Mark Bienstock is managing director of Express Trade Capital, Inc. located in New York City. Mark has over 25 years’ experience in the asset-based lending and factoring industries. The editor-in-chief of The Secured Lender sat down with Bienstock to discuss his view of the challenges facing the shipping industry as well as Express Trade’s unique offerings.
By Michele Ocejo
In August, Hanjin Shipping filed for court receivership with the Seoul Central District Court. South Korea announced a plan to rescue the company, which is one of the world’s ten largest container carriers. How is all this affecting lenders and their customers?
BIENSTOCK: This is a serious issue for lenders that deal with clients selling to retailers. During the peak of this problem, there were many thousands of containers that were stuck at sea and no one knew if they would be delivered on time, particularly for the upcoming holiday season. Many of the major retailers had significant concerns that the goods they needed for their stores would be indefinitely stuck at sea, and they wouldn’t be able to get anything done because many of the ports around the world would not let the Hanjin ships dock. It isn’t just bad news for lenders, importers, and retailers. The crews of many of these boats suffered as well as they ran low on supplies, water, food, and fuel. They even had to ration the air conditioning. It quickly became an extremely serious situation.
As a lender, you’re counting on the constant flow of merchandise, particularly for those lenders who provide trade finance vehicles such as purchase order funding and letters of credit. Many people take shipping for granted and assume that goods will arrive on time. Hanjin, being one of the biggest shippers in the world, obviously threw a significant monkey wrench into the process and people were blindsided.
Express Trade, which has its roots as a logistics coordinator and freight forwarder, knew very early on that something was going on and was able to navigate this problem extremely well. We are happy to say that we did not have any shipments delayed for any of our shipping clients. With our foresight and experience, we were able to switch many of the scheduled Hanjin pickups to other carriers before this crisis arose, and through our connections we were able to arrange to have the few Hanjin shipments that were already booked picked up and delivered to customers on time. I have to give credit to our logistics manager, Gary Vantsyan, who handled this situation perfectly. By ensuring that goods were delivered on time, our clients were able to avoid cancellations, returns, and other issues. Our PO funding department didn’t skip a beat.
Many businesses had never seen a situation like this and didn’t understand how to handle it if for no other reason than because we were dealing with bankruptcies involving foreign countries and their unfamiliar laws. This is a case where our ability to control the flow of goods through shipping and logistics went hand in hand with our financing arm to create efficiencies for our clients that would not otherwise be available from providers who offer only financing or only shipping.
Is there a feeling in the industry that this move by South Korea will actually make a difference?
BIENSTOCK: It’s something that they had to do because of the magnitude of the situation. Things have settled down to some extent and the ships are now able to come in and be unloaded, but it’s far from over. There are still many unresolved pieces in this process. But the magnitude of this was so substantial that it required the government and the parent company be involved. Rates immediately went up and there’s been a chain reaction that people are still working through. But the Korean government’s intervention definitely calmed the situation compared to what it could’ve been.
The Hanjin situation might be more extreme, but it seems like the shipping industry in general is having a challenging time. In your view, what is affecting the industry?
BIENSTOCK: Actually, there was a good article recently in The Wall Street Journal that talked about three of Japan’s biggest shipping lines being set to consolidate. Over the last couple of years, many of the shipping companies have been cutting their prices dramatically to buy market share, and that has come back to bite them. With the slowdown in exports, the shipping industry has had significant profitability problems.
The article further indicated that none of the top 20 global shipping companies are expected to show profits for 2016, and this is a direct result of them cutting their prices so low to buy market share. When the market share didn’t develop, their profitability sank. And you can see that the Hanjin situation was caused in part by that. In response, now you’re going to see significant consolidation starting with Nippon, O.S.K. and Kisen merging. This has become a big issue. There’s going to be a much smaller group controlling a much larger portion of the shipping industry, and it’s going to make it very hard for smaller importers and manufacturers to get good pricing on their shipments.
