In part 1 of this interview, Morgan Lépinoy, Managing Director of Viatrans broke down how container deposits are creating deep structural issues for the shipping and logistics industry in Africa, and what Viatrans is doing to help mitigate these challenges.

But this is a complex issue, one that needs a follow-up interview to clarify the remaining questions, and Lépinoy was happy to come back to give us further insight.

1. What are the problems with current demurrage charges, and how does it impact the industry? Will improving transparency in this space make banks/lenders more willing to do business with perceived high-risk clients?

Demurrage, first and foremost, represents an opportunity cost. It is essential for shipping lines to optimise their container fleet by efficiently repositioning empty containers from surplus to deficit areas. Therefore, the turnaround of containers upon discharge plays a crucial role for every shipping line. 

However, numerous factors can contribute to longer container turnaround times, including:

• port congestion, 
• inadequate inland infrastructure, 
• border and customs clearance delays, 
• adverse weather conditions, 
• civil unrest, 
• and more. 

Demurrage serves as an indemnity for shipping lines to cover the opportunity cost incurred beyond the agreed free time for container turnaround. Delays in containers hinder export capabilities in other regions, leading to idle use costs for shipping lines. However, Demurrage by consequence, also represents a substantial cost for importers, often increasing the overall cost of doing business in certain parts of the world.

Efficiency gains, improvements in logistics infrastructure, and innovative solutions addressing the aforementioned challenges are instrumental in enhancing overall logistics operations. By reducing transit times, the risk and impact of demurrage for the industry can be minimised.

While demurrage represents a cost, it also instils accountability and drives continuous improvement in logistics practices and innovations. This is crucial in an industry where various internal and external factors can disrupt the supply chain. 

Container deposits are a significant factor in causing delays during container clearance after unloading. Having to gather large cash deposits for the shipping line can be challenging and financially straining, particularly when there’s limited working capital. This adds to the overall delay in clearing and transporting containers.

With the introduction of the container guarantee, we have successfully improved the clearance process. Customers no longer need to worry about arranging deposits, leading to more prompt container clearance. 

This efficiency gain has reduced the turnaround time of containers under guarantee by a couple of days, resulting in significant cost savings, potentially avoiding demurrage charges.

Demurrage remains one of the largest expenditures borne by importers and exporters. Our distinctive position in managing these expenditures allows us to uniquely assess payment behaviour, instances of demurrage, reasons for delays, and operational fitness on behalf of our clients. 

Such critical information is currently absent from existing credit scoring and profiling solutions in the market. Traditional credit scoring solutions mainly focus on individuals seeking credit and provide limited insight into businesses, especially in the logistics sector. 

This lack of a track record often leads to the denial of financing or offers of generic and costly facilities. Consequently, the logistics sector remains cashflow strained, limiting its investment potential in business development and innovation, thereby hindering sustainable growth and resilience.

2. Considering that approximately $1.5 billion is tied up annually with shipping lines in East Africa, how can container guarantees through Viatrans help infuse this amount back into the economy or businesses?

1) Thanks to the container guarantee, we have successfully redirected working capital, which was previously tied up in deposits with shipping lines, back into businesses. This infusion of capital enables companies to allocate resources to other critical business activities and operations.

2) Leveraging synergies with the trade finance and banking ecosystem, we can provide valuable tools to enhance risk assessment and de-risk a customer segment that has been largely underserved. This contribution will strengthen the ecosystem, empowering the supply of competitive and tailored trade finance solutions, thereby fostering substantial growth and creating numerous investment opportunities within the sector.

Through the core of our solution and Viaservice’s strategic positioning to improve the financing ecosystem, we have taken a significant step towards addressing the annual idling of $1.5 billion in East Africa. By reintroducing this capital into circulation, we unlock its potential for a multiplier effect with new trade financing facilities, offering enormous opportunities for the sector and the region as a whole.

3. Do you have any case studies that show how Viatrans services have helped solve some of these industry issues?

Prior to Viatrans’ solutions, our customers were burdened with large payments for every shipment, with limited financing options.

