How Currency Exchange Affects Freight Forwarding Costs
Global trading has significantly grown in the past decade as more and more businesses and individuals rely on imports and exports to make money. Experts forecast that international trade will hit more than $32 trillion in 2022 as countless products from different industries are shipped across borders daily.
And along with the positive development in global commerce is also the rise of the international forwarding industry. Numerous enterprises are now partnering with international freight forwarding companies to effortlessly transports their shipments to their destination. In addition, a freight forwarder can help companies tackle various factors that affect the shipping process, including the constant currency exchange rate fluctuation.
What is Currency Exchange?
In its simplest form, the currency exchange rate refers to how much each currency is needed to be exchanged with one another. The US Dollars has always been the standard for currency exchange rates and holds the most daily shares with more than 88%. Currency rates are always considered floating as various factors affect them daily, including economic activity, GDP, and the supply and demand for different products.
The continuous fluctuation of currency rates across the globe can result in shipping surcharges for companies. This makes freight forwarding invoices complicated for organizations to handle. Currency exchange rates affect various factors in how freight costs are calculated, and companies must know how to manage them to avoid massive financial losses in the long run.
Impact on Freight Forwarding Costs
The primary currency used for freight costs is US dollars, and its value against other currencies can affect the overall shipping prices. Various things contribute to the total freight costs, and currency rates significantly affect whether the amount will increase or decrease.
Varying Currency Exchange Rate
The exchange rate in every nation is different, which can significantly impact freight costs. The amount needed to transport goods to one country differs considerably in other nations. Exports to a nation with a weaker currency than the US dollar are a little more expensive. This means that you need to adjust your budget.
Tariffs
For decades, imports have been subject to taxes even before arriving at the destination port. Authorities do this to generate income and protect local producers, as imported items must be sold at a higher price. A specific percentage of the total value of the shipment usually calculates the tax to be paid. Stronger currency rates between the two nations decrease the overall cost of the freight and offset any increase in the tariff rate.
Transaction Fees
Apart from tariffs, many exporters also pay different transaction fees based on how the shipment is delivered. The amount may fluctuate based on the currency value of where the importer or exporter is paying. Financial institutions implement foreign currency conversion and transaction fees, which a shift in the exchange rate can significantly impact.
Conclusion
As global trade continues to expand, it is vital that businesses that rely on shipping understand the various factors that affect forwarding costs. One of which is the exchange rate, which significantly affects the overall shipping expenditures. Currency exchange rates adjust daily, and it can be tedious for importers and exporters to handle them. But partnering with a reputable logistics company can help them efficiently plan the needed amount for every freight.
Excelsior Philippines, the country’s top freight forwarding and customs brokerage company, has been in the industry for more than two decades, providing our clients with peace of mind that their shipments will arrive at their destination safely. We can also help you negotiate freight charges for the best shipment value. To learn about our services, contact us now by clicking here or calling (+632) 8525-9775.