Freight forwarder Flexport has released a new financial solution to help clients hit by the rise in tariffs as a result of trade tensions between the US and China.
The tariff relief product comes in the form of a credit facility that customers can use to fund additional inventory or new manufacturing facilities to offset working capital constraints exacerbated by the tariffs.
“We discovered that since January 2018 over 60% of Flexport clients have had products affected by the tariffs, resulting in higher duty payments. For them, the average landed unit cost has increased by about 30% when comparing the first half of 2019 to 2018,” Dan Glazer, vice-president of Flexport Capital, the firm’s finance arm, tells GTR. “The tariffs have exacerbated working capital constraints for many US businesses. With more cash being diverted to pay increased duty payments, there’s less cash to invest back into the business or simply to cover day-to-day costs.” He adds that while trade financing won’t eliminate the new costs spurred by the tariffs, it can help companies manage the financial stress of new duty payments.
The product is available for all qualifying Flexport clients, with a particular focus on high-growth customers that are experiencing working capital constraints. Once approved, clients have the option for Flexport Capital to pay their suppliers, cover freight shipments, or support duty payments as long as there is room on their credit facility.
The company unveiled its Flexport Capital finance arm in a blog entry in August 2018, saying that it was created to address what clients had told the company is their biggest obstacle for growth: working capital constraints. “Many of our clients go through what we call a growth dilemma: they receive a massive purchase order but don’t have the cash on hand to pay suppliers ahead of time to fulfil that order. Or, they need large on-hand inventory levels to consistently fill new orders, but that leaves available cash tied up in their supply chain,” says Glazer.
Flexport is the latest in non-bank players in the supply chain to offer trade finance services in an attempt to fill the lending gap for exporters who are unable – or unwilling – to access finance through their banks. Container shipper Maersk has also recently entered the space, offering pre-shipment and post-shipment credit facilities. Similar to Maersk, which has an advantage over banks as it does not need to ask for collateral given it has the goods in its possession while at sea, Flexport says it too has a fundamentally different view on risk compared to a bank. “We have deep visibility into our clients’ supply chain and their business health,” says Glazer. “To Flexport, product in transit isn’t a risk, it’s our core business.”