Changes in the foreign exchange market could significantly impact profits, Australian logistics operators have been warned. Foreign exchange broker Travelex says
Changes in the foreign exchange market could significantly impact profits, Australian logistics operators have been warned.
Foreign exchange broker Travelex says operators should consider the risk in money markets as the Australian dollar wildly fluctuates.
Regional Divisional Director Kerry Agiasotis quotes research from East & Partners showing fewer than 1 in 20 small and medium businesses are actively hedging currency risk.
“Many companies involved in the logistics industry fail to recognise how sophisticated their business is or has become and often have the view that foreign exchange hedging products are the domain of large corporations,” he says.
“Unfortunately, every company that conducts business internationally is likely to be exposed to movements in the value of the Australian dollar. With the dollar fluctuating between 0.6007 and 0.8920 in the last 12 months, these businesses need to understand the risk of this volatility…and take steps to protect their profit margins in the event of adverse moves in their domestic currency.”
Agiasotis uses an example of an Australian freight forwarder that has to make payments to international contractors.
“Let’s say they have a payment to an offshore supplier of US$100,000 that is due in three months. If today the US$ rate was 0.8669, the payment would cost them A$115,353. However when making payment in three months time, if the exchange rate has fallen to 0.7600 the cost to that business would be A$131,578, an additional cost of more than A$20,000.
“This additional cost will directly impact the company’s overall profit margin.”
Agiasotis says companies can use hedging products like a forward exchange contract.
“This would have been placed at the same time they place their order, locking in an exchange rate and therefore protecting their profit margin,” he says.
Travelex has released a guide helping companies to develop an understanding of the impact foreign exchange fluctuations.
The guide provides simple steps that companies can use when considering how best to hedge foreign exchange risk in their business, Agiasotis says.