UPS Capital Cargo Finance allows importers to use their in-transit UPS shipments as collateral for loans, reducing the need for letters of credit, says the company.
Designed for US companies with revenues of up to $50 million that import one to 10 ocean or airfreight containers of goods per month, the service finances 50% of the purchase. As described by UPS, the US importer would place an order for the goods to be imported. Once the order is filled and the bill of lading covering the goods is in the possession of UPS, the importer pay 50% of the cost to UPS Capital and UPS Capital pays 100% of the cost of the goods to the international supplier. The US importer then repays UPS Capital according to the terms of the loan--usually within 60 days.
Most global trade transactions for small companies are financed via letters of credit or cash, says UPS. Trading on open account terms is typically available only to larger companies. Explaining the benefits of its financing tool, UPS said, "While effective, letters of credit are time consuming and costly. Cash in advance transactions can strain cash flow for small companies."
"The true value of an efficient supply chain can only be realized when the physical movement of goods is married wit the efficient funding of those goods," said Robert J. Bernabucci, president of UPS Capital.
Expanding on its announcement in a live Webcast, UPS said the service is available to small businesses which have been in business for at least three years and were profitable in at least the most recent year. Those companies should also have a relationship with their overseas supplier for at least two years. In its credit check of the company, UPS will also look to see that there are no liens or judgments against the importer. Interest on the transaction will be based on the US prime rate and the credit of the importer.
In announcing the new service, UPS Capital invited a customer, John O'Hare, CEO of Pedors Shoes, to offer a user's perspective. The service has been piloted for over a year, and Pedors is one of the first users. Pedors manufacture a specialty diabetic orthopedic footware line. The product is sold as a medical product and is fitted to patients with diabetes, arthritis and other forefoot abnormalities. The product meets criteria for Medicare reimbursement and is registered in Europe with the CE mark.
The company has revenues of $2 million to $3 million per year and has shipped 29 containers using UPS Capital. In the period January to July 2008, sales increased 8.6% over the same period a year earlier. O'Hare credits the use of the import finance service and UPS transport services with allowing the company to focus on its core and expand its business. He noted that suppliers deal with UPS directly in the country of origin and the service has eliminated any other middlemen in the process. Pedors achieved a 9-day reduction in transit time, he said, which also reduced the cost of financing by reducing the amount of time the credit instrument operated. Net profit has increased, said O'Hare, in part because revenues are up but also because costs are down. And, with better access to capital the company has been able to expand the number of unique SKUs it handles from 500 to 800 over the period.
UPS Capital said the percentage financed will be increased as the service expands. It's next planned roll out is in select countries in Europe.
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