World Trade - November 2008 - (Page 34)

TRADE FINANCE Chris Vukas (far right) and the Cargo Finance Executive Team “Bringing full optimization to the trade ﬁnance process like no other player.” that? We think that when a ﬁnancial institution looks at its customers, they look only to the borrower of the funds.” Translation: in the matrix of trade, there is an inextricable connection throughout the entire supply chain. Buyer and seller are linked into that commercial ecosystem wherein each not only needs the other, but has a vested interest in their on-going success. Moreover, this heightened relationship of mutual dependency is creating a space for a new approach to trade ﬁnance. “Say we have an importer in the U.S. that’s procuring goods in Asia,” explains Vukas, elaborating on his point. In pricing risk, American banks are typically invoking the same formulae they have historically used. “They will just look at the landed goods in the U.S., they have to be domiciled here and even then they’ll say ‘how does that inventory translate to receivables and how then to cash?’” UPS sees a different way to structure the deal; one which incorporates into the equation how physical shipments actually ﬂow and the value of managing the entire shipment of the goods being ﬁnanced. Which generates a different, lesser calculation of risk. “We believe that what needs to happen is that we need to synchronize funds across the world so that if we, UPS, manage the 34 WORLD TRADE NOVEMBER 2008 shipment of goods from pick up in China, into a warehouse in China, on as a non-vessel operating carrier, and put those goods on a ship destined for Long Beach, we have visibility into the movement of those goods and are able to release funds earlier because there is less risk.” Vukas and his colleagues regard their opportunity as bringing ‘full optimization’ to the trade ﬁnance process in a way available to no other player. “The components are goods, information and funds,” he says, sounding much like a business school professor. “What many of the banks have done is partner with technology companies. The bank has the funds; the tech companies have the information. What they are typically missing is the ‘goods’ side. Meanwhile, the physical mover of goods has the goods and information. When you look to optimize, you ﬁnd that the information is redundant, the physical side is creating it and the banks are duplicating it. What if you partnered with the banks and said ‘we only have to manage information once as long as we’re able to rely on each other in partnership!’ That’s the stuff we’re trying to do.” “Our strategy is to collaborate with ﬁnancial channel partners and participate in the entire cash conversion cycle.” Vukas’ enthusiasm and excitement ﬁlls the room but, even so, it takes a ‘mere mortal’ reporter a while to get his brain around the idea. The stripped down version of Cargo Finance goes like this. UPS Capital fronts 50 percent of a buyer’s overseas purchase (the buyer putting up the other half). The buyer then repays UPS Capital according to the agreed upon payment terms. These terms will be established on a deal-by-deal basis and presumably those terms will be better than otherwise obtainable. So what’s in it for UPS? A stronger core business with less churn of proﬁtable customers. “Annuity customers” is how Vukas’ refers to these targets, customers for whom UPS Capital—through its trade ﬁnancing—becomes a critical asset. This should be particularly the case with small businesses (under $50 million) and, to a slightly lesser degree, mid-sized ones ($50 million to $1 billion). “In the small business market,” notes Vukas, “shipping exit and entry is pretty simple but when you combine the physical movement of goods with ﬁnancing the relationship becomes pretty sticky.” The challenge for Vukas’ sales team (which currently numbers six in the product’s ‘beta’ phase, selling to North America and soon Europe) is convincing customers to view ﬁnancing cost as a component of their entire supply chain cost. Vukas makes the value proposition sound compelling. “When you’re a small business, you usually don’t have many options around getting debt so you usually have to go

Table of Contents Feed for the Digital Edition of World Trade - November 2008

World Trade - November 2008 Contents Unexpected Responses to Unanticipated Change Reading the States of Risk in Today’s Global Economy Supply Chain Watch Tradewinds Failed Promise: Mexico and NAFTA, 15 Years Later The Short Tale Marrying Trade Finance and Transportation into a Single Transaction Trucking Gets a Double Whammy Are We Safe Yet? Logistics Resurrects the Rust Belt Keep on Compressing

World Trade - November 2008

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.