International Forwarding Archives - Excelsior Worldwide Logistics Corp.

How to Mitigate Currency Fluctuation Risks when Shipping

excelsior on April 11, 2023

For decades, exporting products has been vital to the Philippine economy, allowing entrepreneurs to increase profits through global trading. Despite its downward trend recently, exports still account for more than $5 billion of the nation’s GDP. The continuous expansion of digital trading can provide new opportunities for Filipino business owners to export their products to various countries, potentially increasing export rates moving forward.

And despite being an essential part of the economy, numerous exporters face unique issues that can hinder their operations in the long run. For starters, not partnering with an international freight forwarding company can significantly risk the packages getting lost or damaged while in transit. But what remains one of the top issues exporters face on a day-to-day basis is foreign exchange, which constantly fluctuates for several reasons.

Understanding Currency Fluctuations

International forwarding invoices are often complex, with many factors contributing to freight rates around the globe. And one of the significant ones is currency exchange, which mainly refers to how much of each currency is needed when people exchange them. Some factors that lead to currency fluctuations are economic conditions, market sentiment, and political situations.

Currency exchange rates have always been a massive part of calculating freight costs, and even a tiny change in the rates will significantly affect shipping prices. Besides freight prices, currency fluctuation can negatively impact a company’s potential revenue and profit margins. This can decrease an enterprise’s competitiveness in the market, especially if most of its competitors come from countries with stronger currencies.

Mitigating Currency Exchange Risks

The risks of currency fluctuations when it comes to shipping prices are not a new thing. Many organizations have already implemented different techniques that allow them to reduce the impact of fluctuating currency rates when shipping their products.

1. Use Forward Contracts

One of the most straightforward solutions to decrease the complexities of shipping costs is to use forward contracts. This means that the merchant and buyer will agree to a fixed exchange rate that they can use for future transactions. This will allow both parties to know exactly how much the payment would be without worrying about changes in the currency rate.

2. Understand the Currency Adjustment Factor (CAF)

The concept of CAF is mainly used by freight forwarders, enabling them to mitigate the risk of currency fluctuations, especially for long-term contracts. Here, the shipper will have a flat percentage surcharge on the invoices sent to their clients, and this usually is based on the currency where the freight will depart and arrive. Exporters must know this concept to help them plan out their finances in the long run.

3. Currency Options

Apart from forward contracts, it will also help if companies consider currency options strategies when exporting their products. Many enterprises have used this risk management technique to protect themselves against currency fluctuations.

Like forward contracts, this hedging strategy gives businesses the right to export at a fixed price in the future. But the main difference is that the parties are not forced to finish the transaction when the deadline arrives. This is beneficial if the exporter believes they will get a more favorable currency rate, allowing them to mitigate the risks of financial losses.

Conclusion

With digital platforms opening up new opportunities for merchants to sell their products to international customers, exports are expected to continue to rise in the coming years. And so, firms must know the risks they might encounter when exporting products, such as the ever-changing foreign exchange rate. By understanding this, they can implement the proper currency fluctuation management solution that will protect them from financial losses in the long run.

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.

How Currency Exchange Affects Freight Forwarding Costs

excelsior on March 15, 2023

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.

Tips for Managing the Supply Chain of Your E-Commerce Business

excelsior on November 24, 2021

Managing the e-commerce supply chain requires some important logistics skills, and this article will discuss the most critical of these. Regardless of the size of your business, it is essential to understand your entire business’s supply chain, including the components that are interconnected. The average e-commerce supply network is more complex than ever, and you need to be proactive instead of reactive. This means developing a predictive software solution to forecast demand and respond to it accordingly, similar to most recommendations that you will get from the most respected logistics company in the Philippines.

Identifying the Issues with The Supply Chain

Before you start your e-commerce supply chain, you should do a high-level process review. This can give you a comprehensive picture of the issues you need to address. In addition, this will help you to identify potential challenges and bottlenecks in your e-commerce supply chain. This will make your decisions easier and improve your business’s performance. Here are some helpful tips: (1) Determine what your customers want; and (2) Understand the challenges and benefits of each stage, and (3) consider hiring reading more about international freight forwarding.

Optimize your supply chain. Managing the supply chain will increase customer satisfaction and reduce operating costs. As you add items to your inventory, you must optimize your process to ensure that they arrive at their destination on time and in perfect condition. Typically, slotting is done at the SKU level. This is the wrong approach because it will lead to dead stock and negatively affect your business. By focusing on how much each step in the supply chain will cost, you’ll be better able to predict where each item will sell and when it will be delivered to customers.

Avoid duplicating processes. While duplicating processes can increase productivity, it is a common mistake for eCommerce startups. Many people end up with duplicated inventory, which increases their operational expenses. A good database administrator will be able to compare rates in seconds. If you can’t manage this, you can use a free-shipping rate calculator that will do the work for you. When it comes to cost, make sure to look for similarities between the two processes.

Proper planning and data collection are critical for e-commerce success. While it’s important to take care of inventory, capturing data will help your team focus on key metrics. This information is essential for e-commerce fulfillment and can be used as true north. It will provide a solid basis for your forwarding organization to manage your e-commerce supply chain. Aside from being the most critical component, the e-commerce supply chain will also benefit from a solid relationship with the customer.

A good e-commerce supply chain will include regular inventory audits and effective communication with customers. When it comes to delivery, consumers expect minimal delivery charges and zero human errors. In addition, a streamlined supply chain will help minimize the risk of damaged goods. This will also reduce your costs and make it easier for your customers to communicate with you. It will also help you avoid mistakes when dealing with third-party suppliers.

Excelsior Worldwide Freight Logistics conducts free orientation for those who are willing to learn. It is our advocacy to share our knowledge & experience worth more than a decade in the business. Visit our website today at www.excelsior.ph to learn more about our service.