Danish shipping company Maersk Line has ventured into the world of trade finance and offering importers and exporters a new option for financing their shipping costs.
Maersk Trade Finance offers Maersk shipping customers a one-stop shop to manage the ocean leg of global supply chains by combining financing with operations. The digital platform offers pre-shipment and post-shipment credit facilities and enables exporters to not only get the cargo shipping services but also apply for funds to pay for the shipment or to invest in new orders.
Maersk says the new service is part of its customer simplification programme to better enable global commerce by speeding up and simplifying access to capital and removing the paper trail from traditional financing options.
“The driver for us was looking at adjacent businesses and our goal in shipping was to simplify things for our customers,” global director of trade finance Vipul Sardana tells GTR.
“When we talk to customers, most of them say that our efforts are great but unless we are present in all parts of the value chain it doesn’t simplify global trade for them because they still have to go to banks to get financing.”
The idea to offer financing came about in 2015 before a pilot was launched in India in 2016. This was followed by subsequent launches in Singapore, Spain, the Netherlands and more recently five states across the US compromising of New York, Texas, Florida, New Jersey, Georgia and South Carolina.
No collateral needed
The advantage of Maersk is that, unlike banks, it does not need to ask for collateral, as it has the goods in its possession while at sea, and it can get information about the borrower and the buyers from its own database. With over 100 years of operations across 130 countries, the company owns large data that it can use for client risk analysis.
“With conventional trade finance instruments, customers have to trade off between simplicity and security. If they don’t know a customer, they tend to go for LCs with banks. If they do then they will go for simplicity and are likely to use the open account option which is less secure,” explains Sardana.
“That’s a shame that they have to make a choice between two critical aspects of their business – security and simplicity. My personal view is that the future of credit in this world will eventually be decided by information in the value chain and not so much by balance sheets and what the credit applicant has achieved in the past. As the custodian of goods and the transport company carrying goods, we have access to more information than the banks and that’s what we are building on.”
The shortage of trade finance across businesses is the second-biggest obstacle to growth in global commerce, according to the World Trade Organisation (WTO). Risks related to import-export operations and increasing regulatory requirements have led lenders to raise the bar for borrowers, making access to funds increasingly difficult.
The United Nations (UN) recently committed to review the trade financing gap, which has been pegged at US$1.6tn by Asian Development Bank (ADB) and the International Chamber of Commerce (ICC). The UN pointed out the difficulty for many micro, small and medium-sized businesses that are not benefiting sufficiently from the international trading system, and have difficulties integrating into global value chains.
So far, Maersk has onboarded 150 customers and lent some US$100mn across the various countries. The company anticipates that number to reach US$200mn over the next 18 months.
“There are certain segments where uptake is very intuitive,” points out Sardana.
“For example with traders who are asset-light and don’t have factories or equipment to offer as collateral to banks. They are limited in their ability to grow because of a shortage of funds. Our portfolio is currently 50-50 between manufacturers and traders – it’s a mixed bag.”
Going forward, the new business is in the process of getting approval to offer its services in the United Arab Emirates (UAE) and will focus on deepening its presence in existing markets, particularly the US and Europe.