New tech means new finance options for shippers

New tech means new finance options for shippers

Supply chain finance is not a new concept, but what has changed is the rise of platforms that make capital available more easily and can be directly linked to supply chain data. Photo credit:

The parallel rise of financial technology and logistics technology ecosystems is creating new ways for shippers to finance the purchase of goods to be shipped globally with the goal of freeing up working capital.

When combined, fintech and logtech — as they are colloquially called — could theoretically reduce the risk profile of shippers who struggle to secure traditional bank financing or have too much working capital tied up by the lag between purchasing goods from vendors and selling them to buyers. Freight forwarders, container lines, and freight visibility providers are stepping into this chasm to provide products that are also intended to deepen relationships with their beneficial cargo owner (BCO) customers.

Supply chain finance is not a new concept, but what has changed is the rise of platforms that make capital available more easily and can be directly linked to supply chain data, such as the location and condition of in-transit goods, through systems integrations.

“One of the key issues in trade finance banking and freight forwarding is the cost of compliance and how it has led to de-risking,” said Byron McKinney, trade finance product manager with IHS Markit. “Globally, there is about $1.4 trillion of unaccessed finance where smaller and medium-sized companies are not able to tap into traditional bank finance, so have had to look for other options. This scenario has dovetailed with the rise of the fintechs offering digitized supply chain finance solutions.”

McKinney said digital platforms have stepped into the working capital strategy void left behind by banks, especially for shippers who might be considered unsafe bets in traditional financing scenarios.

“The major takeup of the new types of working capital have come from smaller and medium firms with little access to bank finance due to their margins and profitability and, hence, their need for an alternative solution,” he said.

The issue came to light in late July when the freight forwarder Flexport said it had expanded a product that provides financing to aid US importers of Chinese goods weathering higher tariffs.

The move can be seen as part of push to go deeper into its customers’ supply chains, but it’s also not a part of a broader industry trend to examine whether more efficient trade finance mechanisms might offset sluggish global trade growth. Maersk, the largest container line, has long had a trade finance product for shippers, while the visibility provider Arviem is using visibility data to get shippers better credit terms and induce non-traditional financiers to back the funding of shipments.

A corollary is Maersk rival CMA CGM offering an integrated cargo insurance product with ocean freight, which allows shippers to purchase freight and insurance in one quoting and invoicing process. Hapag-Lloyd is piloting a similar product for cargo shipped from Germany, the Netherlands, and Greece, while Maersk offers an alternative cargo insurance product called Value Protect, which covers loss or damage while a container is in Maersk’s custody. Most large freight forwarders offer some access to cargo insurance through their platforms.

McKinney said holistic digital platforms are likely to create the confluence of logistics and supply chain finance “at a superficial level, where the shiny front-end and instant freight quotes takes off, but also at the back end with the digitization of paper-based documentation.”

“Where I think things will change more radically is in the use of platforms from a consolidation of certain supply chain financing companies out there today,” he added.

McKinney said a platform would operate as a “super-connector,” or a network of networks.

“Larger, more successful firms like Flexport could consolidate smaller firms, especially as the business platform matures, and potentially offer a meta-business that offers numerous functions within the supply chain on a single platform,” he said. “One of those functions could be the ability for banks and non-banks to bid for invoices uploaded by importers and exporters on this platform.”

While Flexport is largely building internal software to provide these tools, that could also apply to forwarders using third-party software to digitize functions such as quoting and visibility. 

Graham Parker, CEO of the software-as-a-service (SaaS) logistics solutions provider Kontainers, told the that digitizing front-end systems will allow smaller forwarders to bypass investment in traditional forwarder operating systems and instead focus on connecting the quoting and booking processes to ancillary systems. To that end, Kontainers has in recent months tied up partnerships with the customer relationship management (CRM) software provider Salesforce and the logistics systems integrator

“I think you’re going to find this group of freight forwarders that are clever,” he said. “They’re going to take this technology and plug it into JP Morgan and AXA, so that as a customer you just plug in to get your trade finance and your insurance,” Parker said. “There are going to be a bunch of forwarders out there that innovate, using their APIs [application programming interfaces]. They’re not going to be mad about losing a bit of arbitrage on rates, they’ll just focus on the upsell of trade finance and insurance.” 

McKinney described this as making it easier for parties to “share risk” via an online platform. “If the platform manages transactions and has the underlying data, it can use this to generate analytics that mean something to future and repeat customers,” he said. “One of these areas would be in regard to credit. If there is access to a shared repository of company credit ratings, it could open up new business for financiers and suppliers.”

Stealth offering

San Francisco-based Flexport hasn’t commented much on its effort to help customers finance their cargo since launching a product called Flexport Capital in early 2018, but the impact of tariffs on its customers has changed the equation.

The company has extended the product to help shippers cover the extra costs associated with higher United States import tariffs on goods from China. Flexport noted that traditional trade financing generally covers the cost of the goods, not the cost of goods sold (COGS), which accounts for ancillary costs such as freight and duties.

Flexport first established a credit line with Wells Fargo to underpin the trade finance platform in 2017, and publicly acknowledged its work on the financing side in an August 2018 blog post about its customer, Venice Beach, California-based Solé Bicycles.

“Early in our business, we experienced so much demand that we couldn’t fulfill,” Solé president Jimmy Standley said in the post. “We would run out of inventory because we didn’t have the proper financing set up. It was a never-ending problem. We mentioned this to Flexport, and they offered to pay our supplier on our behalf, so we could order the bikes we needed, maintain our cash flow, and pay them back when we’d sold those bikes.”

