UPS aims to provide commercial financing

By on April 19, 2021 0

Advances in logistics and supply chain technology mean that the risks of moving goods from point A to point B are lower than ever before, even when the transit begins on the other side of the road. planet.

From the 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.

However, the financing of this trade remains largely blocked in the past. Banks’ reliance on letters of credit and paper customs forms has struggled to positively impact the cash flow of global traders, and in some scenarios access to finance is severely limited.

When a US buyer is required to prepay 100% of an overseas purchase, for example, the time it takes for those goods to actually arrive to facilitate a buyer’s own sales may present a significant cash flow deficit. It’s a scenario that Mark robinson, president of UPS Capital, said non-traditional actors have the opportunity to step in and disrupt the status quo.

“The actual movement of goods is pretty solid, in terms of transit speed,” he told Karen Webster in a recent conversation. “There are good technologies out there when it comes to preparing shipments, processing shipments to carriers, tracking carrier shipments – I mean, you can track containers as they float on the water.”

When it comes to innovating in the way the financing of all of this activity is carried out, banks are backing down.

An opportunity for disruption

For a company like UPS Capital, a subsidiary of the shipping conglomerate, the ability to leverage the transparency available in freight transportation presents an opportunity to introduce freight finance that is not generally available in the market.

According to UPS Capital, for a US importer who must prepay for goods while waiting for a shipment to arrive, the time between paying for an order and receiving funds from the sale of inventory can be 75 days or more. There is capital tied up in inventory in transit that UPS Capital seeks to unlock when businesses use its supply chain solutions.

“American companies have products for sale in the United States, but they are not able to use domestic funding lines,” Robinson explained. “With lines of credit available for things like inventory and accounts receivable, you can’t use inventory that’s on the water or out of the country. It must be in the United States, inside your warehouse. “

By integrating the financing of goods already transported by UPS, UPS Capital is able to speed up cash conversion cycles for importers, he added, stressing that this is especially important for small businesses entering the global market for the first time.

Global trade uncertainty

Managing cash flow is an essential part of being able to weather storms, both literal and figurative, from supply chain risks, from geopolitical events to natural disasters. Continued disruption of coronavirus is just one example. Economic disruptions in China and, increasingly, South Korea and Japan have stalled trade volumes. But this is not the first time that global supply chains have experienced significant disruption.

Robinson pointed to trade tariff disputes over the past year that have led companies to stockpile inventory without having the opportunity to sell it, for example, as well as transfers in supply chains from China to Vietnam that remain at this day.

The impact of the coronavirus could subside after a few quarters, but it is likely to further disrupt global trade. However, what trade tariffs have done, and what the coronavirus could do, is force companies to re-examine their supply chains, which includes moving trade routes, adding relief suppliers, or diversifying. procurement strategies in order to disburse risks.

“You don’t want to have a supply chain,” he says. “You need to have more resilient supply chains, you need secondary and tertiary suppliers aligned so that when something happens, you have options.”

Against the status quo

It’s unclear exactly what long-term impacts the coronavirus will leave on global trade and shipping. It is possible that the slowdown in trade means that freighters will have to wait longer for full loads until they are in transit to the United States, a case that would add further strain on the importer’s cash flow. and delayed access to cash – and would increase their need for commodities such as freight and finance.

While supply chain disruptions can be painful, they are also opportunities to rethink global strategies, both in terms of supply chain technology and trade finance – two areas that are increasingly emerging. and more integrated as business innovation progresses.

Robinson noted that banks are unlikely to suddenly stop using existing letters of credit and other trade finance tools. But as technologies like blockchain improve the security and visibility of the commodity chain, it’s not just an opportunity to disrupt the logistics status quo. Increasingly, alternative finance providers are finding ways to improve cash flow along the supply chain, as the flow of goods becomes smoother.

“There is an evolution that needs to happen with these technologies in streamlining and improving processes that have been in place for a long time,” said Robinson.

——————————

NEW PYMNTS DATA: CRYPTOCURRENCY PAYMENTS STUDY – MAY 2021

About the study: U.S. consumers see cryptocurrency as more than just a store of value: 46 million people plan to use it to make payments for everything from financial services to groceries. In the Cryptocurrency Payments Report, PYMNTS is polling 8,008 cryptocurrency users and non-users in the United States to examine how they plan to use crypto to make purchases, which crypto they plan to use. to use – and how merchant acceptance can influence merchant choice and consumer spending.


  Finance
Leave a comment

Your email address will not be published.