Global Trade Wars Spark Innovation For Trade Payments

Today’s exercise in intentional payments- and commerce-related understatement: International trade is not for the faint of heart.

Sure, the import and export of goods is ancient practice, but that doesn’t make it any easier, even if such a vital economic activity is going digital. Funds are often held up, shipments are stuck in red tape, and trade wars add extra cost and hassle to already complex transactions.

In a new PYMNTS interview, however, Flexport Vice President Dan Glazer discussed how to mitigate at least some of those problems via a new financing tool that launched Thursday (July 25). The discussion took place as more attention focused on a possible global recession, one that could be fueled, at least in part, by ongoing global trade disputes, not the least of which is between the U.S. and China.

Increasing Tariffs

The increasing tariffs being attached to global trade are causing pretty much everyone involved in exports and imports to take serious notice and revise their plans. “Businesses are either uncertain about what comes next, or have been affected by [tariffs],” Glazer told PYMNTS. And those current developments come on top of the long-existing complexities and challenges of trade. “Trade is complex and logistics are really difficult,” he said. “It can take 18 different companies to move a container from China to the U.S.”

As Glazer told it, one of the ways to smooth out all those bumps is to offer what he called incremental financing to companies involved in trade, via the newly-launched product called Flexport Capital. It is meant to deal with the gap of working capital often experienced by buyers and sellers in the global trade process. Exporters might ship products before receiving full payment, for instance. Importers might be caught with restricted cash flow until they sell their goods, a situation that can be made even more risky in the midst of a trade war. “When your available capital is being funneled to higher duty payments or your landed costs are increasing… having flexibility is super important,” he said.

As he told PYMNTS, the service differs from financing offered by a bank because Flexport underwrites first instead of sending over a term sheet. The company also offers payment terms that can be customized by the recipients of the financing. According to Glazer, Flexport offers capital while inventory is still on the boat, allowing the company to provide larger lines of credit than a traditional bank because Flexport knows how much inventory financing recipients have on hand or in transit.

Financing Stakes

The stakes can be significant.

In anticipation of the U.S.-China trade war, companies stocked up on inventory. And according to The Wall Street Journal, that has led to some $3.4 trillion of working capital being committed to that inventory by the end of 2018, which compares to $2.7 trillion for the year prior. “We can free that cash currently tied up in the supply chain,” Glazer said.

The new capital product represents not only a fresh way to do payments when it comes to global trade, but the latest growth effort in the field of logistics, and for Flexport specifically. Earlier this year, for instance, global investment firm SoftBank’s Vision Fund led a $1 billion funding round for Flexport. The Vision Fund, which has capital of around $100 billion, has been investing in companies that use new technology to innovate old industries, including Uber, DoorDash and WeWork.

Flexport, a self-described “modern freight forwarder,” moves packages and handles customs issues by air, sea, truck and railway. The company’s tech also gives data to customers that can aid in handling costs, track supply chains and illuminate issues like emission and container usage.

The company also supports less than full container options, which other companies treat as a lower priority.

Flexport has said it doubled its revenue in the past year to nearly $500 million, and it now has 11 offices around the world with 1,000 employees. Flexport will use the new capital to expand and grow its customer base.

Among the main keys to success in this field — besides having enough working capital, of course — is being able to make better use of real-time data, and then tying that data to cloud-based infrastructure, or even machine learning or artificial intelligence down the line, Glazer said. “You need to be able to log in and access a product anywhere in time,” he said when talking about some of the ongoing and future areas of focus for the company along with the industry as a whole. Over time, in fact, with more data that is accumulated and analyzed, that can open up new areas where such trade-related financing makes sense, and will be profitable.

No doubt more such innovations will come to the global trade arena, especially if these trade wars continue.