Trends to Watch
- Blank sailings have been around 64% on Asia > North America lanes in the first three months of the year, which is a slight uptick in percentage from the 2022 averages (when blanks were mostly due to congestion). As a result, total effective deployment is the lowest it has been since before the pandemic.
- On the Far East Westbound (FEWB) lane, the market has picked up and we see less volatility from major gateways. Airlines are holding rates high for the ongoing negotiation season, encouraged by positive yields in the second part of March, and do not anticipate the market going back to Q1 low rates.
- Spring Thaw weight rules will be implemented in Montreal from Monday, March 20th to Friday, May 19th, a period during which heavy vehicles load limits are reduced on all public roads—during this time carriers can handle up to 40,000 lbs of cargo.
According to the Flexport’s weekly market freight update report on March 12, 2023, the simple fact is: most businesses need short-term working capital at some point in order to maintain operations. For brands and importers, financing inventory purchases can be the largest cash drag they face. The question is, should companies turn to equity capital, bank loans, cash advance products from fintechs, or trade financing?
Bank loans are often companies’ first choice to finance working capital, because they tend to offer the lowest interest rates. However, there are three key considerations:
- Hidden costs. Behind the advertised low interest rates are a slew of costs: upfront and undrawn fees, early termination penalties, and expenses for third-parties including servicing agents, site inspections, lender’s legal counsel and third-party financial audits. On a 2-year, $10M facility, legal costs alone can run up to $50k–and some lenders will even make borrowers pay for lender’s counsel.
- Extensive diligence. Most banks will require collateral appraisals, which are costly and time consuming. Banks are subject to many regulations that all add to the time it takes to be approved for a loan.
- Restrictive covenants. Operating within the requirements of a bank loan is a struggle for growing businesses. Asset-based loans will have monthly borrowing base reporting, requiring staff and executives to gather, review and report required data to lenders on a regular basis. Most commonly, lenders will restrict executives’ ability to pay dividends or make transformative investments in real estate, M&A, or R&D.
Outside of the world of banks, fixed-fee loans or merchant cash advances (MCA) can be an attractive alternative for small and medium-sized business owners who need quick access to cash. However, the true cost of borrowing from these products is often obscured.
Understanding how the timing of a loan’s repayment schedule impacts its implied internal rate of return (IRR) is critical to evaluating the true cost of capital and whether such a product is priced fairly for your business. For more on this, see our recent post on the true cost of fixed-fee loans.
Flexport offers affordable, unsecured inventory financing with transparent pricing, fast underwriting and simple loan documents. To learn more or to start your application today, reach out to us at capital@flexport.com.
Upcoming Webinars:
North America Freight Market Update Live
Thurs, April 13 @ 9:00 am PT / 12:00 pm ET
The State of Trade: Global Trade and The Environment
Tues, April 18 @ 9:00 am PT / 12:00 pm ET
