ETC Managing Director Mark Bienstock was featured in California Apparel News in their discussion of how brands are investing in crucial digital tools and traditional methods to reach customers. Click here to read the full article!
Blockchain on Trade Finance
By: Tajinder Marwaha, Express Trade Capital
As the trade finance industry faces challenges related to logistics and fraud, blockchain technology may help in creating transparency and assurance of delivery while still providing confidentiality for trade parties. Blockchain can support cross border trade transactions that otherwise would be difficult due to costs and the documentation process.
90% of the world relies on trade finance and the incorporation of blockchain would speed the delivery of funds and reduce the usage of paper. The trade finance industry still operates in a very old-fashioned manner, which entails manual inputting documents and physical letters of credit to ensure that payments will be received. Blockchain may streamline such manualcomplexity by enabling companies to securely and digitally confirm where products were originated, its transaction details, and other requisite information. Indeed, through blockchain, payments can be processed through a tokenized form depending upon the delivery or receipt of goods. Focusing on just contracts, parties can create their own rules that would ensure automatic payments and eliminate the possibility of missed, or repeated shipments. Incorporating blockchain technology will create greater trust for trade parties that may well result in an increase in global trade.
Ecommerce and Store Closures on the Rise
Sadie Keljikian, Express Trade Capital
Although fears of a “retailpocalypse” have mostly died down, the retail landscape is certainly shifting in favor of ecommerce, with more than 5,000 brick and mortar closures already announced in 2019. Many of the closures come from high-profile retailers like Gap, J.C. Penney, Abercrombie & Fitch, Tesla and Victoria’s Secret. Even Amazon has announced that it will close all 87 of its pop-up shops in Kohl’s, Whole Foods and malls nationwide.
A recent UBS study predicted that online sales will make up 26% of overall retail sales by 2026, from 16% today. Assuming current trends persist, roughly 75,000 more retail locations will close in that time. This amounts to approximately 8,000-8,500 closures per 1% increase in online sales. Amazon is expected to account for about half of the ecommerce market in the US at the end of the seven-year projection period. Of the 75,000 predicted closures, 21,000 clothing stores, 10,000 consumer electronics stores, 8,000 home goods stores, 7,000 grocery stores and 1,000 home improvement stores are expected to shutter.
Only time will tell whether these projections will come true, but on the bright side, Lasser and Sole say that the closures “should help the store productivity of surviving locations.”
Financing for Amazon Vendors
Joseph Stern, Express Trade Capital
Amazon is one of the world’s largest internet retailers by revenue and market capitalization, providing sellers and buyers with a central marketplace to conduct trade. The platform has grown so large that many financiers, including Amazon itself, have begun to market funding solutions directly to Amazon sellers.
Amazon built two web interfaces to accommodate its sellers: Seller Central and Vendor Central.
Vender Central is utilized by manufacturers and distributors to sell to Amazon in bulk. Amazon will send weekly purchase orders for shipment to various warehouses. Vendor Central customers are partnered with Amazon, who will market and sell their vendors’ products to the best of their ability. Access to the program is invite only so not all vendors can join Amazon’s Vendor Central program.
However, Amazon vendors have several alternative routes for financing. Since vendors receive purchase orders from Amazon, they are financeable through traditional factoring and purchase order (“P.O.”) funding operators. Factoring companies allow vendors to draw funds against invoices to Amazon due in the future while PO funders give them access to cash to pay for production against purchase orders issued by Amazon.
Amazon’s other program, Seller Central allows merchants to market and sell their goods directly to customers. Sellers can fulfill orders on their own or outsource fulfillment. Amazon allows sellers to enroll in a program through which orders are fulfilled by Amazon (“FBA”). In FBA arrangements, Amazon takes on their vendors’ shipping, customer service, and returns for every order.
Since sellers do not receive large purchase orders, but rather, small orders, customer by customer that must be fulfilled at once, they are not eligible for traditional PO funding operators. Depending on the vendor’s payment terms with Amazon, factoring may still be a viable option. In such cases, vendors who need further financing should seek cash lines against inventory or merchant cash advances.
Inventory financing is a type of asset-based lending where sellers use their inventory as collateral for a revolving line of credit. An amazon seller with his own inventory may assign his inventory to a financier while waiting for sales. A financier may cut a deal with Amazon to target sellers using the its FBA or other programs.
A merchant cash advance (or MCA) is a form of receivables financing where a seller takes on a cash loan by offering up a portion of future revenue until the loan and its fees are paid off. Advances are typically capped at one to two times monthly sales with a factor rate ranging from 1.14 to 1.48. In other words, a lender will take a small percentage of the merchant’s credit card revenue until 1.14-1.48 times the loan amount is paid off, depending on the MCA’s factor rate.
