World Trade - November 2008 - (Page 36)

TRADE FINANCE Customer #1: Pedors Orthopedic Shoes John O’Hare arrived in Atlanta from England some ten years ago looking for a business to start. What emerged was Pedors Shoes, stretch versions of classics (and even clogs) designed for people with severe foot ailments, a product line considerably less expensive than the custom-molded leather shoes previously being offered to that market. At the beginning he manufactured out of several factories in the Pearl River Delta region of eastern China, using freight brokers for shipping and UPS small package for delivery to customers. The business grew (today it’s at $2.5 million, expanding at 8 percent). Today, he ships on average a container-and-a-half per month, eighteen a year. Some 15 months ago, O’Hare agreed to participate in the pilot of Cargo Finance (indeed, as Customer #1). A typical transaction runs around $60,000 (although he’s ﬁnanced as much as $200,000), split 50-50 with UPS (O’Hare gets some 60-plus days to repay his outstanding half plus interest). How’s it going? So far, so good! “Dollar-wise, I’d hate to put a number on how much I’m saving, but daywise I can tell you I’m saving some nine days a shipment (which means nine days less of ﬁnancing). I’m also saving money because I don’t have to put up 100 percent when goods leave China (as used to be the case). “I get much better terms from the vendor. Before, it would take 90-115 days to get a dock leaving date. The vendor would want to make sure he was going to get paid. And as a small business, I had to wait until my order ﬁt his production schedule. Now, with UPS paying 100 percent the day the shoes leave the factory irregardless of what my ﬁnancial condition is, it puts me on a level playing ﬁeld with the big guys in getting orders promptly ﬁlled.” Any reservations about Cargo Finance? “I’m 100 percent satisﬁed. I can’t see any reason why I wouldn’t continue. I pay one vendor—UPS—the simplicity is great.” “Cargo Finance is a way for us to provide debt ﬁnancing to customers as goods are moving through the supply chain.” which will provide a signiﬁcant portion of the on-going funding as channel partners. But, getting banks to come on line has proven challenging. “We don’t see ourselves as competing against the banks,” says George Knittel, a Senior Credit Ofﬁcer, himself a former banker, who has joined us around the table in Vukas’ ofﬁce. From the sound of his average day, it sounds like the focus of Knittel’s work is to line up some global banks. Before the sun rose today, around 6:00 a.m., he was at the ofﬁce to confer with his key Asia agent (stranded overnight in Hong Kong) about the progress of talks with a world-class Asian-based bank UPS is looking to line up as a ‘marquee’ partner. There was also work on how to launch in Europe (“we ﬁnd that because of the nature of the market in Europe and more available credit, we’ll have to be able to offer up to 100 percent ﬁnancing”). Later, he’d be talking to Mexico (“we’re working with a Mexican ﬁnancial institution, they see value in somebody physically delivering the goods to, and also factoring the receivables of U.S. buyers”). At the regular every two week meeting of Vukas’ executive team, with his half-dozen key lieutenants gathered 36 WORLD TRADE NOVEMBER 2008 around a conference room table, there was discussion about banks accepting the model of reduced risk UPS is proposing. “Lenders have to be educated to a new paradigm,” explained John Holloway, whose focus is on supply chain finance solutions for middle market companies. “We’re asking people to step out and take some risk, leaving the traditional secured protection for enhanced visibility and management of the shipping process. There’s still not a lot of inventory-in-transit lending going on; it has crept into the market, lenders say they’re willing to lend on inventory in transit, but they mostly don’t have a clue to the actual physical side of the process.” With the security of shipping each step along the way so critical to securing bank cooperation, the first order of business at the meeting is an update on the status of the new technology platform being developed to provide sophisticated visibility into the physical side of the process (there was reference during the presentation that upwards of sixty discrete stages in the shipment cycle could eventually be monitored in real time). Humberto Castillo, Managing Director for the Large (Global) Enterprise segment directs the project, which kicked off in July 2007 as the largest tech initiative started at UPS Capital. “Phase One is scheduled to go live January ’09 with traditional factoring components. The next stage will be receivables and automation of cargo finance data. This is scheduled to go live in April. A major effort is underway into electronic signatures.” Jim Fortsch, who arrived some seven years ago when UPS Capital purchased a small Hartford, Connecticut bank with an active export credit agency book of business, reported on developments in his sector. “Last year we did deals in 12 different countries, right now we’re working on transactions in more than 20 countries.” He described one of the recent transactions: “An Argentine hospital needed state-of-the-art medical equipment for minimally invasive laser surgery and had identiﬁed a California company as having the technology they needed. But they needed

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

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