Navigating the currency storm for UK importers…

29 Sep 2022
James Arnold

Importing from China? We have good news. Well maybe not good, but we would just like to reassure you that despite the constant TV coverage it’s not all doom and gloom.

Yes, on the face of it, it looks dire! GBPUSD is now at 1.06, down from 1.31 in April, that’s a 19% increase in pricing for importers at a time of already acute inflationary pain. For those unprotected this represents a huge shift in profit margin and necessary price increases to customers.

Okay, so we’re not painting a very rosy picture so far. But, with the FX markets on everyone’s lips at the moment we know it’s no different for you, we’re here to help. In such extreme times it is the support of a partner that can unravel the complexity of the news flow coming from markets, and provide you with a competitive  edge through insight and unique data.  

One of the benefits of really getting to know our clients is understanding their pinch points. It’s sometimes not just about the FX solution or execution, it’s going deeper into their business to help them pull every lever possible in times of stress.

We know that a lot of our clients import from the Far East. And, for businesses importing from China we see a potential opportunity to defend a blanket increase in prices from China, here’s why:

  • Have you considered paying your clients in CNH, the deliverable Chinese currency? With USDCNH rising from 6.37 – 7.25 since April 2022, a 14% uplift, in CNH terms, the USD they receive is worth 14% more. Could you negotiate a better rate with your Chinese suppliers given the positive CNH move? It’s worth a try!
  • This doesn’t negate the full 19% fall we have seen in GBPUSD but it will go a long way to claim some of those losses back. A 10% uplift in GBPUSD would be 1.1660. We know this would be game changing for our clients right now.
  • We can help you hedge directly in CNH too. Birchstone are experts in risk management, we know the market and the products inside and out. We’ll be able to find the right product or combination of products to meet your needs, including providing liquidity in the onshore Chinese currency that many Chinese suppliers are happy to accept.
  • Birchstone can provide you with market analysis that could help you negotiate with your suppliers and make you feel more confident hedging at current levels. Whilst we appreciate it feels a wrench for our clients to hedge close to parity, against the backdrop of such uncertainty,  surely some form of protection is wise?
  • And, a string to your bow, that you might not be aware of, is that container freight pricing is down to £5-6k per container(according to some of our clients) and the FBX11 Q1 23 is at 6.5k. This is always worth some consideration when looking at costs and budgets. The drop in freight can be a silver lining for you in the current market conditions to negate some of the pain incurred through a falling GBP.

There is no denying that there potentially hasn’t been a tougher period for UK corporates to import from China, and potentially just to operate in general with the squeeze in cost of living in the UK. However, there are tactics you can deploy and key insight at hand. These will allow you to strengthen your negotiating position with your supply chain at a critical time and separately deploy an affirmative risk mitigation strategy to combat the current sterling crisis. Let’s start the conversation and understand what your business needs.

The material and information contained in this document are for general information purposes only and is subject to change. You should not rely upon the material or information provided by us as a basis for making any business, legal or any other decision and should confirm the suitability of this product with the deposit taking institution you choose to proceed with. Whilst we endeavour to keep the information up to date and correct, Birchstone Markets Limited makes no representation or warranties of any kind, express or implied about the completeness, accuracy, reliability, suitability, or availability with respect to, product or services contained on in the material. Please ensure you carry out your own due diligence before entering into any contract with parties mentioned in the material or information

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