As Supply Chain and Logistics Crisis Wanes, Digital Revolution Takes a Bow

Trade finance’s digital transformation has exploded through the past few years, and it will accelerate in the years ahead.

“Treasury is the next frontier in digital payments,” Alan Koenigsberg, senior vice president and global head of treasury and working capital solutions at Visa said during a panel discussion on the convergence of trade finance and technology.

With the backdrop of supply chain challenges, inflationary pressure and higher interest rates, treasury and trade organizations are tasked with helping keep a business on track and making the most of working capital.

“Couple all that with the changing needs and expectations of businesses and the unique innovations brought to market by some of the fastest growing FinTechs, it’s what is propelling the broader payments ecosystem forward,” he added.

Flock Freight Chief Financial Officer Pat Dillon, Acceleration Economy Co-Founder and Chief Analyst Tony Uphoff and Flexport Capital Head Justin Sherlock told Koenigsberg that technology is leveling the B2B playing field for smaller firms.

In illustration of how quickly things change, said Flexport’s Sherlock, tools now exist for companies — such as logistics providers — to start their lending businesses or for firms to access trade finance across those same platforms.

But as Uphoff noted, the increasing availability of cloud-based and platform-based technologies is helping shape the “magic … that enables a better customer experience.”

Pre-pandemic, only the largest firms and publicly traded companies were able to offer those services. Nowadays, there’s increasing formation and availability of niche-specific platforms that boost capital access.

By way of example, Flock Freight has created a two-sided marketplace, bringing shippers and carriers together, which helps solve the pain points of a fragmented marketplace.

“There’s a willingness for these smaller providers of freight transportation to show the desire and the demand to be able to access FinTechs and/or information in a frictionless environment,” Dillon said.

Those frictionless interactions are now table stakes for marketplace or third-party logistics (TPL) providers, he said. There’s now the ability to offer what is akin to “carpooling for freight,” as firms can take partial shipments that would otherwise not fill up an entire trailer or semi, and spread loads across several pickup points, without disrupting routes or deliveries.

“This requires a lot of infrastructure, engineering and integration of different kinds of third-party FinTech platforms to make it all work,” Dillon said — giving rise to a network of networks.

Sherlock said that harnessing Big Data helps coordinate activity and movement across oceans, air, trucking and rail conduits.

“Centralizing that data in one place and allowing folks to communicate with and around that data can save time and allow them to operate with leaner operations teams because there’s a strong feedback loop,” he said.

The Need for Credit

Regardless of whether freight is being forwarded domestically or internationally, Dillon continued, the need is there to help insulate against risk, against the unknowns that can interrupt supply chains, logistics and therefore payments and cash flow. Friction also exists in the cumbersome and inefficient paper-based processes that companies still use to qualify and extend credit to their trading partners.

The panelists noted that there are greenfield opportunities for technologies such as blockchain to knit even tighter bonds between logistics firms, to keep smaller firms from being stretched on payment terms, to punch above their weight, and to compete in the marketplace.

At least for now, there’s no such thing as perfect information, panelists said, and establishing creditworthiness becomes harder with smaller companies.

It’s becoming essential to have more liquidity and better cash flow in the mix, panelists said, as the providers scramble to keep up with demand. The deluge of eCommerce has meant that people want to get their goods sooner, and the “turnover” of freight as it moves through the economy is getting ever shorter. Carriers, Dillon said, demand to be paid on time, with a higher degree of visibility.

The advanced technologies underpin offerings such as Flexport’s, Sherlock said, which turn data into underwriting decisions.

“We’re trying to solve for underwriting risk, for fraud risk too — and we’re trying to get ahead of geopolitical concerns and even natural disasters and weather concerns,” Sherlock said.

And, Dillon noted, the platform model allows for a broad range of different financing sources to be brought online to help pay carriers within a few days of delivery, rather than through traditional, 30-day terms.

The platform data, he said, helps clients open new trade lanes and expand their supplier bases — and even set up new warehouses to satisfy eCommerce’s seemingly endless growth.

Looking ahead, said Acceleration Economy’s Uphoff, new methods of financial engineering are evolving, and “we’re seeing more nimble, innovative solutions, and companies are acting as bankers … the old buyer/seller dynamic, where the third party was the banker is starting to give way.”

As Uphoff remarked, “this is the inexorable march of technology.”