Amazon offers its own loan program modeled after inventory loans and merchant cash advances. With an APR of 6%-16%, an Amazon loan will be far less expensive than a merchant cash advance of similar size, which can have effective APRs above 100%. Instead of taking a percentage of sales revenue, Amazon takes fixed amounts from their sellers’ accounts over the course of twelve months or less, thus qualifying its instruments as short-term loans. By targeting only its own qualified merchants, Amazon can utilize its control of the seller’s proceeds and even inventory to ensure repayment. Amazon can also cherry pick preferred vendors based on whatever criteria Amazon believes best serves its risk appetite. In 2017 amazon issued $1 Billion in loans to its merchants.
So far, information on Amazon’s lending programs is scant. Little information is published on default rates, average funding amounts, and the programs are still young enough that available data is still in its infancy. For now, the verdict is still out on how effective the financing programs are for Amazon and its vendors.
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Paving the Way for Entrepreneurs in Space
Joseph Stern, Express Trade Capital
In 1961, Ralph Cordiner, then chairman of General Electric, published a paper on the importance of private investment into space. Amid a cold war between the world’s super powers, Mr. Cordiner thought it prudent that the United States, as a proponent of capitalism, should beat the Russians in space not through government spending, but through private sector investment.
Since there was little economic incentive in space at the time, Mr. Cordiner’s vision did not play out. However, his words did not fall on deaf ears. With the rise of telecommunications came the first surge of investment into the fledgling space industry. Since getting to space was very expensive, the industry grew on the shoulders of telecommunications giants and the equally large corporations who supported them.
The idea that space is only accessible to governments and telecommunication elites changed drastically ten years ago with two developments: the private launcher and the cube satellite.
Space Exploration Technologies, now known as SpaceX, was a dream lead by PayPal founder Elon Musk. By 2008, SpaceX had run out of money and was on the brink of collapse. Then, without a feasible launch plan, NASA awarded SpaceX a $1.6 billion contract to resupply the International Space Station. Upon fulfilling the contract, SpaceX proved that it can launch cargo into space at a fraction of the cost of other government-funded launchers. Since then, other privately-funded launch companies have entered the space market though SpaceX remains the lowest cost launch provider, sending cargo into orbit for as little as $2,500 per kilogram.
The CubeSat was designed in 1999 by Jordi Puig-Suari and Bob Twiggs in an attempt to standardize satellite design. Within the CubeSat model, satellites are built to fit precisely into 10 cubic centimeter units: A 1U satellite would measure 10 x 10 x 10 cm, a 2U satellite would measure 10 x 10 x 20 cm, and so on.
The concept was relatively unutilized until 2013, when 88 CubeSats when up into orbit. Dropping launch costs, combined with ride sharing services which aggregate many satellites in on launch, drastically reduced the cost of launching satellites for people and institutions without much funding. In the short period of a few years, even public high school science clubs are now able to build and launch their satellites into space.
Today, CubeSats are fitted with receivers, cameras, mirrors, and other sensors, which collect data and relay information to other satellites or back to earth. In the past few years, a growing number of governments and business have awarded contracts to smaller and mid-sized entrepreneurs to build and launch satellites for a variety of purposes including tracking endangered species, forecasting weather, valuing agricultural land, and aiding in archeological digs. This marks a significant shift in the space industry landscape. The space space has grown from being the exclusive domain of mega corporations and large publicly funded government entities with immense resources to include smaller governments and businesses. The industry is wide open for participants and innovators of all sizes.
Lowered launch costs and standardized satellite production have made space accessible to everyone from a telecommunications billionaire, to an entrepreneur who grew up dreaming of exploration, to a high school student who may very well realize their extraterrestrial aspirations while still in school. Within a few short decades, Ralph Cordiner’s dream of a privately funded space industry is finally becoming a reality.
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ETC Hosts NewSpace and Aerospace Financing Seminar!
Financing in the newspace and aerospace industries can be decidedly complex for a variety of reasons. The industries’ top customers are massive corporations with exceptional negotiation power vis a vis their vendors. These imbalances coupled with a perpetual flow of new innovations create too much uncertainty and risk for traditionally conservative lenders such as banks. Smaller and newer players must therefore look outside the standard lending models and seek out new solutions flexible enough to keep up with their own innovations.
Join us at WeWork Queens Plaza on Tuesday, November 20, at 7pm to learn how you can use trade finance to supplement your operational funds and close the cash flow gap that often occurs when big customers pay on open terms. ETC’s own Joseph Stern will discuss a joint venture between US satellite manufacturers and a Russian space agency that sought to launch commercial satellites into space. This example demonstrates how even the most complex international transactions can be simplified with a strategic system of trade finance and logistical solutions.
