The downturn in imports and exports over the past five months due to the coronavirus pandemic has left many small and mid-sized companies wondering if they will be financially prepared to participate in the global economic recovery.
Strict COVID-19 travel restrictions and reduced freight volumes have severely disrupted cash flow between the myriad players typically involved in international freight transactions – shippers, freight forwarders and customs brokers, and carriers.
When freight shipments re-surge to U.S. ports after COVID-19 abates, financially strained companies may not have the cash on hand to immediately pay their carriers and retrieve cargo from the terminals. They will need a financial cushion.
PayCargo Capital, an independent company that formed a strategic partnership with financial technology company PayCargo, is offering shippers and forwarders in North America that already use the PayCargo platform to pay their transportation bills to apply for credit of $50,000 to $2.5 million for a 15-to-45-day period.
“PayCargo Capital offers credit terms on freight previously available to only a few very large companies,” Philip Philliou, CEO of PayCargo Capital, told American Shipper. “This credit can be used to prevent expensive demurrage charges, speed goods on their way to their final destination, and improve operational efficiency by reducing the burden of shippers to make tens of thousands of overnight payments per year.”
Improved cash flow
Under the credit terms, PayCargo Capital pays all freight charges to the carriers upfront for the shipper or forwarder, and then reclaims those funds electronically from the PayCargo customer within the agreed upon timeframe.
Philliou said unlike traditional lenders, PayCargo Capital has the ability to approve credit applications in seconds rather than days or weeks, since the company’s customers have been previously vetted to use the freight payment system and because of PayCargo Capital’s decisioning platform. “We uniquely have a vast amount of invoice, trade and financial data available at our fingertips, which allows us to make timely and sound decisions,” he added.
Philliou said PayCargo Capital has witnessed an increase in customers seeking lines of credit during the COVID-19 pandemic. The company has also worked with various trade associations, such as the Southeast Produce Council and the National Customs Brokers and Forwarders Association of America (NCBFAA), to improve cash flow to their respective members already using PayCargo to pay transportation invoices.
PayCargo Capital, however, urges its clients to use the credit lines rather than sit on them. “For clients who already have a PayCargo line of credit, we encourage you to use it as we have unprecedented demand for credit and can re-deploy your credit to someone else who will use it,” the company recently told NCBFAA members.
The company also provides 24-hour customer service via telephone, email and text to credit customers with questions. “It’s like having a private banker who understands transportation at your beck and call,” Philliou said.
Eliminating paper checks
PayCargo got its start in 2009 as an online internet portal for shippers and forwarders to pay their transportation invoices electronically to carriers and obtain faster release of their cargo.
Here is how it works: a shipper or forwarder operating on the PayCargo portal receives electronic notification from the carrier of a transportation invoice; creates a transaction in the PayCargo online portal; and then reviews and approves it. As soon as the transaction has been approved in the system, the carrier receives immediate notice that it has been approved and receives payment in their account by 6 a.m. the next morning.
Lionel van der Walt, PayCargo’s North American CEO, said since the carriers are assured payment by the next morning, many are willing to release the cargo to the shipper or forwarder’s trucker immediately upon receipt of notice that the payment has been approved in the PayCargo system.
“On the receivables side, it has provided us with confidence and reliability regarding payments, so we feel comfortable to release import shipments as soon as we have a confirmation of payment from PayCargo,” said Erik Berger, corporate controller of ocean freight consolidator CaroTrans Global, based in Clark, New Jersey.
Ocean freight consolidators are also considered “shippers” when they conduct business with the ocean carriers to transport their containerized loads.
“On the payables side, [PayCargo] has allowed us to pay our vendors quickly and get immediate or next-day releases,” Berger said. “This has reduced our need to send payments by wire, FedEx and messenger services. It has made us more efficient and helped us provide better service to our customers.”
