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Demand for shipper financing grows as congestion stalls container cargoes

Small- to medium-sized exporters by shipping container to the US are increasingly having to rely on financing solutions as port congestion, ship delays and blank sailings keep their capital out at sea for longer periods.

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Many shippers are also struggling to cover escalating freight rates that have climbed by 165% over the past year to $8,600/FEU on July 27 for the North Asia-to-East Coast North America route, according to S&P Global Platts data.

Small companies that export lower-margin goods to the US are often unable to take on the risk of trading in an unpredictable freight environment, which has led to a stronger uptake in the past year for trade financing as container freight rose from 10-15% of the cost of a cargo to 25% on average, said Pushkar Mukewar, CEO of trade finance provider Drip Capital.

"Instead of the shipper waiting 60 or 90 days to get paid, we effectively are buying the cargo," Mukewar said. "Then we can focus on finding a buyer that can pay us back. Small businesses are conservative and want to minimize risk."

Drip Capital is a Palo Alto-based company that primarily focuses on financing smaller exporters to the US from India and Mexico. Their online platform offers credit lines ranging from $100,000 to $2.5 million and has been utilized by exporters of avocados or auto parts from Mexico and spices or textiles from India.

The lack of liquidity from one cargo to the next has force many Indian shippers to plan their export schedule further in advance, said Vivek Pandit, CEO of New Jersey-based Indian Foods and Spices.

"At times the goods are sitting ready but for two-to-three weeks, but we can't get an empty container to have the goods shipped to us from India," Pandit said. "This has been affecting our sales and delaying our collections."

The slowdown recently slowdown at US ports also delays new procurement since many buyers need to sell a cargo of goods before buying additional ones, a Los Angeles-based coffee trader said.

"The supply chain is crumbling and goods are spending more time on the sea, and this is a problem for us. A larger chunk of our money gets tied up in transit, and this has led to disruptions in our financial planning," the trader said.

Delays at US ports are expected to get worse in August as a new surge in shipments from South China ports delayed by a COVID-19 outbreak their make their way across the Pacific. There were 25 ships queueing at anchor near the Los Angeles-Long Beach port complex on July 27, up from 22 ships in queue on July 16, according to cFlow, Platts trade flow software.