A key component of importing and exporting is what will it cost to buy a product or what will I receive when I sell my goods? Businesses have been dealing with this conundrum for as long as time. There is no complete answer, but there are ways to ensure you have a handle on the things you can control. Monitor your own labour costs and stay within your budget , ensure that the cost of materials are contained, and keep an eye on currency markets with an idea on how to transfer your funds or receive your funds.
If countries are in lockdown mode, does this affect the banking system? It’s a good idea to check with your financial institution to see if wire transfers are still available. By paying your supplier, you can still have your goods arrive as planned. Be aware of global situations, not just local news, the world is a lot smaller than you think.
What are things we cannot control
During this unprecedented health pandemic and with our governments asking us to stay at home, and closing our borders to household traffic, international trade was deemed essential to save not only livelihoods but lives as well.
Immediate impacts of lockdown
Importers and exporters are the underlying foundation for trade. The initial impact to trade was a complete halt of goods, however it quickly became apparent that essential goods, such as food, daily consumer items, i.e.“toilet paper” still needed to flow, demand had not stopped. Governments expedited matters even as trade tensions were still on most to talk about lists. But keeping trade flowing requires:
- Co-operation and trust – for example, that the market will supply essentials
- That countries will not impose export restrictions, and that imports do not pose health risks.
For example, the United States had considered banning the export of face masks to Canada even though the fibre that was in the mask came from just outside Vancouver.
Impact on Air Cargo
Covid-19 has impacted the shipment of goods in many ways, one prime example is air cargo. Cancellation of passenger flights linked to travel bans has limited the availability of air cargo while urgent shipping of essential goods has increased demand, resulting in increases in the price of air cargo (compared to October 2019 air freight costs are up by about 30% between the People’s Republic of China and North America and by over 60% on some important Europe-North America routes).Delivery times have also increased. This matters for some time-sensitive medical supplies, but also for some high value food trade.
Impact on Sea Cargo
Another way that Coronavirus has impacted the shipment of goods is sea cargo. Lockdowns have impacted countries notably where there is less automation, or raised costs due to increased protective measures for workers.
Cost and time have affected most supply chains by the need to provide not just personal protective equipment but ensure that safety protocols are set in place.
Benefits of hedging
It doesn’t matter what side of the import/export fence you are on, the unknown costs of the actual shipping is further complicated by how your currency fluctuates. Most importers and exporters usually ensure that they cover their currency exposures by using products such as forwards, or options for example. By using forwards the client is able to lock in the currency rate with their local currency exchange thereby hedging their profits. If a company does not lock in their currency exposure, they may have to deal with huge spikes in pricing wiping out any potential profits, the Coronavirus threw in these added costs:
- increased labour, transportation
- spike in oil prices
- cannot get the goods on board ship still at the port
- cannot get the goods of the ship that arrived
- leaving companies with losses
Therefore, it is wiser to plan your costs and lock in your profits using the products that we have discussed. Be aware of the pros and cons of each product, locking into a forward for example will keep you fixed to a set date. If the goods are late or early, there may be added costs to exercise the transaction on a different date. Check the timing of money transfers, some institutions claim same day value, but we are in multiple time zones. It’s already tomorrow in Asia.
You might not have been able to foresee the impacts of Covid-19, but then again no one had an idea of what was to come.