Retail Customers Are Paying a 'Silent VAT Tax.' How Can You Help?

A new era of innovation has arrived. U.S. stocks and bonds are tokenizing, as are most asset classes. Accredited, institutional and retail participants are now engaging 24/7/365 trading markets, lower costs, and the death of incumbents. B2B payments are becoming faster, cheaper and more transparent via digital assets on blockchain rails. What does this mean for retailers? It starts with how they pay for freight.

Freight-spend is one of your largest operational costs — and always will be. Transportation economists place annual freight volume at $2.58 trillion, 9 percent of total U.S. GDP. The American Trucking Association reports 72 percent of all freight moves by truck, and 91 percent of carriers in the sector operate one to 10 trucks. Small carrier strength (fragmentation) keeps freight spend affordable for retailers. Yet these carriers wait months to get paid, forcing most to sell invoices to financial intermediaries at substantial costs.

Because 91 percent of carriers cannot wait for payment, they sell their invoices to “freight factors” — intermediaries that typically charge 30 percent or greater rates of interest. These costs aren't simply absorbed by transportation companies. The costs lead to artificial increases in freight rates, which leads to more expensive goods. Restated, these costs transfer to retail customers in the form of a “silent VAT tax” on supply chains. A tax you, your family and friends also pay — on top of inflation.

I’m not here to tell retailers to change their N30-plus pay terms. Chances are most can’t. However, a solution to an age-old trade finance problem is growing. The first freight invoice was settled on blockchain rails in late 2022. The trucking company had a 30-day invoice invoice from a retailer, but was paid same-day, saving 90 percent on capital costs. Costs that would have been raked by a freight factoring company. How?

The carrier had an institutional account on a centralized exchange (like Kraken and Coinbase). Collection rights were assigned to a blockchain settlement company (a barter transaction), which then sent the carrier a digital asset in lieu of dollars. The digital asset was directly deposited into the carrier’s exchange account. In three clicks, the carrier then sold (converted) the digital asset for dollars, and issued an ACH from the exchange to their business checking account. Same-day settlement, on blockchain rails. Faster and cheaper, with more transparency for counterparties. The conventional financial waste in supply chains mitigated.

Digital assets are now the back-end of the tech stack for B2B invoice settlement. There will be skeptics, of course. In the transportation industry, most of them are bought-and-sold by the freight factoring cabal. Most truckload sector media and trade shows are funded by this cabal. It isn’t difficult to follow the money. If a freight media outlet isn't discussing the convergence of blockchains and supply chains, there's a very good chance their factoring sponsors are gagging the discussion.

If someone tells you blockchain solutions won’t work because truckers and supply chain actors don’t understand how blockchain rails work, ask them to explain how email works. They can’t. I also can’t explain how email works. But we all know it works. And we also know faster and cheaper tech always wins. If you’re not able to change your freight-spend pay terms and combat the “silent VAT tax” for customers, the takeaway is simple: Support the blockchain companies that have solved the problem. Share this article. Let your carrier base and logistics partners know that innovative payment solutions exist.

If 90 percent of performance is showing up, perhaps 90 percent of change is awareness. We can all drive awareness.

Todd Ziegler is founder and CEO of TCS Blockchain, a trade finance and fintech platform that uses blockchain technology to speed up freight invoice settlements in the North American transportation industry.