CAse Study
Industry
Timber Importing
​
Challenge
Fluctuating exchange rates impacting costs and profitability
Goal
Effectively manage currency exposure from raw material imports from Eastern Europe
By leveraging the expertise of PathFinder FX, the company successfully implemented strategies to mitigate this currency risk and enhance financial stability.
Client Background
Challenges
The client, a wood importing firm based in the Midlands (U.K), sourced a significant portion of its timber products from mostly European countries.
They faced considerable currency risk as they relied on settlement for these transactions denominated in their suppliers’ local currencies, Euro and other minor currencies like Czech koruna (CZK) and Swedish krona (SEK).
Exchange rate movements from the time the purchase deal was agreed with the supplier, to when the product was delivered to the company posed a threat to the firms profit margins.
The main risk was if the market moved against them, whether the pound got weaker or the bought currency got stronger. This had happened in the past, causing a painful reduction in expected profit margin.
Currency Volatility: The currencies the company dealt with (like any currency pairing) are subject to sudden volatility, meaning the client faced unpredictable exchange rate movements.
Cost Uncertainty: Fluctuating exchange rates affected the company's procurement costs, making it difficult to accurately forecast expenses and plan pricing strategies.
Profit Margin Protection: The client sought to safeguard its profit margins by mitigating the adverse impact of currency fluctuations on imported wood.
PathFinder FX Intervention
Comprehensive Risk Assessment:
We conducted an in-depth analysis (currency audit) of the client's currency exposure, treasury procedures and risk tolerance.
​
By examining historical exchange rate data, market trends, and in understanding company's financial objectives, we identified when in the buying process they were subject to FX risk and how this could be addressed.
​
We also considered the level of risk the client was willing to accept and when it made sense to them, to remove risk altogether.
Customized Risk
Management Strategy
Based on the risk assessment, PathFinder FX designed a tailored currency risk management strategy for the client. This included a combination of hedging instruments to mitigate foreign exchange exposure, such as flexible forward contracts, stop loss and limit orders.
Reporting and
Performance Evaluation
​PathFinder FX provided the client with comprehensive reporting on their hedging activities using TCA (Total cost analysis) and the effectiveness of the risk management strategy deployed and benchmarking against alternative providers. They evaluated the impact of hedging on the client's financial performance, highlighting the achieved cost savings and improved/maintained profit margins.
Market Monitoring
and Analysis
PathFinder FX continuously monitored currency markets and provided regular updates to the client. By tracking economic indicators, news, geopolitical events and central bank policies, they alerted the client to potential market shifts and recommended adjustments to their risk management approach accordingly.
Cross boarder
payments optimization
Equally important in the process, was making the cross-border payments efficiently to the supplier. If payments are late, undervalue or incorrect information is used it can delay the settlement to the beneficiaries account and damage the relationship with the supplier. By understanding the destination bank account and Country specific standards PFX helped the client to ensure payments to its suppliers are made using the most efficient route available. Identifying the banking ‘rails’ used with the minimum amount of ‘touch points’ and avoiding adding unnecessary time and costs such as intermediary fees.
​
Hedging Execution
We provided ongoing guidance and support to the client in executing the hedging strategies. PathFinder FX collaborated with the company's treasury team to make sure alerts where setup to ensure risk was managed from the moment it became a definite factor in the buying process. The PFX team helped monitor market conditions, movements in FX rates and attempted to identify optimal trade entry points within the time window of execution using tools like ‘limit’ orders. The trades agreed where priced correctly and in accordance with the client requests.
Results and benefits
Partnering with PathFinder FX
By partnering with Pathfinder FX, the timber firm produced incremental savings in its treasury processes and helped to understand and eliminate potentially significant ‘market’ and ‘systemic’ risk from its operations. They received a personal service from a small dedicated team that understood their business and cared about adding value.