We hope you’ll join us for a fun and informative evening! Click here to RSVP.
Seeking Your Buyers
Ari Markowitz, Express Trade Capital
As a product manufacturer you are always considering ways to grow your company and get your products in front of the people who are most interested in purchasing them. There are several ways of approaching the sales process, and through this post we explore several of the most important.
Likely the most formal and most traditional method of reaching potential buyers for your products is through trade shows. Events like Moda, Mobile World Congress, and the Advanced Manufacturing and Design Expo are excellent ways of getting your products in front of hundreds if not thousands of prospective clients.
Trade shows offer exposure to an audience that is more interested and relevant to buying your products than any audience or venue. There will be buyers from multiple organizations walking around looking for products just like yours, and they will be interested in speaking with you to either set up a meeting or learn more. It’s a strong way of breaking into an industry and reaching the right people at the right time.
The downsides to a tradeshow can be burdensome however, and especially taxing on smaller companies. One of the most common problems with tradeshows is the cost. To have a booth and present at a tradeshow, you need to come prepared. Typical costs include registration fees for the actual booth, materials needed to show off your products, transportation and accommodation required to attend the show, the cost of amenities within the venue including things like Wi-Fi, and lastly the setup and teardown costs mandated by the venue staff.
Where traditional methods of getting your products in front of retailers may be inefficient and difficult to scale, online platforms allow the introduction process to yield a greater benefit.
Services like RangeMe, Maker’s Row, and ThomasNet bring suppliers and retailers together in an entirely new way, creating an easier method of introducing value to both parties. With modernization and the age of the internet have come new efficiencies that coincide with the transactional process between buyers and sellers. The other important benefit that comes from using services like these is the capture of data and potential application of that information across various analytics channels. This kind of data is important because it allows for better decision making across every element of a business and informs relevant stakeholders on where to focus to drive the greatest amount of value.
Unfortunately, digital aggregators also present the threat of competition, leading to marginalization of product portfolios. As multiple aggregators materialize, similar products are spread across each of them, thus requiring buyers to spend more time searching for your product and often causes them to overlook your product entirely.
Often, the best approach to reaching retailers and potential customers is multi-pronged. It’s more effective to try a combination of both tangible and digital methods in pitching to potential customers and expanding into what works best for you and your products. Having a presence in both types of media is important to reduce the risk of being overlooked, however, it’s certainly tenable to throw more resources at one method over another once you learn what’s best for you.
Having a multi-channel presence is also important because it encourages your business to explore all open opportunities. There are constantly new channels, platforms, and events that might be relevant to your business and having an open mind in exploring them is essential. Your competitors will fight just as hard to get in front of retailers, so it’s important to never let your guard down or get too comfortable in the notion that what you’re doing is enough.
This piece is intended to provide an opinion on how a business can best use its resources to grow. At Express Trade Capital, we work with hundreds of small businesses and entrepreneurs every year, and we are happy to provide a closer look at your business and how we can assist in your growth. You can reach out to us here.
Bitcoin’s Foggy Future
Sadie Keljikian, Express Trade Capital
In a roller coaster season for traders, Bitcoin’s value dipped below $10,000 USD twice last month.
Bitcoin was introduced in 2009, but didn’t receive significant attention until the fall of 2017. In the last few months of the calendar year, the cryptocurrency saw a remarkable rise in value, peaking at $19,343 USD in December. All the while, competing cryptocurrencies like Ethereum and Ripple grew concurrently, though they’ve yet to attract as much attention since they are newer and haven’t reached Bitcoin’s astonishing market value.
Shortly before the shocking sell-off, South Korean finance minister Kim Dong-Yeon mentioned potential plans to rein in, or even shut down speculative cryptocurrency trading in a radio interview. Prior to the interview, there had already been some discussion of regulatory updates in South Korea and China – two of the biggest cryptocurrency markets in the world. Both countries are concerned about anonymous traders engaging in disreputable or illegal exchange via cryptocurrencies. Several experts blame the finance minister’s comments and the rumors surrounding them for the sell-off and subsequent drop in prices across the cryptocurrency market, saying that he “spooked” investors and caused a fear-based fluke.
In mid-January, Bitcoin’s value dropped nearly 19% within 24 hours reaching a low point recorded at $9,199.59, or less than 50% of its peak last month. Although the cryptocurrency (along with its competitors) bounced back to a more reasonable price by the end of the day and continued to rise that week, traders are beginning to wonder if the Bitcoin bubble is bursting. Regulators have been concerned about the extremely volatile nature of Bitcoin and its potentially illicit uses for some time.
