Tariffs, digitization, trade policy among top themes

Held on December 3, 2024 at Greenberg Traurig, LLP in New York, NY, this inaugural conference aimed to help asset-based lenders stay informed about industry developments, improve their lending practices, and identify opportunities for growth.

Planned by outgoing SFNet Factoring Committee Chair, Robert Grbic, Senior Advisor, White Oak Commercial Finance; Rich Gumbrecht, CEO, Secured Finance Network; and 2025 Factoring Committee Chair, Paul Schuldiner, Executive Vice President, Rosenthal & Rosenthal, the event featured seven panels reviewing the economy, supply chain finance ecosystem, credit risk, legal issues and more.

A Strong, but Slowing, U.S. Economy

The Conference kicked off with Dimensioning the Market with Moody’s (part 1) featuring Matt Colyar, Economist, Moody’s, as speaker, who discussed the U.S. macro economy, major themes, key data points, and the 2025 outlook and how  fits into how supply chains are operating.

Colyar started with an overview of the economy. The U.S. GDP growth was around 3% in Q2 and Q3, with inflation improving and job growth healthy but slowing slightly. The labor market remains strong, with a 4% unemployment rate and robust wage growth. The Federal Reserve's policy expectations include further interest rate cuts, aiming to balance inflation and economic growth.

“Another factor, which doesn't get as much attention, has been strong productivity growth,” Colyar said. “If you can squeeze more per hour out of one of your personnel, that lessens the need to pass through their increased wages to consumer prices. Productivity and labor growth are massively important.

“AI and its labor-saving technology are top of mind for everybody. While it makes people more productive, it’s largely a demographic story. Boomers are going to continue to retire, but they will still spend. That keeps the labor market tight and gives employees a lot of leverage. Firms are aware of that and understand that labor-saving technology is going to help them. They're less dependent on needing to hire and retaining staff at a higher rate.”

An ongoing theme throughout the conference was the looming broad-based tariffs, which are expected to increase inflation, but likely not dramatically or all at once. The tariff rate in the U.S. is expected to rise from around 3% currently to close to 7.5% over the next four years, raising costs for businesses that rely on imported goods.

“Logistically, it's difficult, and there's a lot to be ironed out,” Colyar said regarding the tariffs. “September inventory data suggested firms have been hoarding inventory in preparation for the tariffs and anticipation of increased cost down the road.”

The potential impact of tariffs and geopolitical risks on supply chains were also discussed. Firms are adapting by localizing supply chains.

“We anticipate a lot of localization of supply chains,” Colyar said. “This may mean putting a factory somewhere that doesn't have the natural and structural advantages to make the cheapest product, but is aligned geopolitically, and that's growing as a factor, as opposed to just cost savings, that we've seen the past couple decades.”

“Trade policy is crucially important and is becoming increasingly protectionist,” Colyar added. “The uncertainty this creates will cause businesses to pull back on their supply chain and other investments, adding to costs, impairing productivity, and further exacerbating inflationary pressures in the longer run.”

What Makes Up This Ecosystem of Supply Chain Finance? (part 2) unpacked the who’s who and what’s what of supply chain finance, now a trillion-dollar business – both domestic and global in scope.   The panel discussed strategies for navigating supply chain disruptions and tariff landscapes, including diversifying suppliers, leveraging technology for visibility, and strengthening supplier relationships. The moderator was Jeremy Jansen, Global Receivables & Trade Sales Director and Managing Director, Wells Fargo and panelists included: Tony Brown, Senior Advisor/Principal, The Trade Advisory, Robert Grbic, Senior Advisor, White Oak Commercial Finance; Joseph Marchese, partner, PFK Clear Thinking and Thomas Siska, Senior Vice President, Head of Factoring, eCapital.

“Supply chain finance has become a financing tool that I used in the past to finance and enhance the working capital cycle for a client,” explained Bob Grbic, senior advisor, White Oak Commercial Finance. “It’s becoming an important financing tool that you can use, but all of this hinges on credit quality. You have to know your customer and your business model. There’s a correlation I have found in my 40-year career between the people with the best terms and those with the best relationship with their suppliers.. The people that actually meet with their suppliers will figure out solutions.”

The panel covered innovative supply chain finance solutions such as dynamic discounting, a version of reverse factoring funded by a buyer, embedded financing, and inventory-based financing.