“Over the last couple of years, the entire shipping ecosystem has begun to go through a much-needed transformation, both upstream and downstream,” said Sol Green, forwarding supervisor for All-Ways Forwarding International in Elizabeth, New Jersey. “Starting with carriers updating their websites, electronic bookings and APIs [application programming interfaces], they call it digital freight forwarding. But one component was missing – settling funds between two parties. And this is where PayCargo stepped in.”
Green said his company embraced PayCargo several years ago after tiring of costly paper check transactions. “Waiting 24-48 hours for a freight release to post was slowing down our operation and I found we were spending too much time per shipment on freight release follow-ups,” he said.
PayCargo has more than 19,000 shipper and forwarder payer companies and over 3,000 carrier companies registered and using the freight payment platform, processing more than $2 billion of freight invoices in 2019.
With the COVID-19 travel restrictions and social distancing requirements in place for American businesses, more companies are opting to use PayCargo for paperless, contactless payments across all transportation modes.
“We’re now adding about 800 new payer users a month and 150 new vendor users a month,” van der Walt said. “No face-to-face is necessary for PayCargo.”
PayCargo has also been integrated with large transportation management system platforms such as Champ Cargosystems, Accelya, IBS Software and Unisys, which has increased the payment portal’s appeal among users.
van der Walt said paperless freight payments make financial sense. The company calculated that it costs shippers and forwarders between $25 and $40 to process and courier paper checks to their carriers, whereas PayCargo customers pay $7.50 per online transaction.
Physical handling of paper checks and invoices still dominates much of the transactions taking place at North American freight terminals and PayCargo sees much more room for growth. The company estimates that despite their leadership position in the industry, it only holds about 5% of the North American freight payment market share.
“This should not come as a surprise, considering that the industry has been slow to adopt transformational projects aimed to modernize the value chain. However, COVID-19 is changing that and we are seeing a drive across many companies to modernize and secure much-needed efficiencies and PayCargo is working with many of them to help achieve their objectives,” van der Walt said.
However, as PayCargo’s business grows, so does the competition and potential for customer confusion.
Joshua Wolf started a freight payment company in 2012. The Peachtree, Georgia-based company, which at the time operated a service called PayAirCargo, became a PayCargo user itself in 2015. However, PayCargo alleged that the similarity in service names seeded confusion in the market.
In 2016, PayCargo entered an agreement with Wolf’s CargoSprint to end use of the PayAirCargo name. (CargoSprint also discontinued its use of PayCargo services in 2020.)
In July 2019, PayCargo filed a complaint (PayCargo LLC v. CargoSprint LLC) against CargoSprint and CEO Joshua Wolf in the U.S. District Court for the Southern District of Florida, alleging that the entity and its founder failed to uphold the agreement by continuing to allow the PayAirCargo name to perpetuate on its Facebook page to customers.
The legal case has since continued to move through the district court in Miami. PayCargo obtained a preliminary injunction earlier this year enjoining CargoSprint and its founder from any further use of the PayAirCargo name.
Despite the preliminary injunction, PayCargo said CargoSprint has failed to abide by the court order and persisted in its use of the PayAirCargo name, which is presently the subject of a motion seeking contempt of court.
“While it seems PayCargo will ultimately succeed in prosecuting its trademark infringement claims against CargoSprint, such victory will likely not be completely satisfying,” wrote Alissa Del Riego, an attorney at law firm Podhurst Orseck wrote in a recent Bloomberg Tech & Telecom Law News article. Riego represents PayCargo in the lawsuit.
“To this day, according to the pleadings, customers and industry actors believe the two are the same company, and as a result of CargoSprint’s efforts to piggy-back off PayCargo’s reputation, several potential customers have refused to use PayCargo’s services because of bad experiences with CargoSprint’s platform or customer service,” she said.
Reached by American Shipper, CargoSprint’s Wolf sees his company as just another competitor in the burgeoning fintech market, despite the allegations made by PayCargo in its lawsuit. “The truth will come out, and I’m not afraid of the truth,” he said.