Logistic companies’ payment processing
Many freight forward logistics companies in Australia, especially those involved in international trade, are constantly exposed to significant foreign exchange risks. Logistics and freight forwarding businesses are always exposed to currency translation risk, transaction risk, and overall economic risk.
In international and third party logistics (3PL) profits can be wiped out by all these risks. Currency conversion risks, especially if undertaken with banks that charge fees for international transactions, coupled with high buy rates or low sell rates, can be significant.
In logistics and freight, sometimes the transaction may begin at a favourable rate when the deal is ordered only to be much less favourable at settlement. In between transaction and settlement, the Australian dollar may appreciate or devalue relative to the client or partner currency. This could be a win – but it can also add up to heavy losses. Larger payments are exposed to larger risks.
Economic risks could be structural; you may suddenly find your currency less favourable to deal in due to tariffs and other import duties. In some cases, you may have to abandon a certain market due to declining economic conditions.
Every business knows it’s not about turnover; it’s about what’s left over. Budgeting and hedging risks to make transactions as predictable as possible is simple when dealing in local currency. When paying in Aussie dollars in Australia, everyone knows the worth of a dollar! But in foreign exchange situations, this can go up and down due to the foreign exchange market.
Over the years, financial institutions have created services that allow logistics businesses in Australia to hedge or mitigate risks against diverse foreign currency risks. The nature of these currency-hedging services can vary. At Currency Exchange with our partner TorFX have a suite of foreign exchange hedging services that are further enhanced by our signature Rate Improver Guarantee.
The Rate Improver Guarantee
With our partner TorFX will help you get a great exchange rate for your currency transfer. They even offer a Rate Improver Guarantee where they’ll match or beat any quote from another provider.*
We work to give you the most favourable rates so your business can feel confident in budgeting and making deals using foreign currency. The Rate Improver Guarantee also means you aren’t slugged with hidden fees. Currency Exchange is partnered with TorFX that turns over $10 billion in foreign currency transactions annually and is rated among the most secure and business-friendly forex traders in the world.
Hedging contracts and budgeting
Forward contracts are often used in logistics to hedge risk. A forward contract is a binding agreement for a party (business) to buy or sell a fixed amount of currency in exchange for a given amount of another currency at a set future date. This contract exists independently of the current market rate. IF you settle on $1.33USD per AUD on a forward buy contract and the market sits at $1.36USD/AUD, your buy rate will still go through at $1.33USD. Forward contracts reduce uncertainty and volatility that can often eat away at large international transfers.
Currency Exchange (TorFX) also uses limit order or stop loss orders. Limit orders allow a business to set a maximum or minimum exchange rate for purchasing or selling foreign currency. On the other hand, a stop loss order gives your business the ability to select a certain price for buying or selling a given currency. Stop loss and limit orders are often used together to reduce overall risk.
For example, you can set a stop order price below the current market price and limit order price above the current market price for a long-term contract or going “long” on a trade. For immediate or time-dependent transactions, the best practice is to set up a limit order price below the current market price and stop order price above the current market price.
Currency Exchange with our partner TorFX offers a unique service to logistics companies looking to hedge foreign exchange risks. Our TorFX brokers research the market and come up with tailored solutions designed to streamline payments – we can facilitate the transfer and settlement of your foreign currency transaction. Better yet, you won’t have to pay until the transaction is complete.
Want to get started? Open a foreign currency business account and start trading in dozens of the world’s top currencies. Get your own business concierge to give you greater insights into forex markets and set up options and forward contracts. We’re available online, over the phone, and email.