Monday, October 2, 2023

How currency fluctuations can place a country’s logistics industry in jeopardy

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[divider style=”solid” top=”25″ bottom=”25″][dropcap]L[/dropcap]ogistics plays an important role in any country and business. It involves the transportation of supplies from one place to another and its management. Without logistics, the effectiveness of business diminishes gradually.

When we talk about logistics and transportation, we should always take into account currency and fluctuations that are associated with it. Sometimes currencies are different. If a person from China wants to purchase goods from the United States exchange rate is very important. It changes all the time so this subject requires close attention. In this article, we will have a look at this topic.

Currency’s role in the logistics industry

To put it simply, it would be easier to provide an example. Imagine a situation where you own a business and want to purchase the necessary equipment from another country. In this case, it could be Sweden. You have a deal with the seller that you will pay him, as soon as you see the product and its quality. The seller is okay with that, but he wants you to pay in dollars. It should be noted that sometimes the transportation takes months. Even in one month, the exchange rate could change drastically, so your expenses will increase notably.

We can compare the above-mentioned situation with hedging. Most people do not understand how hedging is done in FX and what it has to do with currencies. In essence, hedging is a concept when you will pay another person an amount of 300$ in a particular period of time, but with the current exchange rate, and not the one that will be in the future.

How the coronavirus pandemic affected logistics?

When we talk about currencies and the logistics industry, we cannot neglect the coronavirus pandemic in 2020, which significantly affected major businesses and financial situations in the world.

The spread of coronavirus has dealt a serious blow to global logistics and supply chains of raw materials and products. On 7 April, major international organizations, the International Road Transport Union (IRU) and the International Transport Workers Federation published an open letter to all governments requesting support for the transport industry in the context of the COVID-19 spread. The crisis has caused an imbalance of cargo flows associated with changes in demand, suspension of production, and imposed restrictions. In this regard, governments and international organizations should prioritize the continuity and strength of supply chains.

Major global logistics trends:

  • Reducing cargo flow on a global and local scale – the reasons are obvious: the closure of country borders, the mass closure of outlets, the rise of the dollar, the isolation of the population, the decline in demand and purchasing power, as well as the state of fear and uncertainty among consumers. Many factories and factories around the world were due to the lockdown – there is nothing to transport and no one.
  • Lack of simple, understandable rules of the game in quarantine conditions for representatives of the logistics market.

The current situation in logistics is really difficult in the open regions of the world. However, the vaccine gives us some hope that everything will return to normal.

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