DEL.ICIO.USUPS now delivers loans
Sandy Springs shipping giant helps certain business customers keep the packages moving
The Atlanta Journal-Constitution
Tuesday, October 14, 2008
British brothers John and Stephen O’Hare have been importing orthopedic shoes for more than a decade to the Marietta headquarters of their company, Pedors.
But a new product from Sandy Springs-based UPS is allowing them to bring in a new shoe line from China, with more colors.
Brant Sanderlin/bsanderlin@ajc.com
John O’Hare, CEO of Pedors, which imports orthopedic shoes, fills an order in his Marietta warehouse. His company takes advantage of loans from UPS Capital.
Pedors was one of six companies that participated in a pilot of a UPS program that gives small companies bridge loans to import cargo. At a time when bank loans of any sort are harder to come by, the UPS loan helped Pedors expand.
“It aided our company to grow,” said John O’Hare, the CEO. “Not having to pay for shipments instantly really does help.”
The company’s revenues are about $2 million annually. It imports up to 55,000 pairs of special shoes a year from China for diabetics and people with arthritis, bunions or other foot conditions. The shoes are priced from $90 to $120. Doctors offices, hospitals and some pharmacies order them for patients.
Pedors now brings in about a container a month of shoes, a one-third increase, and is importing more styles than ever before. The bridge loan from UPS is available to qualifying small companies with up to $50 million in annual revenues, and is handled through a 10-year-old division of UPS called UPS Capital.
It may seem odd that a package carrier — the world’s largest at that — would essentially operate a bank. But the company found that if its customers can’t import goods due to cash flow reasons, it has nothing to ship.
“If funds are contingent on the movement of goods, the larger extension of that is that financing the goods is more robust for UPS,” said Bob Bernabucci, president of UPS Capital.
And it’s become harder and harder for small businesses to secure loans.
In August, a U.S. Federal Reserve quarterly survey of senior bank loan officers showed 65 percent had tightened lending standards for companies with annual sales of less than $50 million. That was up from 52 percent in April and 30 percent in January.
“I think it’s brilliant,” said Ken Bernhardt, regents professor of marketing at GSU’s Robinson College of Business. He served for four years when UPS Capital had a board.
“UPS used to be in the business of moving boxes from point A to point B. Now they’re in the supply chain business. Financing the needs of small to midsized companies is a great service that can build loyalty to UPS. By going into the finance area, they’re now dealing with the chief financial officer,” not just the shipping agent, he said.
The way UPS’s loan works is that instead of Pedors paying 100 percent of the cost of goods to the manufacturer, UPS fronts up to half the cost of the goods at the time of pickup. Pedors pays the other half.
Pedors then has up to 60 days to pay UPS back, with interest based on the prime rate. The imported items provide collateral for the loan. (The loan also means Pedors doesn’t have to mess around securing a letter of credit, another financing option.)
O’Hare said the bridge loan buys him time to start selling the shoes before he receives them. It also frees up cash flow. He said sales are up about 8 percent since the company started the pilot program in February of 2007, and he’s brought in a new shoe line in four colors.
UPS opened the program to other small businesses in September, using a Webcast to interest new customers.
Through a marketing analysis, Bernabucci has identified at least 14,000 potential U.S. customers for the service.
To qualify, a business must have been operating for at least three years, been profitable in the most recent calendar or fiscal year, and have a two-year trading relationship with the supplier. Companies also must have no liens or outstanding judgments.
“It signifies there’s a mature economic system that’s out there,” said Chris Vukas, UPS’s senior managing director of global supply chain finance. “The business model must be working.”
The maximum loan per container is up to $400,000, Vukas said.
For UPS, the bridge loans are another way to build brand loyalty, and to take advantage of its logistics products, especially its growing freight forwarding business.
“In bundling this all together — financing and shipping — we will have a customer for life,” Vukas said.
Stephen O’Hare, Pedors president, said that using the UPS financing and shipping products have saved him money and hassle. He no longer has to handle getting his containers of shoes — which go from the Pearl River Delta in China to Long Beach, Calif. — cleared through customs.
UPS keeps him informed of where the container is and he’s generally saving about 10 days in transit. The result is a net increase in profits through decreasing shipping costs. Plus, he can tell customers almost exactly when they’ll get their products.
Added John O’Hare: “We used to panic, looking out the back door for a shipment. Usually it was three weeks late. Now we know within a day when we’re going to get it.”
So far, neither Belgium-based DHL nor Memphis-based FedEx offer this type of financing.
UPS Capital is still a small division of UPS. It grew from 62 employees 10 years ago to 415 now. UPS has more than 400,000 employees worldwide, and is more package carrier than bank.
But Vukas said small businesses are the lifeblood of the U.S. economy, and more importantly, “grow into big business.”
On Wall Street, the initiative didn’t make big waves. David Ross, an analyst at Stifel Nicolaus & Co. in Baltimore who covers UPS, said initiatives like cargo financing won’t move the needle on UPS stock.
But it’s the kind of thing a large company like UPS does to fill its pipeline.
“UPS is such a big company, like GE [which has a capital unit], Coca-Cola or Nike,” Ross said.
“It enables them to help small businesses ship and drive volume through UPS’s network. That’s what this is about.”
Ross added that small importers are more profitable than large ones because they get fewer discounts. Plus, small businesses help fill UPS’s dwindling pipeline, as retailers feel the pinch from lower consumer spending and shippers are backing away from premium overnight air products.
“It’s all about getting more volume however they can,” said Ross.
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