Advancements in logistics and supply chain technology mean the risks of getting goods from Point A to Point B are lower than ever — even when transit begins on the other side of the planet.
From Internet of Things (IoT) to weather forecasting tools, the technology behind the physical shipment of goods continues to improve the reliability of trade, despite the many (many) risks.
Financing of that trade, however, largely remains stuck in the past. Banks’ reliance on letters of credit and paper customs forms has struggled to made a positive impact on global traders’ cash flows, and in some scenarios, access to financing is severely limited.
When a U.S. buyer is required to pay 100 percent of an overseas purchase upfront, for example, the time it takes for those goods to actually arrive to facilitate a buyer’s own sales can present a significant cash gap. It’s a scenario that Mark Robinson, president of UPS Capital, said presents an opportunity for non-traditional players to step in and disrupt the status quo.
“The actual movement of goods is pretty solid, in terms of speed of transit,” he told Karen Webster in a recent conversation. “There are good technologies around preparation for shipments, handling shipments off to carriers, tracking carrier shipments — I mean, you can track containers as they float across the water.”
When it comes to innovating how the financing of all of this activity occurs, however, banks pull back.
An Opportunity For Disruption
For a company like UPS Capital, a subsidiary of the shipping conglomerate, the ability to take advantage of available transparency into cargo shipping presents an opportunity to introduce cargo financing not typically available on the market.
According to UPS Capital, for a U.S. importer that must prepay for goods yet wait for a shipment to arrive, the time between paying for an order and receiving funds from selling inventory can be 75 days or longer. There is locked-up capital in in-transit inventory that UPS Capital is seeking to unlock when companies use its supply chain facilities.
“Companies in the U.S. are bringing in products to sell in the U.S., but they’re not able to use domestic financing lines,” explained Robinson. “With credit lines available for things like inventory and accounts receivable, you can’t use inventory that’s on the water or outside the country. It’s got to be in the U.S., inside your warehouse.”
By integrating the financing of goods already being moved by UPS, UPS Capital is able to accelerate the cash conversion cycles for importers, he added, noting that this is particularly important for smaller businesses stepping onto the global market for the first time.
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