Importing, Exporting And Growth
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Consider the following scenario: Joe wants to start importing external hard drives from the Middle East. He’s confident that he can sell each hard drive for R300, more than covering his costs and generating a decent profit margin.
He places his order with a reputable supplier and four weeks later his shipment arrives via sea freight. Unfortunately, during that time there’s been a negative movement in the exchange rate, and suddenly he owes his supplier R350 per unit. Not only can he no longer make a profit, the sale of his goods won’t even cover his costs. He’s taken a big bet and he’s lost.
So, what went wrong? In a nutshell, Joe didn’t factor currency volatility into his planning.
“Currency volatility is a major factor influencing the success of businesses around the world,” says Roberto Rebuzzi, Head of Forex, Sasfin Bank.
“Correctly managing the highs and lows can set businesses apart from their competitors and reduce financial risk. However, this isn’t an area business owners are necessarily skilled in. They should be focused on managing their businesses and access to market. Experienced forex and treasury management teams can guide them through the export, import and foreign exchange process.”
“If you don’t have a proper treasury policy in place — and many SME importers do not — you could price your goods incorrectly or not take exchange rate fluctuations into consideration,” explains Rob.
“As an example, you could plan to sell imported widgets for R12, but it ends up costing you R14 or R15 just to import the goods. Situations like this can cause serious damage to businesses and their cash flow.”
Sasfin’s Forex department has two core functions: 60% of the business facilitates trades in and out of the country, as well as personal foreign exchange. The other 40% of the business focuses on managing the risk for clients involved in exporting and importing products.
A treasury department’s role is to manage a business’s risks, depending on the company’s risk appetite. What does this look like in terms of foreign exchange controls?
“If your costing is perfect and you’ve got an appetite for risk, you might only want us to manage 40% of your foreign exposure, for example,” explains Rob.
“The rest you’ll leave open to the movements of the exchange rate. In terms of the 40% we manage, we use forward cover to fix your costs at a predetermined time and price. You know that you have a shipment of cellphones coming in in three months’ time, and you’re sourcing the goods at $12 per unit. You can come to us and request a fixed price for that shipment in three months’ time, based on the current exchange and what the goods are costing you. In this way your expenditure and costs are fixed — you know exactly what you will need to spend when your goods arrive (or at least for the percentage of the deal that you’ve asked us to manage), and you’re not at the mercy of exchange rates. With a volatile currency, the cost could be $8 or $16 by the time your goods land.
“With a strong treasury policy in place you can work out where you need to protect yourself and where you can take a bet on the Rand being stronger than the current exchange rate.”
The Sasfin Difference
Sasfin Forex offers a unique range of specialised services and solutions that reduce loss of revenue and increase competitiveness and market share.
Currency volatility is internationally regarded as one of the top five business risks. When it comes to foreign exchange it is therefore important to partner with the experts; to place trust in experience, skill and knowledge. As an authorised dealer in foreign exchange, Sasfin Forex prides itself on its ability to execute foreign exchange transactions at the right price in volatile markets in the most professional manner.
- Competitive exchange rates
- Direct access to our dealing room via our online system or telephonically
- Competitive bank transaction fees for foreign transfers and receipts
- Electronic documentation flows
- A business hinged on excellent, personalised customer service
- Additional value to the transaction (freight, trade finance, marine insurance and more)
- Payment instruction forms at the click of a button
- Assistance with private FX investment transfers.