“If a buyer has loads of cash availability, they might decide to take money out of Treasury and deploy it into one of these programs to offer  suppliers  early payment at a discount to arbitrage their (lower) cost of funds versus the suppliers,” Brown explained. “If interest rates are going up, that's a fantastic income opportunity for a buyer on excess liquidity.”

Brown also shared an interesting trend where inventory financing is revisiting merchant banking of the 1800swhere goods are financed on the high seas by owning them.

“In recent times, several players (essentially trading companies) are leveraging digitization and the ability to monitor the throughput of goods throughout the supply chain, to actually take ownership of goods at the time when the supplier is ready to deliver them, but to keep them off the buyer’s balance sheet until the buyer needs them, where they need them. It’s not something to play in your living room, because it's risky. But there are several technologies being developed now in data science that can de-risk such transactions, and there have been some really important multi-billion dollar landmark financings.”

Clear Thinking’s Joe Marchese discussed how clients can work around disruption, such as the dock workers strike and 2021’s Suez Canal obstruction. 

“Companies can de-risk their supply chains by diversifying their suppliers, have dual sourcing options, and finding someone who supplies local so the chain can be shortened by different distribution channels,” Marchese said.

Brown added that increased digitization will continue to bring many benefits to supply chain financing.

“Automated program interfaces (APIs) can take data from ERP systems, accounting systems, warehouse management systems and logistics service providers to provide greater transparency, clarity and visibility of what's going on in supply chains, and thereby mitigate risk. So now, if you've got a flow of data that's been going between the parties, and not only just in one segment of the supply chain, you then start to feel a little bit more comfortable to finance the very asset that most funders are hesitant to lend against – namely inventory. This is the most important asset to solve the working capital solution, since it consumes the most working capital.”

The Forms of Supply Chain Finance panelwas acomprehensive look at some of the products that make up the world of supply chain finance. Panelists explored the value of these products to borrowers in the small to lower of the middle market who are seeking additional liquidity, structural considerations of these products, and how they work in conjunction with existing senior debt financing. The panelists also addressed challenges like execution risk, technology integration, and the importance of transparency and collaboration in supply chain management.

Paul Schuldiner, Executive Vice President, Rosenthal & Rosenthal, served as Moderator. Panelists included Bryan Ballowe, Co-Founder and Managing Partner, TradeCap Partners; Robyn Barrett, SVP, Managing Director, Oxford Commercial Finance and Brian Dowd, Senior Vice President, TradeWind Finance.

The takeaway is to hopefully get more focused on the various types of financing requirements of the SME market and how these products actually work as it relates to the borrowers that utilize them and lenders ability to offer them,” said Schuldiner.

Ballowe said that smaller, less capitalized companies face significant challenges in managing forecasts and delays, which can be catastrophic for seasonal businesses. He described how purchase order funding differentiates itself and works with other supply chain solutions.

“Purchase order finance provides an incremental growth solution to companies that have large customer orders and need additional financing to get goods produced, shipped and delivered,” Ballowe explained. “Once goods are produced, delivered and invoiced with the help of the pre-shipment solution provided by the PO lender, additional availability is created such that an AR lender will be able to advance and repay the PO obligation.  So functionally, it's a really nice, mutually beneficial relationship for a client, to have essentially a turnkey solution, to be able to bridge the gap and keep suppliers paid, but also be able to extend credit to customers and be able to finance it all along without really having any funds out the door from their own balance sheet, or be able to have to raise equity to employ variable cost.”

Barrett spoke to what benefits reverse factoring brings to SMEs. Manufacturing and staffing, PACA-related industries and construction are a few of the industries she is seeing more use reverse factoring. The biggest obstacle preventing further expansion into the small- to medium-sized client pool has been technology, said Barrett.

“It's being able to manage that amount of data. So, you have to have a platform or some kind of technology to do that. Reverse factoring works really well with when you have a strong, credit worthy buyer. So, it's a really good fit for ABL or traditional banks.”

Navigating the complexities of international trade was another key focus of the discussion. Brian Dowd of TradeWind International highlighted the importance of having a local presence and understanding legal jurisdictions when engaging in export factoring and cross-border transactions.

“I like to tell U.S. importers that your creditworthiness is a hidden asset,” Dowd said. “For example: if $2 million of credit insurance coverage is available on your company, that's $2 million of liquidity that you can unlock through your supply chain by stretching out your payables and passing the finance to your suppliers, in Asia, South America, or the Middle East. There's a lot of export factoring options in these producing markets, especially China, and India. If you are a creditworthy U.S. buyer, there's plenty of options to factor those invoices.”

