Arviem, a technology company that uses internet of things (IoT) sensors to monitor cargo, is expanding its business to help financiers optimise their lending patterns and bring more financing to SMEs based on the vast data it is collecting.
The Switzerland-based company is one of the first in the world to integrate logistics IoT data into a commercial trade finance service.
Founded in 2010, Arviem helps firms around the world track and trace their goods by installing smart IoT sensors on containers and cargo. The sensors collect data on anything from the location of the goods-to-door status, to disturbances and conditions such as humidity and temperature.
Combined with advanced analytics and a range of other data sources (such as weather data), this enables business professionals to analyse and optimise their physical supply chains.
Now Arviem is bringing financial institutions into the equation, launching a new service called Arviem Working Capital.
It involves giving financiers the ability to track in real-time the exact location and condition of the goods they are financing – all the way from origin to the point of destination – in order to better assess risk and gain confidence to provide more and cheaper financing than they do today.
Speaking to GTR, Stefan Reidy, co-founder and CEO of Arviem, explains why financing goods in transit is currently a risk that few banks are willing to take: “If you are financing cargo or assets in a warehouse, you can go to that warehouse and see it’s still there, whereas if the cargo is in transit, loaded on a vessel or laying around somewhere, you simply don’t know where it is, and you don’t have access to it.”
This is making it particularly hard for small and medium-sized companies to get financing when they need it, if at all. For example, Arviem worked with a small commodities trader on a pilot that covered the transport of silver concentrates from Bolivia via a Chilean port to a smelter in Belgium. Typically, the trader would have to pay upfront at the mine in Bolivia but only be able to receive financing 15 days after the bill of lading is issued out of Chile.
In Arviem’s pilot on the other hand, the trader received financing as early as the issuance of a holding certificate at the mine. In this case the financier was an alternative lender, but the intention is that banks too will be willing to do the same based on the higher transparency that the IoT data brings.
“The banks have been pressurised by the regulators to finance bigger and bigger companies,” Aidan Shilling, director of working capital solutions at Arviem, tells GTR. “So the major traders, the Glencores and the Trafiguras, have no problems raising funds at very low rates and financiers are happy to do know your customer on them. But the small guys are being forced out. They are the companies suffering the most. With our solution, the small traders will be able to go to the banks and say, ‘we know exactly where everything is, we know our cargo is fine, it’s safe, the doors are closed’. In this case, our client got financing based on the holding certificate, effectively 45 days earlier than usual.”
Arviem has also run pilots with players in other sectors, including a Chinese supplier to a multinational retail corporation, which was also able to access financing earlier than usual.
Shilling explains that for banks, the solution provides a tool to allocate capital more efficiently and use the collected data to inform regulators.
“Because you know exactly where your product is, you can be more effective in your capital allocation,” Shilling says. “As soon as the container is outside Bolivia, it’s no longer Bolivian risk. Then you’re in Chile, which might have higher capital allocation. Then you’re in international waters, where there is another capital allocation methodology. Today banks have to take a conservative view, because they never know exactly where the cargo is. But now you can track that in real time and prove to the regulators that you are doing this properly.”
Arviem Working Capital will also offer an off-balance sheet financing solution targeted mainly at listed companies looking to take inventory off their balance sheets. Because Arviem can monitor goods all the way from supplier to buyer, it is able to offer a structure in which it takes ownership of the goods while working with financial institutions to finance them.
Shilling gives the example of one of Arviem’s pilot clients, a German listed company: “They have had issues around the fact that, because of the uncertainty around Trump’s trade war, they had increased their inventory by 50-odd million. So all of a sudden the inventory was going very high to maintain the integrity of the supply chain. We are working with other listed entities that are facing similar problems,” he says.
He adds that Arviem already has a range of clients lined up and financing commitments from global trade finance banks, and expects to finalise five to 10 deals by the end of the year.
The opportunities of IoT in trade finance
Arviem Working Capital is just one of many services that the company is able to offer on the back of the huge amount of data it is collecting. For example, it already runs a carbon footprint solution to help firms measure the carbon emissions of their logistics operations, thereby empowering them to implement changes to minimise their environmental impact.
As the next step, Reidy says, Arviem will launch a service to offer sophisticated risk profiling and will also look to introduce an insurance service at a later stage. This would allow firms to sign up for insurance on demand, based on the real-time data collected from the cargo.
While other technology companies have also seen huge opportunities in using IoT sensors to innovate the logistics industry, Arviem is one of the first to use this data to build a commercial trade finance service. Some banks have been looking into this proposition, but so far there have been few announcements on any commercialised solutions.
In late 2016, Commonwealth Bank of Australia (CBA), Wells Fargo and Brighann Cotton conducted an interbank trade transaction using IoT sensors, which, at arrival, triggered the automatic release of funds through a smart contract. This transaction, however, never moved beyond pilot phase.
Another bank actively looking into this space is Standard Chartered, which is currently piloting IoT-enabled smart distributor financing with large auto manufacturers in Asia. Through IoT sensors, the stakeholders can track exactly when a car is moved from one warehouse to another, or sold to the end customer, enabling the bank to extend appropriate tenors and limits to the distributor.
Standard Chartered is also working with Huawei to build an IoT solution that can trigger automatic financing or payment instructions. It will use Huawei’s OceanConnect, an open platform based on IoT, cloud computing and big data technologies. The aim is to reduce operational risks while providing reliable data that can be used in financing decisions. Instead of corporates having to manually initiate transactions through paper-based or emailed instructions, this data could be automatically fed to their banks.