Experts are quick to point out that despite the recent spike in use and market value, consumers still rarely use Bitcoin in transactions beyond currency trading. Many wonder if it will ever be used universally enough to achieve the convenience of credit cards and digital payment methods like PayPal. Goldman Sachs recently released a report saying, “We think the concept of a digital currency that leverages blockchain technology is viable given the benefits it could provide: ease of execution globally, lower transaction costs, reduction of corruption since all transactions could be traced, safety of ownership, and so on. But bitcoin does not provide any of these key advantages.”
As of now, processing for each bitcoin transaction can take up to 10 days and conversion rates can vary wildly (up to a 31% margin) depending on what exchange traders use. Fortunately, the Goldman Sachs report also stated that since cryptocurrencies make up only 3.2% of US GDPs and .8% of global GDPs, so a Bitcoin bubble burst probably won’t significantly affect the economy at large. It is, however, looking more and more likely that Bitcoin won’t be useful beyond currency trading, since fewer businesses are accepting the cryptocurrency all the time. Most recently, Microsoft, Stripe and Steam have all announced that they will no longer accept Bitcoin due to high transaction fees, price volatility and an overly congested network.
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Four Things to Know About Blockchain
Beixi Li, Guest Correspondent
Since its invention as a technology for Bitcoin in 2009, blockchain has expanded its applicability beyond cryptocurrency into other industries. Driving this expansion are the fundamental changes that it enables and the benefits that it brings to business transactions. Let’s take a look at the four most important concepts you need to know to understand blockchain today.
- How it Works
Imagine a financial transaction: one party requests money, another sends money, and a third party may work to verify that the right amount of money is sent to the right person. Each party keeps a separate record of the transaction. At some point, records of the transactions may begin to vary, compromising transaction validity and integrity.
Blockchain technology creates a single record, known as a ledger, across all parties. A copy of this ledger lives on every computer in the network and is updated approximately every 10 minutes. Each change to the ledger is grouped into a “block.” This block is then connected to previous versions of the ledger, creating a chain of blocks, or blockchain. Each time a new block is added to the chain, all computers in the network are updated. As a result, blockchain replaces the current piecemeal nature of transactions with a single source of truth.
- The Benefits
Having a single, consistently updated ledger across all parties provides key benefits:
Each time a new block is added to a chain, all computers in the network receive the updated information. As a result, Blockchain technology guarantees that all parties view and reference the same data and that all are alerted simultaneously to any changes or updates. Having synchronized access to updates automates transaction accountability and visibility, replacing any manual validation or verification.
To add new blocks into a chain, multiple computers in the network validate the information in the block. Once validated, the information is published out to all computers in the network, providing every participant with the latest block of data. As identical data is decentralized across all computers in the network, hacking becomes virtually impossible. Hackers would need to change the ledger on every single computer to be successful. If only one or a handful of databases were altered, the discrepancy would be immediately visible and traceable. Only a validated update to the blockchain would affect every single database in the network.
The ability to keep parties on the same page at all times during a transaction removes the need to spend time resolving transaction discrepancies. Blockchain creates an environment that assumes a level of trust in business activities, allowing businesses to de-emphasize bookkeeping. Additionally, blockchain technology enables smart contracts: contracts programmed to execute automatically when specific criteria are met, eliminating the need for manual approval processes.
- The Debate Today
While blockchain shows potential for industry use, customizing it for each industry remains a work-in-progress. A key obstacle in industry-specific blockchain is the scale and level of publicity necessary for the network. Two types of blockchain networks exist today: public and permissioned. The original Bitcoin blockchain network was public: anyone could participate in the network and validate new blocks. New, permissioned networks only allow participants with permission to enter the network, receive data, and validate data. Permission criteria can come from government officials, rules built into the platform, and current participants. Currently, most enterprise blockchain technology being developed uses permissioned networks with the following key benefits and limitations.
Permissioned networks limit the parties who can join and the parties who can validate new blocks, which increases:
- Scalability: Limiting the number of participants decreases the computing power and costs required to update every participant in the network.
- Security of the Network: Only those with permission may enter into and add to the blockchain.
- Privacy: Transaction details are only shared with approved participants.
The primary concern with permissioned networks is the limit to decentralization of data. Blockchain’s value comes from dispersing data through a large network using cryptography, and using that scale to hold all members accountable. By limiting that scale through selection criteria, the open, public nature of blockchain is constrained.