Lunch featured Keynote Speaker Dan North, Senior Economist, Allianz Trade.  The discussion focused on the impact of economic policies and inflation on trade credit insurance, consumer spending and credit card debt, the impact of interest rate cuts on the economy.

Key Elements in Assessing and Monitoring Buyer Credit Risk discussed the
challenges and trends in assessing and monitoring non-rated/non-investment grade buyer credit risk.

Meredith Fitz, Head of Portfolio, White Oak Commercial Finance, was the Moderator. Panelists included René Canezin, Managing Partner, Evolution Credit Partners; Parker Freedman, President, ARI Global and Joerg Obermueller, Managing Director, CIT

The discussion covered the private lender's approach, qualitative analysis, the insurance space, challenges in obtaining insurance and credit data, access to information and structural protections, supplier due diligence, and handling distressed situations.

The need for detailed financial and supply chain analysis, emphasizing the significance of liquidity updates and management access were highlighted. Insurance considerations, such as the willingness and ability to pay, were also discussed, with a focus on the role of trade credit insurance. Structural protections in agreements, like non-priming clauses, were suggested to mitigate risks.

“Trade credit insurance is a significantly important factor in enabling financing in the market,” said Canezin. “One of the potential risks, for participants in supply chain finance, is if a provider relies on trade credit insurance to provide financing, then subsequently loses that trade credit insurance, and is no longer able to finance their clients. How does that affect the clients? Therefore, there is a knock-on effect that we must consider.”

“I also look at who the other lenders are and if it’s a multi funder arrangement, and if those multi funders are reliant on trade credit insurance. “If they are, that is just another sign that we want to underwrite.  It's an important element to make sure that they have good sponsorship from the trade from the credit insurance community.”

“Most of the credit insurance industry does not support single debtor transactions,” explained Freedman. Usually with single debtors, whether it's traditional insurance or supply chain financing, it's normally not the best credits. When it goes bad and they pay a claim, they've also lost their relationship. So, they look for a reasonable spread of risk. Most of the markets, not all markets, but on the way in, it's best to have it flow charted. If financials are available, that's going to drive the bus. Also, what brings significant credibility is what lender is driving this. All of the underwriters look at the quality of the lender in the transaction.”

The Current State of the Global Supply Chain Syndication Markets discussed primary and secondary market liquidity, structuring trends, and opportunities and challenges. Panelists included Carey Gussin, Managing Director, Head of Supplier Finance, Wells Fargo Vasilios Kontogianis, MBA, Director, Trade and Working Capital Sales, Citi; Waheeb Rizvi, Director & Head of Portfolio Management and Distribution, Global Trade Solutions, HSBC and Erik Wanberg, Managing Director, Taulia.

Valued between $500 billion and $1 trillion, the supply chain finance market is evolving rapidly. Initially dominated by large banks and corporations post-2008, SCF has expanded into mid-market segments, with Asia leading growth due to increasing intra-regional trade and local currency programs. The industry is adapting to geopolitical challenges like shipping delays disruptions and the expected tariff-induced cost changes, which could destabilize supply chains and create new financing needs.

Rizvi said a phenomenon after the pandemic, was the move away from just-in-time inventory to just-in-case inventory, which is now creating more opportunities for inventory finance. Inter-regional trade growth is another factor that's creating more opportunities for supply chain finance providers to play their role and provide solutions locally to corporates.

The final panel of the day, Legal Documents and Related Issues, discussed some of the legal aspects related to supply chain finance, such as UCC filings, true sale concepts, and international compliance. Challenges such as cross-border issues, and recent trends in including blockchain and FinTech innovations, were also discussed, emphasizing the evolving nature of the market.

Kalyan " Kal" Das, Shareholder, Greenberg Traurig was the moderator.  Richard Brown, Partner, Holland & Knight; Miriam Cohen, Partner, Loeb & Loeb and Richard L. Stehl, Chairman of the Board, Otterbourg P.C., were the panelists.

Brown explained how the supply chain finance “sausage is made” from a legal standpoint, explaining the roles of multiple parties in a supply chain finance program as well what the key aspects of arrangements with a buyer under the Supply Chain Finance program, and the various steps in the process.

Panelists discussed some of the advantages buyers have in using a Supply Chain Finance program, along with challenges, such as cross-border.

The event concluded with a Networking Reception at Greenberg Traurig.