Flexport Capital, the trade financing arm of Flexport, announced that it has secured a credit facility of up to $200m from separate insurance accounts managed by KKR, a New York-based investment firm.
Flexport Capital provides access to flexible working capital for inventory and logistics expenses. It offers clients lines of credit ranging from $100,000 to $20m to finance inventory, freight and duty. This allows companies to access cash tied up in inventory and invest more in their growth. Flexport argues that its clients have used Flexport Capital to ship goods prior to peak-season rates, negotiate early-payment discounts for better supplier terms, and build up sufficient inventory to transition from air to ocean freight.
Flexport Capital uses logistics data from its logistics platform to gain visibility into a customer’s supply chain health and to understand their working capital needs. It then evaluates purchase order data and inventory-in-transit in order to provide liquidity to businesses. In addition, it provides its loan offerings to customers in six regions, USA, Canada, United Kingdom, Netherlands, Belgium, and Luxembourg.
The credit facility from KKR is Flexport Capital’s first outside funding since its inception in 2017. Flexport Capital has so far financed more than $1bn in invoices for hundreds of companies, with a portfolio that has grown 149% year on year, stated Flexport.
The Covid pandemic has wreaked havoc on small businesses and left many companies overstocked and struggling to pay their suppliers because of inflated supply chain costs. This has increased demand for flexible trade financing solutions.
The provision of trade financing options by logistics companies is not a novelty. In recent years, logistics companies have played an increasingly important role in alleviating SMEs’ working capital constraints. For example, UPS Capital, a UPS subsidiary, offers a number of financial services such as cargo insurance, cargo finance, and small business financing to UPS customers. For instance, if a firm is a customer of UPS Shipping Services and has capital constraints, it can obtain an advance rate of up to 100% of its supplier’s commercial invoice and a payment term of up to 90 days.
Some companies have been incorporating a trade finance option at the time of booking freight. For instance, Alibaba began offering trade finance options to sellers on its B2B marketplace in 2020. The UK-based digital forwarder, Beacon, has also ventured into the trade finance domain and based its business model on the need for sustainable cash flows. Beacon understands that most businesses using forwarding services have a cash flow problem. So, they are providing supply chain finance and discounted shipping rates in an attempt to entice SME’s to move across to their operating platform.
It is still uncertain whether and to what extent the provision of trade finance will help companies such as Flexport and Beacon grow their scale. It is more likely that the service will appeal to shippers with small volumes whereas large shippers are more likely to go down the traditional route and work with established financial institutions. According to some estimates, around 50% of all SME financing requests are rejected, which is why access to capital remains one of the largest obstacles to trade growth.
The question remains as to why shippers, even smaller ones, would use Flexport as the middleman. If it is because they can’t get funding from established financial institutions, it means high risks for Flexport. But this is where Flexport’s logistics platform and data will play a role – the start-up can use its own data on shippers to create a risk profile about who and what to finance.
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Source: Transport Intelligence, October 25th, 2022
Author: Viki Keckarovska