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Why Logistics Finance is the Wave of the Present and Future

Date: Sep 10, 2018 @ 07:00 AM
Filed Under: Logistics
Related: CIT, Eric Miller

Editor’s Note: In July 2018, CIT Group announced the creation of a new Logistics Finance unit within its Capital Equipment Finance business to deliver expanded leasing and financing solutions to all stages of the supply chain. Equipment Finance Advisor asked Eric Miller, Managing Director & Group Head of CIT Group’s Capital Equipment Finance Group to explain more about this market and why CIT created a specific team to serve the material handling and logistics sector.

See that pile of Amazon boxes and other packages on your doorstep? Now look at the boxes on your neighbor’s porch, and across the street, and down the block and around the corner.

That isn’t just the result of online shopping sprees. Instead, it represents a fundamental shift in how customers acquire products. And the job of making sure the right packages get to the right place at the right time falls to the fast-growing industry of material handling and logistics.

And that represents a long-term opportunity for leasing and financing that we are excited to be actively supporting.

How did it all begin? Some cite the swift rise of online retailing as the catalyst for the explosive growth of material handling industry. Others point directly to the tremendous customer acceptance of Amazon Prime and its free two-day shipping policy. (At last report, Amazon Prime had more than 100 million members.)

Whatever the cause, there can be little doubt that material handling and associated logistics services like trucking, air freight and parcel delivery are undergoing tremendous innovation and growth. And from all appearances, there is plenty more to come as retailers, manufacturers and consumer product companies seek more efficient ways to get billions of packages into the hands of customers.

A few data points provide a glimpse at the magnitude of the industry changes now under way. 

Total spending on logistics rose to $1.5 trillion last year, an increase of 6.2 percent over the prior year, according to research conducted on behalf of the Council of Supply Chain Management Professionals. That 2017 figure represented an increase of more than $250 billion compared to 2008.

The future looks even brighter. Another report estimates spending on material handling equipment alone will exceed $190 billion by 2024.

Logistics Financing 

All this focus on logistics is opening up an attractive opportunity to lease and finance equipment all along the supply chain.

To succeed in this market, savvy lenders need to listen closely to customers to understand how they utilize logistics assets, and then create financial programs to align with their customers’ business models. It’s essential to structure transactions in a way that optimizes customer asset utilization and cost parameters.

By strictly adhering to secondary market value of these assets, and failing to consider other factors when structuring leases, lenders may be overly conservative in pricing financing rates out of fear of equipment return at lease expiration. To be a value-added lender in this space, you must have a deep understanding of the equipment lifecycle relative to each specific customer’s requirements. That way a true long-term relationship can develop between lessor and lessee.

Because of the unique and fast-moving nature of the material handling industry, our Capital Equipment Finance business at CIT has created a new Logistics Finance team specifically to penetrate all aspects of this market. As the name implies, this team is laser focused on finding leasing and financing opportunities from customers across the material handling and logistics industry.

Notably, that also includes ground support at both airports and shipping ports, where we see the potential to help customers acquire, maintain and upgrade the equipment used to move billions of tons of freight annually. In addition, there is growing demand for financing to support the agricultural space and ancillary markets where much of the supply chain is initiated.

Underserved Customers

From our market experience, customers are currently being underserved from a creative financing perspective. In many cases, cookie-cutter structure and documentation do not provide the most competitive financing options in a market that is changing quickly.

To be sure, a certain amount of leasing or financing has been routinely used to underwrite logistics and materials handling equipment in the past. Indeed, CIT itself has been active in such financing for years. But what’s new is that the industry’s explosive growth is creating a demand for new financing options that once simply didn’t exist.

Another factor driving the launch of this business is occurring on the financing side of the industry. The departure of certain large finance industry players coupled with a decade of low yielding transactions that forced smaller players out has left a void in the marketplace that CIT is poised to fill.

Our New Logistics Finance Team

That’s why we’ve launched our Logistics Finance team by hiring Ken Fosina, former ATEL Leasing Corp. executive vice president, to lead it. He’s in the process of building out the team with industry veterans who have the skills, experience and relationships to produce immediate results by providing the right customers with the right transactions.

For context, this new team is within our Capital Equipment Finance group, which is a leading provider of equipment financing solutions for companies in a wide range of industries. We have nearly a century of experience in developing innovative financial products and services that are flexible, affordable and tailored to our customers’ specific needs. The new Logistics Finance unit is another example of how we keep up with evolving markets, and we’re in business to play the long game because that’s what this market needs.

We also believe that scale matters. A multibillion-dollar entity like CIT has the capacity to provide a greater range of financing options and can afford to be more flexible with customers at the end of a lease term.

Future Growth Opportunities

No one can be entirely certain what the future holds, but with demand continuing to outstrip capacity, growth in the materials handling and logistics industry seems assured. We’ll certainly see new innovations, as shippers look to increase capacity at affordable cost. These innovations will include advanced technologies such as artificial intelligence, RFID, robotics, the Internet of Things and blockchain, to name but a few.

As I said at the outset of this article, these are exciting times in an exciting industry. We believe many of the factors that led to growth in materials handling and logistics, such as online retailing, direct-to-consumer sales and even online grocery shopping, are unlikely to reverse and will probably continue to grow. The need for shipping containers, forklifts, warehouse equipment and other forms of materials handling equipment – as well as the financing to support them – will grow along with them.

For finance and leasing companies, the challenge will be to keep on top of the trends and technology while continuing to offer the right financing to the right customers. That’s best handled by experienced industry professionals in organizations with the scale and creativity to offer flexible financing options.

 



Eric Miller
Managing Director and Group Head | CIT Capital Equipment Finance
Eric Miller is Managing Director and Group Head of CIT Capital Equipment Finance where he is responsible for overseeing financing activities for large ticket equipment leasing and lending, as well as project finance related activities.

Miller is an industry veteran with experience in leading origination teams focused on sourcing, structuring and executing middle market capital equipment financing transactions. During his time he has covered companies in a wide array of diverse and unique industry sectors.

Prior to joining CIT, Miller served as a Managing Director for GE Capital in their Corporate Finance division, where he developed winning strategies to successfully achieve sales and profitability objectives. Industries of focus included Construction, Transportation, Media & Entertainment, Marine, Automotive, Food-Bev & Agriculture, Plastics, Metals, Mining, Energy, Aerospace & Defense and General Manufacturing.
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