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Issue 2 2015 - Freight Business Journal


///FREIGHT FINANCE The transportation tug-or-war


In the transportation industry, shippers pay freight carriers billions of dollars a year to


haul goods using all modes of transportation, writes Cecil Bryan, president of the


Logistics Alliance Network. In this business environment shippers are the buyer


Canute takes ‘can do’ attitude to freight funding


With small hauliers feeling the squeeze as never before, could the industry itself do more to help itself? Most


freight and


logistics businesses of any size rely on haulage subcontractors, to at least some extent. It’s clearly in no one’s interest if these small firms are allowed to go to the wall because of cash- flow problems. Purfleet-based logistics


company Canute Group has launched a new initiative to help its subcontractors maintain their cash flow in what it says is an industry first. ‘Canfund’, launched on 1 February, allows subcontractors to draw down funds they have invoiced to Canute almost immediately, without waiting for the normal 60-day payment period, for a small fee. Canute plans to use


the Multimodal show in Birmingham on 28-30 April as the main launch platform for Canfund. So if a subcontractor haulier


needs to get its hands on cash fast – perhaps to pay the rent or a fuel bill – it can do so without putting itself massively out of pocket. The idea of paying invoices


early in exchange for a fee isn’t in itself a new idea. A haulier might in theory be able to approach a factoring company and ask for the same facility, but Canfund’s charges are much


more reasonable, says Canute group sales director, David Emslie. “Even a haulier wanting to be paid within the minimum time (around four days) would pay a maximum of only 4.25% of the invoice value,” he says. Moreover, he adds, factoring companies don’t always look on haulage companies’ invoices particularly favourably, so many may find themselves turned away. “We don’t plan to make money


from it,” Emslie explains. Rather, the aim is to make working for Canute attractive to small hauliers at a time when such firms could be in short supply. Canute works with around 650 subcontractors who, typically, run 2-5 vehicles each. Emslie states: “Despite this impressive capability, maintaining a reliable and consistent relationship with capable subcontractors is a vital support mechanism for our core fleet, and as our volume continues to increase, subcontractors who can become a genuine extension to Canute’s portfolio are becoming a necessity.” The alternative for a haulier


with cash flow issues would be to ask its bank for a loan, but again the cost is likely to be higher than Canfund’s scheme and, despite what the advertising may say, banks don’t always like to say ‘yes’,


particularly to a company in an ‘unexciting’ business like road haulage. Canfund has in


fact been


set up with the backing of Canute’s own bankers who will financially support the scheme. There is also a website on which hauliers can register for free, the whole process taking only a couple of days or so; a credit check is involved. There is a dedicated Canfund team as well as a dedicated hotline and email address. The only charge to the


haulier is if they subsequently decide to take up the offer of early payment of an invoice. Canfund’s business overwhelmingly


is UK


distribution, though there is no fundamental reason why the concept couldn’t work with foreign-based hauliers, Emslie believes. So the idea could be applicable to a freight forwarder with large numbers of foreign- based hauliers or sub-agents in other countries. In fact, David Emslie believes that Canfund will probably be the first of many similar schemes in the freight and logistics industry. However,


a company


would probably have to be of a reasonable size to set a scheme up with the backing of a financial institution, though there is nothing in theory to stop a company setting up a less formal scheme without this.


since they are procuring


freight services from the transportation providers. Shippers have different


strategies on how and when invoices should be paid. Buyers like to hold on to their money as long as possible - to extend the days payable outstanding (DPO); sellers like to be paid as soon as possible to lower the days sales outstanding (DSO). Supply chain finance in the freight industry


got started


in the US when U.S. Bank’s PowerTrack rolled


out its


web based platform. The Department of Defense was the first customer, which at that time was sometimes taking 90-120 days to pay its transportation providers. The new trade finance platform allowed the sellers to be paid much earlier in exchange for a discounted amount from


each invoice. This drastically reduced their DSOs and invoices were paid in as little as 3-10 days. Supply chain financing can


be backed by banks, service providers or buyers can create their own self-funded model. In


have visibility of all open invoices. This collaborative environment also provides a platform for invoice dispute resolution. If cash flow is an issue,


the outsourced models,


buyers receive an invoice at the end of a billing cycle. Much like a credit card, the buyer has a certain number of days to pay for the charges that accrued for that period. The number of days the invoices are ‘financed’ depends on the terms of the contract. Supply chain financing also


includes dynamic discounting where the seller can select its payment terms based on a sliding scale, which could range from between 2% to 8%. This process is made possible through a web based portal where both parties


many sellers rely on supply chain financing to keep their operations running. Instead of having to take out short term loans from a financial institution, they can ‘borrow’ money


from buyers. Since


they are using the buyer’s credit rating, the interest rate may be better than what they could get on their own. What is the best way for


shippers and buyers to quantify the costs and benefits from supply chain finance? Taking a weighted average cost of capital (WACC) is a good start. This will show you how much interest has to be paid for every pound - or euro, or dollar - financed.


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