This British company is making a killing from Glencore's problems
Companies like Glencore have a huge pile of debt and can't shift those assets when prices are so low because it's not cost-effective. Those goods are basically used as collateral against their loans.
In other words, many commodities companies' deals are on ice because they cannot move physical assets from a seller to a buyer.But factories or producers still need those raw materials to keep business going and are sating their need through smaller transactions.
There's one firm which has a unique business model that allows it to do all the deals that banks and companies like Glencore can't do - finance and move physical commodities on a purely transactional basis.
Trade Finance Partners (TFP) provides alternative financing for companies looking to shift finished goods - stuff that can be sold immediately on the street or in shops - as well as commodities such as timber, iron ore, and steel. Clients range from those with £1 million in assets to around £250 million.
It provides financing for those looking to trade goods via shipping. But unlike the banks and other traditional routes, it doesn't provide loans of cash and then expects the company or individual to use assets like their home or their stockpile of physical commodities against the loan.
Instead, TFP provides financing for companies looking to ship commodities on a transaction-by-transaction basis and buys the assets until the goods have reached their destination.
"It's non-economic for the likes of Glencore and Cargill (industrial and agricultural services provider) to do smaller spot transactions," said Chris Ash, co-CEO and founder of TFP to Business Insider."Falling prices and large infrastructure means they can't afford to sell, because they're using their assets as collateral for the banks. Buyers in the meantime have to satisfy demand via the spot market and companies can sell smaller chunks of goods in the meantime."
Commodities price slump helping boost business
This means while humongous quantities of commodities are sitting behind lock and key, smaller transactions are more prolific - at least if they get the financing for it.
This is a huge boost for TFP's business, which takes a slice of the profit from goods delivered when it helps finance the company to ship overseas.
"It would be naive to think this environment (low prices creating more spot transaction clients) would last forever but we it is boosting business," said Ash.
"However, we aren't necessarily taking business away from the likes of Glencore or the big investment banks, we're not interested in taking on the big boys - we're servicing small to medium enterprises that don't necessarily get their funding on a transaction by transaction basis. We're more complementary rather than rivals.
"Trade finance is actually rather risky and if banks were to lend to companies at rates that adequately reflect the risk for spot transactions, they probably, and often don't, at all. The barriers that clients would have to reach are very high as well in terms of credit and assets to back loans, so it's also difficult for some people to get the financing."
"We're also not a lender of last resort though and don't market ourselves that way. Unlike all those P2P lenders out there (referring peer-to-peer fintech companies) we don't just lend out money to the micro markets.
"We do everything from vetting the containers of goods, doing local checks (for the country being delivered from and to), vet the counterparties and acquiring the assets until they are delivered. We also help with what the client needs in terms of sorting what import and export taxes need to be sorted and any other issues."
But Ash and TFP believe that what they are doing is a lot more than just financing deals - it's massively contributing to growth.
"Growth is letting a company expand by doing all the deals it hasn't been able to do," said Ash. "We're not competing with the massive banks in getting people like Glencore on our books, we are helping clients expand their business overseas by allowing them to sell their goods in more places. That's true growth."