Twenty years of cold chain

In 05, Hu Shutong first came into contact with a logistics bank. He vividly remembers the strange and surprised look on the other party's face when he proposed to use the agricultural products of Tongxing Circulation as collateral.

The reason he proposed using circulating assets as collateral was simply because Tongxing's fixed assets were unworthy of their attention; he had to resort to lengths to explain the value of current assets in the logistics industry. If even a logistics bank faced such difficulties, imagine what it would be like to seek credit support from a commercial bank…

Tongxing's situation would be even more awkward at that time.

Commercial banks generally hold certain views on small and medium-sized enterprises (SMEs), such as unsound financial systems, inaccurate financial accounting, and lack of credit guarantees. This makes commercial banks reluctant to lend to SMEs or even afraid to lend to them.

Even assuming Tongxing meets the qualifications for external financing like commercial banks, the subsequent process would be difficult to manage. The fledgling Tongxing was already short of funds.

If you take out a loan from a bank,

After adding up loan interest, collateral appraisal fees, guarantee fees, and risk deposits, Tongxing actually received less than 80% of the total.

Such high financing costs are enough to deter businesses from pursuing this path.

The difficulties in financing for SMEs are not limited to these issues. Assuming Tongxing is determined to rely on this method of financing, it should be prepared for a long wait. "Prioritizing large enterprises over small ones" is a common practice among banks, involving cumbersome procedures, centralized approval authority, and lengthy decision-making chains, making it difficult to guarantee the timeliness of fund disbursement. Meanwhile, "short-term, frequent, and urgent" is a characteristic of SMEs. If they didn't urgently need money, who would go to the bank for a loan?

This is where the contradiction lies: the characteristics and financing needs of SMEs are completely incompatible with the banking system. This forces many SMEs to turn to private lending and other forms of internal financing, but the allure of usurious loans can easily plunge these businesses into debt crises.

It is understandable that banks are tightening risk management. With unstable capital chains and narrow revenue channels, the survival of small and medium-sized enterprises is not reassuring, and factory closures and employee flight are not uncommon occurrences.

In fact, our country has been working to address the financing issues of small and medium-sized enterprises (SMEs).

The Small and Medium-sized Enterprises Promotion Law, enacted in 2003, was a landmark achievement.

It is one of the signs of truly moving towards a market economy. However, while there is a general law, the details are insufficient, and laws concerning credit guarantees, for example, still need improvement.

Last year, the China Banking Regulatory Commission also introduced a series of policies to encourage banks to lend and develop targeted products for financing small businesses, but there is still a huge gap between the current situation and the demand for financing.

The cold chain industry is booming everywhere, but in other words, none of them are truly strong; small and medium-sized enterprises (SMEs) account for a huge portion of the sector. The difficulty in securing financing extends far beyond the cold chain; it's a common problem across all industries.

Some have asked why not raise funds directly through the Growth Enterprise Market (GEM). However, it's important to understand that equity financing has extremely high barriers to entry, and small and medium-sized enterprises (SMEs) are generally short of funds, making such external financing virtually impossible. Furthermore, the limited issuance quota for bonds further deters SMEs.

And so, things reached a dead end.

Hu Shutong understood this deeply, because Tongxing's story was a vivid reflection of reality. Once Tongxing gained fame, received a series of awards, and obtained substantial financial support, the financial sector's incredibly keen sense of smell immediately gravitated towards it.

This tilt best illustrates the point.

However, we cannot overlook the countless cold chain companies that are just starting out just because Tongxing is moving so fast.

This is the most fundamental challenge facing the cold chain industry.

Hu Shutong's angle caught Pang Shiyou's eye. Among the "Nine Essentials" of the China Cold Chain Alliance, one of them is "I want financing," which is undoubtedly the most complex part.

"My current idea is that to further revitalize the cold chain, we should not rely on cold chain parks, but rather provide greater support to third-party logistics companies."

This statement resonated with many, and the reason is not complicated: cold chain parks are increasingly favored by large capital. If small and medium-sized enterprises are the vulnerable group, then third-party cold chain logistics is the vulnerable group in the cold chain system.

"Even Chunrong's plan ultimately revolves around third-party logistics. The grand logistics vision it envisions and the application of sensing technology rely heavily on third-party logistics. This time, the financing platform I want to mention is also primarily aimed at the development of third-party logistics."