This is a common problem for growing companies, especially those that need to pay suppliers when they take control of goods, but then face long credit terms on receivables from their retailer customers, Flexport Capital vice president Dan Glazer told

“Working capital is one of the biggest limiting factors in growth for companies,” he said. “And the bigger you get, the more working capital is tied up in supply chains,” Glazer said. “It’s kind of counterintuitive. The faster you’re growing, your receivables get stretched out, but the seller needs to be paid quickly. We’re comfortable with that cycle.”

One of the benefits of handling logistics and customs services for shippers, Glazer said, is that Flexport is collecting data in both, and seeing where customers are incurring costs that are often unbudgeted. Tariff hikes on goods from China are a perfect example.

“Our larger customers have been impacted by tariffs,” he said. “That was an unexpected thing you couldn’t have planned for in 2016 and it hits your [profits and losses] directly. Our capital products cover tariffs. Freight and customs duties weren’t in the financing that banks gave capital for in terms of inventory.”

Tariffs driving landed costs up

“Of our affected clients, we found that the average landed unit cost has increased due to the tariffs when comparing the first half of 2019 to 2018,” Glazer wrote in an Aug. 1 blog post. “Inventory stockpiling led to $3.4 trillion in working capital getting locked up across US companies at the end of 2018, up from $2.7 trillion five years ago. And brands that can’t afford any of these tariff mitigation measures are stuck funneling massive amounts of cash to cover higher duty payments.”

Shippers traditionally secure financing for their goods from bank lines of credit. Flexport has secured its own line through Wells Fargo and then offers its own lines to customers, based on what it considers a reduced risk profile through data it collects from those shippers. The forwarder has SKU-level detail of shipments and uses visibility data for those shipments to gauge how much inventory a shipper has and where it is in transit.

Glazer grouped customers of Flexport Capital into two broad categories defined by the shipper’s “bankability.” 

“The first variable: Is the company bankable?,” he said. “If you’re younger, faster-growing, maybe you haven’t reached profitability. It’s hard if you can’t go to a bank and get a line of credit. That’s a subset of our customers. We understand the problem they have. And we use data from their supply chains and take a strategic perspective of them and the folks they’re buying from.

“Other customers are bankable. The have a credit line. What we observed was the timing,” he said. “Banks like to lend against landed inventory and receivables. That’s hard if, like many shippers, you have to pay the seller before it boards a ship.”

D2C driving different financing cycles

The rise of direct-to-consumer (D2C) fulfillment models complicates the picture. In that scenario, a D2C manufacturer would build up inventory and sell it slowly because they often lack the ability to forecast sales in a way that would let them manage leaner inventory levels. Sellers to brick-and-mortar retailers, on the other hand, have more predictability in what they sell, but the timing of buying from producers and selling to retailers is the major capital issue.

“We’re comfortable with how cash cycles through a business,” Glazer said. “They need to fund the business when they need the financing.”

Part of the value Flexport is trying to provide through the Capital product is allowing a shipper to “pay us back as they’re selling the product,” Glazer added. “We look at this as a holistic model. Our ability to surface that data for the customers so they can be more strategic. It’s not just about our business running better.”

A key distinction in the Flexport product is that the credit being offered is to finance the goods, not logistics services. Forwarders have long offered shippers credit terms for their own repayment.

One apparel shipper told it wasn’t uncommon for a forwarder to offer cash on delivery to that shipper’s suppliers. The shipper said such a practice wasn’t a standard offering from the forwarder, but something it did on request to help with vendors that had limited capabilities beyond the production of goods.

A financing lock-in?

A large retail shipper wondered whether such an approach might “lock you into a single forwarder once you are on the hook for some cash. It feels very similar to just imposing payment terms on delayed payments.”

Another forwarder told that “laying out customers’ duties is already something forwarders want to get away from, especially since the tariff increases. Most forwarders don’t have the margins for the cash flow impact.”

Maersk has had a trade finance product for years, expanding it in 2017 and offering both pre-shipment and in-transit cargo financing for importers and exporters, as well as customized financing for specific customers. The product is offered to shippers in six countries — India, Singapore, Netherlands, the US, United Arab Emirates, and Spain — and as of the end of May had provided working capital loans of more than $600 million to customers.

Bigger opportunity in emerging markets

Ancillary financing and insurance ocean freight products are examples of the way digital platforms can be extended through APIs and more rudimentary connectivity means can expand the range of products service providers can offer shippers. That might be a connection to a bank, an insurance provider, or to more core logistics systems, such as visibility.

IHS Markit’s McKinney said that while there’s potential to transform supply chain finance in developed markets, the bigger opportunity might be working with shippers in emerging markets.

“At the moment, the new digital freight forwarders are mainly working in Europe and North America,” he said. “Offering services in Asia-Pacific and developing markets would have a bigger impact. I think Amazon has done some work in China with customers who sell on their website.”

Glazer said Flexport Capital is on track to finance $100 million in inventory this year. He didn’t specify what percentage of Flexport customers use the financing product.

“This is the type of problem where if your business has this problem, you need it solved stat,” he said. “The fintech space tend to be purely data-driven, but in supply chain, no two supply chains are the same. You need the qualitative context and the data and put them together.” 

Contact Eric Johnson at and follow him on Twitter: @LogTechEric.