Tuesday, 5 January 2016

UK importers, how to deal with a strong USD and the effect on your margins!

Firstly, a Happy New Year to you all, I hope that 2016 is a healthy and prosperous year for you.

Now, time to get down to business. Sometimes, when things happen very gradually, you often don't notice, so I thought it was worth flagging up the exchange rate between the USD and Sterling as we've now dropped below the crucial USD 1.50 mark and have been below this level since 18th December 2015 (yesterday, the exchange rate was 1.4689). Just over a year ago, the USD was at 1.60 so there's an 8% cost hike if you're a UK importer and transact in USD.

This slide in the pound was no doubt triggered by the US Federal Reserve raising US interest rates in late 2015 and also the fairly weak outlook for our UK economy in 2016.

New York Times report on Fed raising rates
Our area of expertise is global logistics and one thing monitor every single day is the rate of exchange between Sterling and the USD - why, you may ask? Well, UK importers pay their freight costs to logistics providers/freight forwarders in Sterling and so it's really important that the costs are converted at a fair and correct rate of exchange. We manage the inbound freight models for many UK importers and use the published exchange rate as a benchmark to check that their freight costs have been correctly billed.

Freight rates are often charged in USD, so this means that if you import by air freight from the USA, your freight rates will be in USD, and even if you import by ocean freight from Asia, again your freight rates will be in USD. Why? Well the USD is a very stable currency and also one which everyone in the supply chain is familiar with.

Of course there are UK clearance and delivery charges which apply after arrival and they're set in Sterling but the lion's share of the cost is usually the freight rate from supplier to arrival UK port/airport.
To add to this, selling prices are often set in USD and so when the dollar strengthens against sterling, it has a big impact on importers in particular squeezing their often slim margins even further. Many importers have to set a USD median for them to work out selling prices and that is often set at USD 1.60 or sometimes USD 1.50 so when the dollar drops below 1.50 it's a real concern.

One thing which can certainly help to counteract the strengthening dollar is to take a close look at your inbound supply chain, and in particular your air and ocean freight costs (not to mention import duty costs) which is our area of expertise. 
Every time we take on a new customer, we always find that their freight costs can be improved (our average freight cost reduction since 2010 is around 35%). We do this by using our expertise, industry contacts and knowledge to not only deliver significant and sustainable savings, we also refresh their logistics model at the same time to make it far more responsive, customer-focused and compliant.

Some of our clients are in their 6th year with Straightforward Consultancy Ltd (SCL) after initially appointing us to carry out a Freight Review, and we're now totally managing this area for them every day, keeping them competitive and compliant.
If you're interested or need any help or guidance, just call or drop us an email, we'd be glad to help you too!

Kind Regards

Andy Cliff

Andy Cliff is an industry professional who launched his own logistics consultancy, Straightforward Consultancy Ltd (SCL) after a 30 year career in international logistics, working for companies such as DB Schenker, Kuehne & Nagel and DHL Global Forwarding in operational, sales and management roles.
Andy felt that in an increasingly complex and confusing world of logistics, small-medium sized UK importers and exporters needed a company alongside them which could help them to reduce costs, lessen their workload and provide expert advice and support day-to-day. In 2015, SCL celebrated its 5th birthday after a record year in 2014. Andy also became part of the  judging panel for the 2015 Global Freight Awards, which recognize quality, innovation and performance in the field of international logistics. 
Please follow me on Twitter @AndyCliffSCL, visit our website www.straightforwardconsultancy.co.uk  and our blog http://straightforwardconsultancy.blogspot.co.uk/