Your Freight Bill Has a Currency Problem Too
Importers think carefully about the currency of their goods. Many have a forward contract in place for supplier payments, a budget rate in the costing model, and a clear view of what a euro move does to their landed cost.
Then the freight invoice arrives in dollars and nobody has thought about it at all.
For businesses moving volume, freight is frequently the second-largest line in landed cost after the goods themselves — and it carries its own, separate currency exposure, moving independently of the first.
Why freight is dollar-denominated
Ocean freight has historically been priced in US dollars as a global convention, regardless of route. A container from Shanghai to Felixstowe is typically quoted in dollars even though neither end of the journey involves the US.
The same applies to most of the associated charges:
Bunker adjustment factors, tracking fuel costs that are themselves dollar-priced
Peak season and general rate increase surcharges
Demurrage and detention when containers sit longer than allowed
Terminal handling at the origin port
Congestion and war risk surcharges, which appear and disappear with events
Air freight follows similar conventions, and even where a UK forwarder invoices you in sterling, they're frequently converting a dollar cost and applying their own rate to do it. You're paying a currency margin you never discussed.
Two exposures, not one
Here's the structural point.
If you buy goods in euros and ship them on dollar-priced freight, you have two currency exposures on a single shipment, moving independently. GBP/EUR and GBP/USD do not track each other. One can go your way while the other goes against you.
A landed cost model with a single exchange rate assumption cannot represent that. If your costing sheet converts everything at one rate, it's wrong in a way that gets worse the more volatile markets become.
Volatility stacked on volatility
Freight rates are considerably more volatile than currencies. Container rates have at times multiplied several times over within a year and then collapsed again, driven by capacity, congestion, canal disruption and demand swings.
That means a business importing at volume is exposed to:
Freight rate volatility (large and unpredictable)
Currency volatility on that freight cost (smaller but persistent)
Currency volatility on the goods (separate again)
You can't hedge the first. You can hedge the second and third, and doing so at least reduces the number of moving parts to one — which is the one you can negotiate with your forwarder about.
What to actually do
Ask your forwarder what currency they price in. If they invoice you in sterling, ask what rate they use and when they set it. Many apply a monthly internal rate with a margin built in. That's a cost you can negotiate or remove by asking to be invoiced in dollars and paying in dollars yourself.
Include freight in your forward cover. If you forecast twelve months of shipments, you can forecast the dollar freight spend attached to them. It's a committed, recurring, dollar-denominated cost — exactly what forwards exist for.
Separate the rate lines in your costing model. Goods at one rate, freight at another, duty at HMRC's published customs rate. Three numbers, three sources, each visible. One blended rate hides errors rather than fixing them.
Pay dollar costs from dollar income if you have any. An importer with any dollar revenue — US sales, marketplace payouts, dollar-invoiced customers — can fund freight directly from it rather than converting twice.
Don't forget demurrage. It's unpredictable, it arrives in dollars, and it's usually settled quickly under pressure. A dollar balance available for this purpose means you're not converting at short notice on a bill you're already unhappy about.
The wider principle
Currency exposure doesn't arrive in one place. It arrives wherever your business touches another currency, and the places it hides are the ones nobody has mapped.
Goods, freight, duty, insurance, inspection, certification, tooling, samples, port charges, customs brokerage. Each may be in a different currency, converted on a different day, at a rate nobody chose.
The exercise worth doing is simple: take one shipment and list every cost by currency. Most importers find three currencies where they thought they had one, and at least two conversions nobody had priced.
William Fuller, Co-Founder of Orbis Exchange Group contact on 0203 918 5622
Ben James, Co-Founder of Orbis Exchange Group contact on 0203 918 5621