Foreign exchange firm Currency Global believes that shipping companies are wasting tens of millions each year on inefficient transactions and processes. Digital Ship spoke with Andy Demetriades, director of treasury at Currency Global to find out how an effective foreign exchange strategy is critical to improving a shipping company’s balance sheet.
The shipping industry has taken huge strides forward in digitalising its operations to maximise efficiency and reduce spending. However, one area where significant losses are still occurring is in currency exchange, Andy Demetriades director of treasury at Currency Global told Digital Ship.
For every voyage a ship makes, a number of international payments will be made in various currencies. Shipping companies pay their crews, purchase bunker fuel, carry out maintenance, order new pieces of equipment, pay port dues, and make many other payments. Freight rates are often fixed in US dollars and must be converted to the chosen currency to complete payments, and often companies will use their own banks to carry out these transactions.
Speaking with Digital Ship, Mr Demetriades explained that banks will operate with a standard exchange rate of 3-5 per cent, meaning that for every USD 100,000 exchanged, a fee of USD 3-5,000 will be charged by banks. These fees are often hidden in the exchange rates ship companies are quoted to complete the transaction. Market volatility has significantly increased due to the global pandemic and the upcoming US election further exacerbating risk and putting additional financial strain on shipping companies.
According to Mr Demetriades, reducing the exchange rate a ship company is charged is simplest way to save tens of thousands of dollars each year. “In the current climate, reducing waste on financial transactions could be the difference between being able to deploy a new piece of technology to digitalise the fleet or avoiding redundancies to seafarers.
“At the heart of the matter, regardless of the size of the shipping company, every single balance sheet works in the same way, it is a core business function. So, savings that can be made onshore translate directly to profitability. I believe it is an obligation of the finance team to ensure the company is achieving the optimum pricing levels possible to allow owners to do all the other things they want to do,” Mr Demetriades explained.
Accessing a better exchange
Historically, the shipping industry has not had access to a wide range of exchange rates, this is largely due to a lack of awareness around the amount of waste which occurs during these transactions. Furthermore, a reluctance from many providers to operate in a niche industry has further limited the options for currency exchange for firms operating in shipping. “Shipping companies do the transaction and pay the cost,” Mr Demetriades, who is an ex-banker confirmed. “In general, banks do not see this treasury function as a priority in terms revenue generation. They make a much larger proportion of their money from lending. The execution of transactional treasury is regarded as an add-on, not really seen as worthy of focus. The truth is that there’s just not enough money in it for them.”
Identifying this gap in the market, foreign exchange specialist and FCA (Financial Conduct Authority) regulated firm Currency Global decided to extend its services to the shipping industry to assist companies with managing the unforeseen risk and costs when it comes to moving capital in difficult circumstances. The firm is helping shipping companies to obtain the best foreign exchange pricing, reducing the standard 3-5 percent exchange rate to just 0.5-1 percent per USD 100,000.
Mr Demetriades cites the company’s strong relationships with international banks coupled with an ethos based on trust, integrity and transparency are primary reasons for its ability to access the lowest wholesale exchange rates allowing them to help shipping companies lower their costs.
“With our connections and banking industry experience, we can access the markets at wholesale rates. This is the rate which banks exchange currency with each other. We simply pass on this benefit to our clients. We are able to operate as a successful commercial venture because of our expertise in managing our own cost,” he explained.
“In addition to charging a fee for exchanging one currency to another, banks also charge yet more fees to then send the international payment to the end supplier. Currency Global do not charge a separate fee for this service. All costs are included in the rate we quote our clients. There are no surprises, we work based on complete transparency” Mr Demetriades confirmed, adding that Currency Global will always guarantee a price with no hidden costs.
One problem Mr Demetriades pointed to is that often banks or fintech companies design a product or service that they think will benefit their customers before they take it to market. He believes this approach often fails and explained that the first question should always be to ask the client, “What could we do better to help your business?” Currency Global always aims to first understand the needs and requirements of a potential client. For shipping companies, this involves gauging their annual turnover and what exchange rates they are currently receiving. “Once the initial requirements are understood, the client goes through a treasury health check, whereby we do a very open and transparent real-time market comparison to demonstrate to the client what they could achieve versus what they are actually achieving with their current supplier,” Mr Demetriades explained.
“We then put together a number of fully transparent ideas for clients to consider. One such idea is a “Forward Rate” which gives our clients the ability to fix an exchange rate for up to two years into the future to give them peace of mind regardless of the volatility in the market over that period of time they are guaranteed this price. This allows the business to plan financially and set better budget rates, safe in the knowledge that their exchange rates will never move.”
Each Currency Global client has their own dedicated account manager who will constantly review client activity and identify if the transactions or flows change over time. “If a client’s requirements have gone up by 10 per cent it is a good sign that the business is growing. To support this growth, we will proactively reach out to the client and offer them a further reduced rate to help support the business growth.”
Timing of the trade
According to Mr Demetriades, obtaining the best exchange rate is largely about the timing of the trade, which comes from having a thorough understanding of how the market works and knowing exactly when to execute the transaction.
It is equally important to get the timing of a transaction right to secure the best rate. “Our account managers proactively work with clients to understand the timeframes they are working to. Very often if a client has good visibility of when suppliers need to be paid, they may be able to optimise the execution of a transaction to achieve a better rate. Our team of analysts continuously monitor and forecast market movements to give clients as much information as possible to base decisions on.”
Currency Global can offer its clients an exchange rate which can be fixed from one day up to two years into the future. The firm also offers a flexi-forward contract which guarantees clients any amount of currency at a fixed exchange rate with the ability to drawdown any portion of the amount at any point during the contract period.
In the event of purchasing a new technology for a vessel or ordering a newbuild ship, there will always be some time lag from the decision being made to the delivery of that vessel or its equipment. Throughout this period, the market will fluctuate every day. Currency Global works closely with companies to fix their exchange rates to mitigate the risk. “We have the ability to fix a rate for up to two years into the future. This means that regardless of what happens during that period, we guarantee our clients a fixed exchange rate. This means our clients can forecast and manage fluctuations in cashflow with more accuracy. Many companies in the shipping industry do not realise that this tool is available to them,” Mr Demetriades explained.
He also confirmed that Currency Global provides consultancy on these services to help companies identify which strategy will work best for them. “We forecast where currencies are likely to move over time and use this research to empower clients to make decisions for themselves. We truly believe it is all about engaging to understand real-life circumstances,” he said.
Currency Global is working with several shipping and maritime companies to help them manage international payments and reduce the cost of transferring funds internationally.
One of these companies is the recently formed Voyager Worldwide, a data intelligence solutions provider for the maritime industry that was formed from the merger of Cornes Charts, Global Navigation Solutions (GNS) and Safe Navigation. Mr Demetriades explained that after some discussions, a partnership was formed to introduce Currency Global to various other companies within the sector.
At the core of Currency Global sits its desire to help family owned businesses cut costs and reduce waste for an industry which facilitates approximately 90 per cent of world trade today. As a family-owned business, Currency Global does not have shareholders driving profit and lowering costs. “We understand the nature of the shipping industry and the close connections that exist. We truly understand what family owned businesses are going through because we are one too,” Mr Demetriades said. “We want to engage and educate, to have conversations to see how we can help firms. We are not selling anything here; we just have a burning desire to use our expertise to provide peace of mind and certainty in a volatile and ever-changing world.”