perhaps with Maersk’s recent push, and some of the innovations around tracking and digitization, solutions are not far off.

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