Field Warehousing –History and Development

The Field Warehousing Receipt, like the trust receipt and the factor’s lien may be looked at as a devise which came into being in the late nineteenth century and which was designed to make secured inventory financing possible. Field Warehousing is something which has managed to exist as a remarkable security devise (whether formally under statute or informally) for nearly a century before its discovery by the financing world as a means of securing a warehouse receipt and using it as a financial instrument.

The pre-institutional origins of the Field Warehouse rest in US case reports issued in the late 1800’s and early 1900’s which established a unique position for professional and independent collateral control service providers acting as field warehousemen. In 1929 there were approximately 250 locations in USA under field warehouse, and by 1941 this number had increased to more than 6000 locations, operated by six leading companies as well as by a number of smaller warehousing companies, all of whom began to be entrusted with the responsibility of perfecting the lenders pledge by creating a valid bailment over the pledged goods. The field warehouseman hence started to gain currency as a specialist who would perform independent custodial services with respect to the financed goods on behalf of lender institutions and thus marked an end to reliance on owner / customer issued receipts as being sufficient to establish independent custodianship and to defeat the claim of the trustee in bankruptcy.

In a standard warehouse receipt financing arrangement there are three parties- the borrower, the lender and the warehouseman. The lenders who make use of this type of security are typically local commercial banks who do not have the expertise in dealing with either receivable or inventory, thus when the local bank makes a local loan on the security of the inventory (with or without the receivables) it is apt to call in the professional, and it will in all probability be wise to do so.

The duties and the potential liabilities of a field warehousing company is to act as a buffer between the borrower and the lender, and to be intimately involved in the financing transaction and by virtue of that involvement, know a great deal more about his client’s affairs than a storage warehouseman does. The field warehousing company therefore occupies a unique position. Its link to the actual business of storage is merely incidental and it therefore plays a key role in reinforcing and protecting the security over the pledged goods as created by the lender.

It is unfortunate that modern day service providers have started to move away from the origins of field warehousing and have begun to place themselves more as storers or stock monitoring agents relying more and more on data and information provided by the borrower, rather than as true bailees and custodians of pledged commodities, exercising independent judgement and issuing specialist reports based on data and information collected autonomously on behalf of the lender.

We at ACE GLOBAL DEPOSITORY fulfil our responsibility with honesty and integrity in an industry which is riddled with risk. We have successfully distinguished ourselves from all others in the industry and take great pride in reinforcing and protecting our client’s security in the pledged collateral through our state of the art implementation, operational and execution capabilities.