This situation led to several challenges:

1) They were reluctant to pursue more business opportunities due to the additional deposit requirements, limiting their competitiveness and hindering the sourcing of new opportunities.

2) They were unable to allocate resources for crucial aspects of their business operations, slowing down their access to innovation, renewal, expansion of assets, and business development activities.

Since our inception in 2020, our solution has benefitted numerous SMEs, accounting for over 60% of licensed clearing and forwarding agents in Tanzania, and operating across the East African Community (EAC), allowing over $12 million to date of cash previously held in deposit to circulate back into their businesses. The positive impact has resulted in three main outcomes:

1. Levelling the playing field: SMEs can now compete on equal footing with larger logistics companies for the same cargo. Previously, they were constrained by the large deposits they couldn’t afford. Under the deposit era, some of our customers dealt with only 1-2 shipments per month, involving 20-100 containers per year. With our solution, these same clients are now handling that much cargo on a monthly basis, and some even more. This transformation has led to a fairer and more competitive environment in the market.
2. Unleashing idle capital: The cash that was once tied up and dormant is now being put to work. Customers can explore new acquisitions of assets, make more hires, and invest in their businesses, which was previously inconceivable. This improved working capital has significantly upgraded their resilience, making them investment-ready stakeholders, and contributing to the growth of the sector. Additionally, it has made trade and transport corridors more attractive to investors. Some of our customers have utilised the freed capital to acquire trucks and expand their services from simple clearing to clearing and forwarding, creating more opportunities and strengthening their market position.
3. Reducing operational and financial risks for shipping lines: As more volume moves to the container guarantee model, shipping lines experience reduced operational and financial risks. Turnaround of containers and liability collection improves, enabling shipping lines to optimise their resources, focus on value-added tasks, and enhance customer service excellence. The adoption of the container guarantee has also contributed to de-risking the region, making it more attractive for more vessel calls and further building upon an improved market environment to meet the growing demand.

Our solution has positively impacted SMEs, shippers, and shipping lines in the East African region, promoting a more competitive, efficient, and robust logistics sector.

4. Finally, how does Viatrans envision the future of shipping, particularly in terms of digital and financial trade solutions, given the current challenges faced by the industry?

In my view, the trade financing sector is on a path of digital transformation, fueled by numerous upgrades as the shipping industry undergoes further digitisation. However, it is important to recognise that this industry, despite its potential for innovation, remains old-fashioned, conservative, and slow to embrace new technologies. 

Simply introducing innovations won’t suffice; successful digitalisation should focus on addressing trade barriers, which currently underlie the inefficiencies and increased costs of trade. The companies that will thrive in this field are those that innovate with purpose, adopt a long-term view, and adapt to the fast-paced, ever-changing supply chain environment. 

A short-term, profit-driven approach won’t have the lasting impact required in this industry.

Looking ahead, the future of financial trade will be more inclusive and personalised. Partnerships between various stakeholders in the logistics and banking/TFI sectors will lead to significant developments. These collaborations will not only build expertise but also enhance the sharing of information and tailor solutions to specific needs. 

Data will be a critical ally, but managing it, both in terms of privacy and assessment, will be essential. The supply chain has multiple transactions, challenges, opportunities, and financing needs at each link in the chain. Each generates vast amounts of data. 

Innovative companies will be required to develop synergies across the spectrum and bridge the gap between parties to navigate this complexity, simplify processes, and deliver the right product or innovation to meet the right and specific needs.

In this context, leveraging data effectively in emerging markets and the traditional, old-fashioned environment of the industry will require tools that seamlessly integrate with existing systems. Solutions must avoid adding complexity to an ecosystem already dealing with numerous external factors. 

Simplicity and immediate perceivability of customer workflows and benefits are crucial for successful adoption and trust-building. Despite the complexity of the solution’s backbone, it is essential to ensure a user-friendly experience for operators with diverse backgrounds, both professional and academic, especially in emerging markets. Avoiding internal complications in an industry already dealing with a wide range of external challenges will be key to widespread acceptance and successful implementation.

