Legal Definitions - field warehousing

Field warehousing is a specialized financial arrangement where a business uses its existing inventory as collateral for a loan, but the inventory remains on the business's own premises. Instead of physically moving the goods to an independent, off-site warehouse, a third-party warehousing company establishes a controlled area within the borrower's facility. This third party then takes legal custody and control of the designated inventory, ensuring it is secure and accounted for. This method is particularly useful when the inventory is too large, heavy, fragile, or costly to transport to an external storage facility, allowing the lender to have a secured interest in the goods without the borrower incurring significant logistical challenges or expenses.

• Example 1: Heavy Machinery Manufacturer

  Titan Heavy Industries manufactures massive industrial presses, each weighing many tons. When Titan needs a loan to purchase raw materials for new orders, it wants to use its finished presses, currently awaiting shipment in its factory yard, as collateral. Moving these presses to an independent warehouse would be prohibitively expensive and logistically complex. Through field warehousing, a third-party warehousing firm sets up a fenced-off, monitored section within Titan's existing factory yard. The presses are moved into this designated area, and the warehousing firm takes legal control, issuing a warehouse receipt to the lender. Titan can still access the presses for final inspections or loading, but only with the warehouser's permission, thereby ensuring the lender's security interest in the valuable collateral without the need for costly off-site storage.

• Example 2: Specialty Chemical Distributor

  ChemSafe Solutions distributes large volumes of specialized industrial chemicals stored in drums and tanks, which require precise temperature and safety controls. When ChemSafe needs working capital to expand its distribution network, it offers its current inventory of chemicals as collateral. Moving these sensitive chemicals to an external warehouse would be risky, expensive, and could compromise their integrity. With field warehousing, ChemSafe designates a specific, secure section of its existing warehouse for the pledged inventory. A field warehousing company installs its own locks, signage, and personnel to monitor this section. The chemicals remain in their controlled environment, but the warehousing company has exclusive control over access and release, providing the lender with a secure interest in the inventory while allowing ChemSafe to maintain optimal storage conditions.

• Example 3: Large Timber Mill

  Forest King Lumber operates an extensive timber mill, processing logs into various lumber products. To cover seasonal operational costs, Forest King seeks a short-term loan, offering its vast inventory of processed lumber stacks as collateral. This lumber is bulky, covers a large area, and is constantly being moved, cut, and prepared for shipment, making it impractical and costly to transport to an independent warehouse. Using field warehousing, Forest King designates specific, large stacks of lumber within its mill yard as collateral. A field warehousing company erects temporary fencing, posts its own guards, and implements a system to track the pledged lumber. Although the lumber remains on Forest King's property, the warehousing company maintains strict control over its release, ensuring the lender's collateral is protected while allowing Forest King to continue its operations with other, unpledged inventory.