As people nodded in agreement, they realized that Hu Shutong's considerations were multi-dimensional, including both practical issues and his own thoughts, because people saw the "point of contention" between Tongxing and Chunrong!

On one hand, there's a grand vision with lofty ideals and an undeniable industry-wide integration; on the other hand, what are its highlights?

"Banks don't have time to understand companies, but the alliance knows everyone inside and out. We have the ability to establish a credit guarantee system and make the assets, operations, and performance of cold chain companies transparent."

Hong Chengliang said, "The alliance is already planning to do something similar to a financing company, establishing a larger financing platform to serve enterprises. While building our internal credit system is crucial, to be honest, it's still difficult to influence the banks. Over the years, the government has introduced many policies, and the banks have followed them, but often they've been too much of a formality. Putting aside other issues, the high costs and slow loan disbursement are problems that even with Zhongleng's guarantee, they can't be completely solved."

Just then, Pang Shiyou glanced over and said, "Shutong, you're probably thinking about financial leasing, right?"

Hu Shutong immediately nodded, "Exactly. Since it's difficult to get financing from banks, we'll try to find a self-contained financing platform within the alliance."

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Financial leasing is the most common form of non-bank financing in the world, and this model is particularly beneficial for small and medium-sized enterprises (SMEs) in the processing and transportation industries that urgently need equipment. In the cold chain sector, the example of Tongxing and its partners makes this easy to understand.

For producers, such as Sanhe Meat Industry, building their own transportation system has become an increasingly undesirable strategy as they penetrate the market more deeply. It not only involves huge expenses and energy, but also does not align with the company's positioning. They urgently need to cooperate with multiple third-party logistics companies.

At this point, Sanhe purchased equipment from Baileng and vehicles from Weihui, which were then used by Tongxing. Tongxing then signed a lease agreement with Sanhe Meat Industry. In terms of ownership, Tongxing only had the right to use the equipment, while Sanhe Meat Industry owned it.

This is fundamentally different from traditional leasing. Traditional leasing calculates rent based on the duration of use, while financial leasing calculates rent based on post-lease returns. The smoother the third-party logistics operations and the wider the distribution channels, the greater the benefit to the producer. It's like I'm providing you with the equipment, and you're responsible for building relationships; the rent is directly linked to the success of your efforts.

This allows producers to not only receive rent but also access to a flexible revenue stream. The stronger the logistics network, the more the company benefits. For third-party logistics providers, this solves the most troublesome cost problem, making it a win-win situation.

At this point, the biggest risk becomes self-evident: why should the manufacturer trust a small and weak third-party logistics provider?

Previously, this trust issue seemed unsolvable. However, with the China Cold Chain Alliance and its prestigious reputation in the industry, its recommendations and connections are trustworthy. This reveals the true meaning of the credit guarantee system Hu Shutong just mentioned: it's not for banks, but for industry insiders.

Suddenly, an even more inspiring vision emerged: Hu Shutong's plan had the feel of a "cold chain family," relying not on banks or loans, but on the operation of the large cold chain system to revitalize this most practical problem with the industry's own energy!

Li Zhou couldn't help but notice that Hu Shutong had become more astute, or perhaps more arrogant. He used to give the impression of being reserved and leaving the meaning to the reader, but now he exuded an air of complete control. Li Zhou had expected that this matter would require extensive discussion with the two senior experts, but unexpectedly, Hu Shutong immediately offered his idea, captivating the two elders and sparking their interest.

"Shutong, you need to understand that in this financing lease process, the equipment supplier and the business owner are both in a strong position; to put it bluntly, the third-party logistics provider is just a user. If you want this plan to be convincing, the key is how to get started."

Hu Shutong looked at his teacher. The fact that he could say such a thing showed that he had already put his mind at ease. He knew from the beginning what his teacher was concerned about.

Since this model is so prevalent, Hu Shutong naturally needs to come up with something to counter it.

Hu Shutong is very familiar with this path; Tongxing's success today is the result of overcoming numerous challenges step by step, the only difference being the stage. Hu Shutong also has ambitions for the Zhongleng Alliance, but his aspirations extend beyond this.

"What I want to do" can never match the powerful synergy of "What we do together," which can be considered a major survival strategy for Tong Hsing.

Liu Chenyu used the name of the Longshan Summit and his methods were extraordinary.

But those at the Longshan Summit, while watching Chunrong swagger around, were also looking north—

If you make any noise, please be quick about it!

……

I've loved cold chain logistics for twenty years.