The post Part 2: East African trade growth – Can container guarantees unlock the idle $1.5bn trade finance gap? appeared first on Trade Finance Global.

Even at its most basic form, international shipping can be a complex topic. The world runs on global trade, specifically maritime shipping. Yet many of the processes are still quite inefficient, and can be a hinderance for operations, especially for SMEs.

The issue of container deposits is not often mentioned when discussing potential issues within the industry, but they often create significant cash flow problems for exporters.

TFG sat down and spoke to Morgan Lépinoy, Managing Director of Viatrans to get a better insight on this topic.

1. Can you provide an overview of the container deposit problem, and why it is such a big issue for so many in the industry? Which countries see this as a more prevalent problem?

Shipping containers are vital for shipping lines, which are availed to shippers (importers, exporters, customs agents, and freight forwarders) for safe and secure transportation of goods. 

Whenever released to shippers for delivery of goods or loading of exports, shippers have a commercial obligation to return the container within the agreed period, and in good condition. In case of delay in return, damage or total loss of the container, the shipper must pay shipping lines arising charges (Demurrage, Damage or Total Loss). 

In emerging markets, particularly in Africa, the risks of delay, damage, or loss are heightened due to infrastructure inefficiencies, cumbersome customs procedures, and political instability affecting international goods transport.

Shippers face financial risk exposure due to often inadequate legal and professional environments that hinder the prompt collection of charges by the shipping lines. This results in a high risk of bad debt and adds to above-average transit times caused by transport issues. 

These factors together significantly affect the efficient repositioning of containers, leading to high opportunity costs for shipping lines.

Taking these risks into consideration, shipping lines require container deposits before releasing the containers to the clients.

Due to a lack of better options, shipping lines rely on container deposits as their only security measure. These deposits range from hundreds to a couple of thousand USD per container, based on type and destination. They are used to cover charges that may arise from delays in return (demurrage), damage, or total loss of the container if the customer fails to pay.

However, the deposits come with their own downside. All parties involved have recognised the multiple administrative, operational, and financial challenges of the container deposit as a major trade barrier in Africa.

Container deposit challenges significantly impact SMEs, imposing an estimated annual cashflow burden of $1.5 billion in East Africa alone. Some examples are:

• Impact on cash flow: Container deposits can tie up a significant amount of cash for SMEs, particularly if they need to pay deposits for multiple containers. This can create cash flow problems and limit their ability to invest in other areas of their business.
• Competitiveness: The high cost of container deposits can put SMEs at a competitive disadvantage compared to larger companies that have more resources to pay for these deposits. This can make it harder for SMEs to compete in the market and win new business.
• Lost business opportunities: SMEs may be reluctant to take on new business opportunities that require them to pay for container deposits, particularly if they do not have the necessary cash flow or financial resources to do so. This can result in lost business opportunities and limit the growth potential of SMEs.
• Administrative challenges: The process of paying container deposits can be time-consuming and complex, particularly in emerging markets where there may be a lack of standardisation and transparency. Making it more laborious for SMEs that may not have the resources or expertise to navigate the process effectively.

These challenges create significant trade barriers, increasing the cost of doing business for SMEs, and limiting their ability to compete and grow. Additionally,  they negatively impact and undermine the productivity and competitiveness of transport corridors. 

The container deposit issue is not only an East African problem, the challenges span across West and Central Africa as well.

2. How is Viatrans addressing this problem? Can you break down how Viatrans works with both the importers/exporters, and the shipping lines?

Our strategic positioning and institutional framework have been essential in creating a distinctive offering. This addresses the challenges of container deposits within the logistics community and promotes growth in emerging markets by removing trade barriers.

To create a solution that truly catered to the needs of the market, we closely collaborated with the industry’s primary stakeholders, including both public and private entities within the logistics sector. 