This is another area where Express Trade Capital’s unique business model sets us apart in servicing our clientele. Many people don’t know, but we started out about 30 years ago as a freight forwarding company called Express Service Forwarding. The founder of our company, Peter Stern, was only doing the freight forwarding, logistics, and customs clearance for his clients. Many of those clients began to approach us for financing services, such as letters of credit, purchase order funding, and factoring to help finance the shipments that we were already handling. Mr. Stern realized there was a tremendous opportunity and that he could offer complete supply chain solutions from beginning to end, basically a one stop shop for financing and logistics.
As far as we know, we are the only financier that has its own logistics division. We start by issuing letters of credit for clients to get their merchandise produced. We can also pay for the goods through our purchase order funding program and arrange for all of the goods to be picked up overseas. We’ll then bring the goods into a warehouse here in the US, or wherever our client’s customers are located, and arrange to have those goods turned around and shipped to retailers or wholesalers. Finally, we can factor the resulting receivables, pay off the PO loan, and pay the client the balance, all while providing credit protection and accounts receivable management.
So companies of all sizes get the benefit of not having to find and manage different logistics, PO funding, and factoring/asset-based lending companies. This saves our clients time and money while mitigating risk and eliminating inefficiencies throughout the supply chain.
There’s also a benefit for us. Combining these related services into one coordinated offering allows us to maintain control over the goods, which are our collateral, throughout our clients’ business cycle. As a lender, this is priceless. This protects both us and our clients because we are another set of eyes looking out for any situation that may prevent our clients from delivering their products on time or satisfying their customers’ demands. Because of the comfort we gain with this model, we’re able to provide additional financing to our clients in ways that traditional financiers are not equipped to do.
Has the Hanjin situation made your job more challenging in any ways?
BIENSTOCK: Actually, we used this as a new business opportunity. It opened up many people’s eyes. Many businesses became aware of risks they did not fully appreciate before this crisis. We received many compliments for our efforts. Express is always proactive, but people were especially impressed when they noticed we were able to navigate through this troubled period without a hiccup. So we now use this experience as an example to demonstrate to people the unique value proposition of what we do. We have a special mix of services that allows us to capitalize on the intersection of finance and logistics. Most lenders do not understand logistics, shipping, freight forwarding, and all the intricacies relating to customs, duties and so forth. Our ability to help our clients navigate all aspects of their supply chain gives our clients valuable insights and creative solutions that others might not see.
Besides the shipping issues right now, what would you say are the biggest challenges and opportunities facing the factoring industry or the purchase order finance industry in the coming year?
BIENSTOCK: We think the biggest problem facing the industry right now is a lack of growth into new, untapped industries and the lack of flexibility in financing programs to account for the changing retail environment. Many financial institutions, whether banks, asset based lenders or factors, have focused on one or two main products which they have offered virtually unchanged throughout the years. [Editor’s Note: All opinions in The Secured Lender interviews are solely those of the person being interviewed.] They never looked to diversify. At Express Trade, we are big proponents of diversification and flexible financing. They never looked to diversify. At Express Trade, we are big proponents of diversification and flexible financing.
We have a group of young, aggressive people who are specialists in social media. We have done a tremendous job in getting our name out there. We also spend a significant amount of time traveling both domestically and overseas. And while everybody is chasing the same business, we are expanding into new markets, such as organic and vegan foods and sustainable products.
You have to have unique skillsets to set yourself apart from the competition and we are constantly evolving and adapting to further develop our strengths. With our combination of our factoring, LCs, PO funding, and logistics services, cross-selling is our key driver of growth. If we bring someone in and do a good job for one service, eventually they’re going to need a second, third, or fourth as they all go hand in hand.
You need to have many bullets in your arsenal to offer your clients in an ever changing environment. We feel that our model has been very successful in meeting these needs. We’re always looking to grow and tackle new problems and explore new areas of business. And as the landscape continues to change, we are ready to take advantage of fresh opportunities to use new technologies and techniques to better service our clients. So even though the financing market is facing major difficulties, we feel we have created a strong platform for growth into the foreseeable future.
Michele Ocejo is editor-in-chief of The Secured Lender.