- Recent Developments
IBM has developed the latest advancement in blockchain technology with a platform to facilitate international payments. Currently focused on the South Pacific, the platform simplifies the transfer of fiat currencies from different countries, using cryptocurrency as a value holder in between the two currencies. This new technology aims to decrease both processing times and costs of international currency transfers, a time-consuming, error-prone process today. While currently focused on international money transfers, this platform has the potential to become the foundation of future trade agreements, including trade financing, to streamline the exchange and visibility of financial transactions.
Blockchain’s ability to provide one, consistently updated and decentralized ledger of transactions across all parties provides a groundbreaking technology applicable across industries. It has the potential to provide a new baseline of trust when conducting business, to create a more secure way of exchanging information, and to decrease processing times of current transactions. While still in early stages of development, companies have already begun developing blockchain platforms that could be the foundation of future industries.
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Review: New Logistics Technology
Sadie Keljikian, Express Trade Capital
The shipping and logistics industry is constantly evolving. With the changing landscape of domestic and international trade, consumers’ varied and shifting priorities, and the breakneck pace of new technological developments, it can be difficult to keep up.
Here are some of the current trends in the logistics industry and a few that are on the rise:
- Supply Chain Responsibility and Transparency
In recent years, consumers have become more mindful of where their goods are sourced and the ethics of the businesses they patronize. Consequently, producers of consumer goods are increasingly scrutinizing every step in the process of creating and selling their goods, from sourcing of raw materials (e.g. mining and farming) to manufacturing, shipping, and final sale to consumers.
US consumers generally have two main concerns regarding the production and sale of purchased goods: environmental effects (i.e. carbon footprint) and fair treatment of workers (mostly non-domestic) who harvest materials and manufacture goods. One solution that addresses both issues is the blockchain, a digital ledger that allows businesses to verify each vendor and manufacturer in their supply chain, regardless of the size and complexity of their networks.
Beyond comprehensive awareness of one’s supply chain, recent advancements in low-emission vehicles are helping the shipping community create more viable long-term solutions to the extremely pollutive nature of traditional ocean, air, and road transportation. When combined with technologies like blockchain, shipping service-consumers will have the option to choose shippers based on criteria beyond the standard twin considerations of speed and cost.
- Full-Service Warehousing
Warehousing goods is nothing new, but companies like Amazon have changed the nature of warehousing, both in terms of how many warehouses they operate and the way they use the space.
In recent years, Amazon has begun warehousing its goods using increasingly creative methods, both in the US and abroad, allowing them to expedite more shipments and give “Prime” members their money’s worth. They’ve even ramped up expectations and delivery speed in 27 US cities with “Prime Now,” a service that boasts a massive selection of household items, all of which are deliverable within an hour.
Warehousing on this scale reflects the changing face of retail. Vast quantities of commercial space that might have been used for retail ten years ago are now put to more practical use storing goods to be sold online.
- Digital Monitoring
The world has gone digital and logistics is no exception. Across the board, shippers are taking advantage of cloud computing well beyond the blockchain. The cloud allows shippers to store as much information as necessary in a secure online database that easily adjusts to fluctuating volumes, intuitively organizes transactions and effectively contains costs. The cloud also safeguards data if on-site monitoring devices are damaged.
Earlier this year, some logistics companies began arming their pickers with wearable technology, like Google Glass, to reduce human error and ensure accuracy. While the trend seems to have lost momentum, accuracy-checking technology remains a hot topic in the industry.
Although it’ll be a long time before robots take over the shipping process, robotic technology to increase logistical efficiency is advancing at an impressive rate. Various degrees of automation have been implemented in the last few years to increase efficiency and accuracy.
As it currently stands, logistical robotic technology is limited to systems that transport goods to the picker. However, industry leaders are eagerly awaiting technological advancements that will allow robots to take over the picking process altogether, wherein they will be able to pick from conventional racks and conveyance equipment and move goods within the warehouse.
- Autonomous transportation vehicles
On the cutting edge of the logistics industry, vehicles that transport goods without a human operator are a growing trend. Although the technology is still in its infancy, several varieties of unmanned carrier vehicles are in development.
Australia has established a government initiative, known as the Australian Driverless Vehicle Initiative or ADVI, devoted to developing autonomous road vehicles. The technology is still relatively new, but long-haul trucks may be the first to go driver-less, as they are subject to fewer regulations than passenger vehicles.
Perhaps more well-known is the carrier drone, famously developed by both Amazon and several medical supply companies overseas. Drones are particularly exciting because they enable direct deliveries regardless of traffic or road conditions. They are meant to simplify fast delivery to urban areas with heavy road traffic, impoverished areas where roads are inadequate, and war zones to which traditional delivery vehicles might be unable to travel.
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