This approach allowed us to take a comprehensive view of the challenges faced not only by SMEs, but also by shipping lines. We understood that gaining acceptance for an alternative to the traditional deposit system required safeguarding the commercial and economic interests of the shipping lines. 

This unbiased and all-encompassing approach served as the foundation to develop and provide our comprehensive one-stop solution, successfully addressing the challenges of Container Deposits in the East African Community (EAC).

Partnering with key institutional stakeholders in the region has further strengthened our position and enabled us to meet the evolving needs of our customers and partners. We have established partnerships with crucial entities in the East African region, including 

• shipping lines, 
• clearing and forwarding agents, 
• regulators, 
• key intergovernmental and trade facilitation agencies. 

These partnerships empower Viaservice to create the most appropriate ecosystem, reinforce a robust due diligence and compliance framework, and ensure a seamless and efficient service for our customers and partner shipping lines.

For SMEs, our solution offers a cost-effective and reliable way to access containers and grow their businesses without tying up significant amounts of cash flow. 

On the other hand, for shipping lines, our solution provides an optimal risk-mitigating alternative that goes beyond traditional deposits by securing payment, eliminating bad debt, and offering ancillary benefits. 

These benefits include improved cash flow, reduced administration, and faster container turnaround times. Overall, Viaservice’s container guarantee solution has proven to be an innovative and effective means to enhance trade efficiency in East Africa, providing a cost-effective, reliable, and durable alternative to traditional container deposits.

In summary, our business model involves customers purchasing a container guarantee (#1 in the graph) for a specific Bill of Lading (BL) against a nominal service fee, which enables the release of containers without the need for deposits.

In the event of any liabilities, the shipping lines invoice Viaservice on behalf of the guarantee holders, and we advance the payout (#2) on a reimbursement basis (#3).

3. What is the difference between a container deposit, container guarantee, and traditional insurance?

4. What strategies are Viatrans implementing to bridge the gap between traditional procedures and the lack of competitive trade finance solutions?

The logistics community in Africa, as well as worldwide, has long been considered a high-risk customer segment. The lack of logistics expertise and tools to mitigate risk for this group of potential customers has led trade finance institutions and traditional lenders to limit their exposure to these markets, and underserve this community.

Our business model, however, provides a solution that unlocks a substantial amount of working capital for these perceived “high-risk” customers. This infusion of cash can now be invested in their businesses and other areas of operations, promoting further growth and efficiency. 

The new cash inflow faces a barrier due to a limited supply of tailored trade finance or credit solutions, hindering its growth effect. The underlying problem stems from a lack of transparency, limited understanding of logistics operations, and insufficient reliable financial information. These factors prevent lenders from effectively assessing the needs and creditworthiness of this customer segment.

Leveraging our unique positioning as a key financial and trade facilitation partner within the logistics sector, our solution aligns with banks and credit reference agencies to enhance the state of trade finance. 

It provides the most accurate and comprehensive profile view of the creditworthiness and business fitness of freight forwarding and clearing agents. By aggregating liability instances, payment behaviour, volume, and other operational and financial information for a large and growing pool of customers, we are uniquely capable of feeding into CRBs and banks’ compliance processes. 

This not only improves Know Your Customer (KYC) and compliance requirements but also establishes us as a reliable third party, enhancing the visibility and credibility of the logistics community with TFIs and traditional lenders.

The resulting synergy will not only bolster the potential of these new customers with TFIs but also drive significant development in the supply of more competitive and customised trade financing solutions.

Stay tuned for Part 2 of the interview soon!

The post Part 1: Container Deposits – Unloading the hidden challenges of the shipping industry appeared first on Trade Finance Global.

In international trade, shipping containers are vital for transporting goods safely and securely. 

To use them, however, many shipping lines require traders to put down deposits – known as container deposits – to safeguard against possible liabilities such as damage, demurrage, or total loss of the container.

While these deposits do provide a form of financial security for the shipping lines they can be a major issue for importers and exporters, estimated to cost $1.6 billion annually in East Africa alone, creating trade barriers and significantly impacting SMEs. 

