The global pandemic grounded many businesses’ product lines to a halt. This interruption to what was a seemingly optimised supply chain, shines a light on businesses’ day-to-day reliance on lean operations. And for businesses who have been directly impacted by economic upheaval for the first time, supply chain disruption may have severely affected their bottom line.
If you’re looking to find solutions that could help mitigate potentially unnecessary financial losses and help steer your business through a crisis, it’s important to factor in the effect global events can have on supply chains and the risk management strategies available when planning ahead.
Understanding the knock-on effect of supply chain disruption
At COVID-19’s peak, factories had limited the number of workers on duty to allow for social distancing precautions, causing a domino effect on quality control. Many smaller online sellers experienced frustrations with manufacturing delays, as priority was given to producing essential items and orders from larger businesses with greater financial sway.
Increased air freight costs, with fees nearly tripling to account for grounded passenger flights, added to an already challenging situation. This led to businesses posting via sea freight, drawing out delivery delays by months and having to factor in additional costs due to interim international travel restrictions.
This major upheaval forced many businesses who had ambitions to go international to push forward and leap into new markets as a survival mechanism. Thankfully the very nature of ecommerce businesses allows for this adaptability. Amongst these driving factors, the pandemic has highlighted perhaps the most pronounced flaw for many businesses; not having enough diversification, whether that be regarding suppliers, markets or products.
In these situations, the difference between profit and loss comes down to scalability and understanding what risk management strategies can help minimise your FX exposure and help protect your business from downward losses or currency fluctuations.
Pivoting at scale with FX strategies
We noticed increased enquiries from eCommerce businesses about how currency solutions and selling into other markets could help protect profits. Reaching new customers by selling into other markets to offset losses in more negatively impacted areas can help to secure SMEs’ long-term profitability, so it’s worth exploring how to confidently scale.
Getting paid in new markets requires a solution that can flex and scale with you. That’s why we encourage SMEs to set up a Global Currency Account, which can integrate with global marketplaces and payment gateways, allowing you to receive payments in multiple currencies. Let’s say you collect revenue in USD and wish to pay suppliers or taxes in that currency, you can do so by using your Global Currency Account and then convert profits back into AUD. Having the flexibility to decide when to convert currencies can help minimise overall financial risk, essentially creating a natural hedge.
In another scenario let’s say you sell bulkier items locally using imported materials and have no interest in selling overseas. You can still use currency hedging tools like Forward Exchange Contracts to your advantage when paying overseas suppliers, which enables you to fix exchange rates for up to 12 months. This can help minimise FX exposure and may even allow you to leverage market moves favourably.
It’s impossible to anticipate crises, and the effects of COVID-19 on business supply chains will be felt for some time. Yet now is a good time to assess your FX risk profile and plan how to offset challenges and mitigate the impacts of supply chain disruption and currency fluctuations on your business. With support from currency experts, flexible Global Currency Accounts and marketplace platforms, the initial time and effort to plan ahead could save your online business in the long-term.
Edward Wiley, Partnership Manager, OFX
