Parcel Company Turns To Bankrolling Their Customers
September 18th, 2008
US parcel delivery giant UPS has taken an unusual step to try to shore up the volume of parcels it carries by offering to help finance its customers’ businesses. Earlier this month UPS unveiled Cargo Finance aimed at helping its small customers which need funds to keep their businesses afloat during tough times and product orders flowing so UPS’s huge fleet of trucks and aircraft are also full. UPS Capital Senior MD, Chris Vukus, explains the initiative, “We found entrepreneurs would love to have someone provide them with working capital.”
Risky Venture. UPS expects the loans will average about $US150,000 per customer and despite the melt down in the credit market in the US, the company only expects two out of every 100 loans to be defaulted on. The company has offered such financing to customers over the past 10 years but previously loans were Govt-backed. This time it is relying solely on its own cashflow. Professor Emeritus at the Center for Supply Chain Research at Pennsylvania State University, John Coyle, says the move is a risky one and reflects the company thinking unconventionally to try to halt the slide in its fortunes in terms of profit and share price.
Feedback Positive. One of UPS’s trial customers is Pedors, a company which imports orthopedic shoes from China. UPS pays the Chinese suppliers up front for the goods then Pedors wires UPS half the cost of the shipment and has 60 days to pay the balance, with interest. The company claims the arrangement has helped it expand its business by cutting out all the middlemen in international trade. Prior to the UPS deal, Pedors relied on bank credit secured by personal assets. With UPS’ finance package, the collateral is the shipment of goods itself.
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