From humble beginnings in the early 1900s couriering parcels in Seattle with a Model T Ford, United Parcel Post (UPS) has come a long way. Today, the company delivers some 6% of US GDP worldwide and shifts 13.6 million packages and documents per day.
What does UPS have to do with trade finance? Plenty, the company hopes. The mover of goods and documents wants to move funds as well.
"It is a natural extension of the business," says Bob Bernabucci, president of UPS Capital Corporation (UPS Capital). "Between transportation and logistics, and information, we've done a great deal to accelerate supply chains. But the one thing that always got left out was the flow of funds, which was where things always stopped and reverted back to the way things were for years."
Therefore, in 1998, UPS set up a wholly-owned subsidiary, UPS Capital, to provide capital and trade finance services to small- to medium-sized enterprises (SMEs), and go head-to-head with financial institutions. The company's first Asian operations began in Hong Kong in March last year and the company officially opened a new office in Taipei last week.
"We've been a trusted agent inside a customer's network for a number of years," says Bernabucci of UPS Capital's value proposition. "They've entrusted goods to us, which is the most sensitive thing. They have entrusted the information which comes along with those goods. Now we look to be a trusted agent channelling the movement of funds between suppliers and sellers."
Products offered by UPS look to mitigate risk, provide financing and facilitate payment administration. Export receivables financing, for example, aims to accelerate cash flow by way of advance payment of up to 80% on the value of the goods that are sold to overseas buyers.
This, says UPS Capital, translates into more flexible terms and expanded opportunities to sell on open account. Further, as credit information will be assessed by UPS Capital, companies are able to save on administrative and accounting resources. This new entrant into the trade finance game also takes on the traditional method of financing - the letter of credit. UPS Capital is involved with the issuance, negotiation and advising of financing document. Other products include collection services.
In the future, the company hopes to add other products and services that are currently only available in the US. These include asset-based lending, cash on delivery services, small ticket leasing and inventory purchasing.
For the last 10 years, the company has spent $11 billion on technology and looks to be just as committed to having state of the art technology to support their trade finance operations.
"We look to engage technology to the fullest extent possible in this business," says Stuart Reichenbach, UPS Capital's Asia Pacific region manager. "Not just in payments or credit card solutions, but also in the transfer of information, approval of credit, and remittance of funds. Customers can expect full visibility into the network via our web site so that they can see their accounts. We are also digitizing invoices as it relates to factoring."
UPS Capital is realistic about the impact of digitizing such bills and invoices. "The fact that a product is digitized, doesn't cause funds to be exchanged quicker, it's just stored and aggregated. We've looked at developing a solution that will digitize process and take process cost out, but this won't cause the terms and conditions between you and your seller to change," explains Bernabucci.
The advantage that UPS Capital has in going into the EBPP market is that customers are able to use their transportation data as a triggering mechanism for payment to take place, Reichenbach points out.
In January 2001, UPS Capital acquired First International Bancorp, the parent company of First International Bank. This move, says Bernabucci, should help to expand the company's customer base in Asia, due to the bank's structured trade finance and commercial lending programs. "Over the long term, it [the bank] will give us the ability to broaden our product portfolio here. It will certainly allow us to expand our customer relationship," says Bernabucci. UPS Capital, though, has no plans to become a trade finance bank in itself.
So far, says UPS Capital, the response by the SME market in Hong Kong and Taiwan has been very positive, and the company plans to open a total of six operations in the Asia region.