To learn more about this issue and explore a new container guarantee solution seeking to serve as an alternative to traditional deposits and help promote trade in East Africa, Trade Finance Global (TFG) spoke with Morgan Lépinoy, Managing Director of Viatrans.

Challenges caused by container deposits

Container deposits tie up a significant amount of cash flow and hinder SMEs from using that liquidity to invest in other areas, and they may also make SMEs reluctant to take on new business opportunities that require container deposits, leading to lost opportunities and constrained growth. 

Lépinoy said, “The deposit ranges from hundreds to upwards of a couple of thousand US dollars per container depending on their type and destination and can tie up a significant amount of cash for SMEs, particularly if they need to pay deposits for multiple containers.”

Particularly when compared to larger competitors, the high cost, administrative complexities, and lack of standardisation surrounding container deposits create an expensive, time-consuming, and burdensome process that puts SMEs at a competitive disadvantage.

To combat this, Viaservice has developed a container guarantee solution in East Africa that addresses these challenges and promotes trade efficiency in the region. 

Lépinoy said, “The solution simplifies the payment process, making it easier, more efficient, and cost-effective for shippers to manage their finances. This, in turn, reduces the administrative burden on SMEs and frees up critical working capital that can be used for other important business activities and operations.”

While developing their offering, Viaservice collaborated with key institutional stakeholders, including shipping lines, clearing and forwarding agents, regulators, and trade facilitation agencies in East Africa. 

As a result, SMEs can pursue and win new business opportunities that were previously out of reach, fueling their growth and expansion.

About the container guarantee program

Viaservice’s container guarantee solution maintains the liability chain while enhancing compliance and safeguarding commercial relationships. 

Lépinoy said, “For SMEs, the solution provides a cost-effective and reliable way to access containers without tying up significant cash flow. For shipping lines, the solution provides a risk-mitigating alternative that does more than deposit towards securing payment, and removing bad debt”

Each guarantee issued is unique and applicable to a specific bill of lading, ensuring accountability, and customers must comply with prior obligations to remain eligible for future guarantees, reinforcing a culture of accountability in the logistics sector.

By acting as a trusted intermediary for advancing charges on behalf of customers, the solution does not remove any obligations from clients but rather enhances the liability chain and promotes compliance. 

Numerous SMEs have made use of Viaservice’s container guarantee solution. 

For example, a Tanzanian clearing agent was competing to win a large shipment requiring more than 100 containers. The shipping line was asking for a deposit of $1000 per container but the clearing agent could not afford to have $100,000 simply sit idle as a deposit.

Lépinoy said, “Thanks to our container guarantee solution, they did not have to and were able to secure this large business, all while increasing cash flow. They have since levelled the playing field for the company and are now competing for more and more cargo than before.”

This and other success stories demonstrate how the solution provides an alternative allowing SMEs to compete on equal footing with larger companies, seize new business opportunities, and contribute to the growth of intra-African trade.

Future opportunities for container guarantees expansion

Viaservice’s container guarantee solution has already demonstrated effectiveness in East Africa, but its potential extends beyond the region. 

As the model gains recognition and success, there is an opportunity to replicate and expand the solution to other regions in Africa facing similar challenges. 

By forming partnerships with local stakeholders, governments, and trade facilitation agencies, Viaservice can extend its reach and enable SMEs across the continent to thrive in international trade.

Furthermore, the success of the container guarantee solution opens doors for collaboration with global shipping lines and logistics providers. 

By demonstrating the positive impact on SMEs and the overall trade ecosystem, Viaservice can foster partnerships with international players interested in promoting inclusive and efficient trade practices. This collaboration can contribute to the development of standardised container deposit systems that reduce barriers to trade and further facilitate global commerce.

As the solution expands its footprint and gains recognition, it has the potential to shape trade practices not only in East Africa but also across the African continent, fostering inclusive and sustainable economic growth.

The post Addressing the container deposit problem to promote intra-African trade appeared first on Trade Finance Global.