How cross-border logistics companies hedge against risks
2024.12.17
The impact of cross-border logistics is affected by factors such as the market of other countries, different countries' policies and laws, operators' operational capabilities, and the credibility of partners, resulting in different risks. This article summarizes several methods to deal with risks as follows:
1. Market Risk Management
Exchange rate fluctuations hedge
Using financial tools: You can use financial derivatives such as forward foreign exchange contracts, foreign exchange options, and currency swaps to lock in exchange rates. For example, by signing a forward foreign exchange contract with a bank, agreeing to exchange a certain amount of foreign currency at a predetermined exchange rate at a specific time in the future, you can avoid losses caused by unfavorable exchange rate movements. Suppose a cross-border e-commerce logistics company expects to pay a $1 million overseas warehouse rental fee in 3 months, with the current exchange rate of 1 US dollar to 7 Chinese yuan. Worried about the US dollar appreciating in 3 months, the company can sign a forward foreign exchange contract with a bank to lock in the exchange rate. Even if the exchange rate becomes 1 US dollar to 7.5 Chinese yuan after 3 months, the company can still exchange dollars at the price of 7 Chinese yuan to 1 US dollar to pay the fee.
Optimize settlement currency: When signing contracts with customers and suppliers, try to use a settlement currency that is advantageous to oneself, or use a combination of multiple currencies for settlement. If a company has more business dealings with the euro area and the euro exchange rate is relatively stable, it can appropriately increase the proportion of euro settlement, reduce reliance on single dollar settlement, and diversify exchange rate risks.
Real-time monitoring of exchange rate dynamics: Arrange professional financial personnel or use professional financial information platforms to closely monitor international exchange rate trends, make advance fund planning and business adjustments based on exchange rate change trends. For example, when predicting a depreciation trend in a certain currency, you can collect foreign currency receivables in advance.
Responding to market demand fluctuations
Expand diversified business: Do not limit yourself to a single type of cross-border e-commerce logistics service or specific market region. For example, in addition to providing traditional international express delivery services, you can also engage in overseas warehouse storage and distribution, supply chain logistics solutions, and other various businesses; at the same time, in terms of market layout, in addition to focusing on developing the European and American markets, actively expand into emerging markets such as Southeast Asia, the Middle East, and Latin America to reduce the impact of declining demand in a specific market.
Establish a flexible capacity allocation mechanism: adjust the allocation of transportation resources flexibly according to market conditions such as peak and off-peak seasons, different e-commerce promotion activities, etc. Take maritime transport as an example, before peak logistics demand seasons such as e-commerce shopping seasons, reserve a sufficient number of container spaces in advance to ensure timely transportation of goods; while in the off-peak season, the number of rented containers can be reduced appropriately to optimize costs. It is also possible to reach capacity sharing agreements with peer logistics companies, supporting each other in reallocating vehicle, vessel, and other transportation resources during peak seasons.
2. Dealing with Policy and Regulatory Risks
International Policy Tracking and Response
Establish policy research teams or positions: Assign dedicated personnel to track changes in trade policies, customs policies, tax policies, etc. in different countries and regions. For example, focus on the EU's adjustments to value-added tax policies for imported goods. When new policies are introduced that may affect the costs and customs clearance efficiency of cross-border e-commerce sellers served by logistics companies, promptly interpret the policies to clients and assist them in adjusting their operational strategies. At the same time, adjust corresponding aspects in their own logistics service plans, such as customs clearance processes and cost accounting.
Actively participate in industry associations and exchanges: Join industry associations related to cross-border e-commerce logistics, timely obtain policy change information through association channels, participate in industry collective advocacy, provide feedback to relevant departments on issues encountered during policy implementation, and strive for favorable policy adjustments or grace periods. For example, when a country introduces strict new import customs clearance regulations, industry associations can organize companies to communicate and negotiate with the customs department of that country to avoid losses due to unfamiliarity with the new regulations.
Implementation of Domestic Policy Compliance
Strictly abide by relevant import and export laws and regulations: Ensure that all aspects of goods declaration, inspection, and license processing are operated in accordance with the law to avoid risks such as fines and goods detention due to violations. For example, accurately declare information such as the category and value of goods, and handle various special goods (such as goods involving animal and plant quarantine) in accordance with the required inspection and quarantine procedures.
Focus on the direction of domestic cross-border e-commerce support and regulatory policies: Make good use of the national encouragement policies for cross-border e-commerce logistics, such as tax incentives, subsidies for logistics park construction, while continuously improving their own service quality and safety management system according to regulatory requirements. For example, upgrade the fire safety of storage facilities, goods storage standards, and other configurations according to relevant standards to meet the operational requirements of regulatory authorities for logistics companies.
Three, response to operational risks
Logistics transportation risk response
Optimize transportation routes and mode selection: Determine the best transportation plan by comprehensively considering factors such as transportation costs, timeliness, characteristics of goods, and the risk conditions of different transportation routes. For example, for cross-border transportation of high-value electronic products with extremely high requirements for timeliness, prioritize direct air transportation to reduce delays and risks of goods loss or damage caused by transit links; at the same time, compare the punctuality rates and safety records of different airlines and routes to choose a more reliable transportation route.
Strengthen the purchase of cargo insurance: Purchase sufficient insurance for each batch of goods to cover risks such as loss, damage, and delay during transportation. For example, purchase cargo transportation insurance through a freight forwarder or directly with an insurance company. In case the goods are damaged due to adverse weather conditions during sea transportation, you can claim compensation from the insurance company to reduce your own economic losses.
Improve the level of logistics informatization: Use advanced logistics management systems, Internet of Things technology, satellite positioning technology, etc., to monitor the location and status of goods in real time, facilitate the timely detection of transportation abnormalities, and take corresponding measures. For example, in cold chain logistics transportation, by installing temperature sensors and connecting them to the information platform, you can always grasp whether the ambient temperature of the goods meets the requirements. Once the temperature is abnormal, the driver can be notified in time to adjust the refrigeration equipment or take emergency transportation measures.
Risk management in warehousing
Reasonable planning of storage layout: Scientifically divide warehouse areas based on the flow of different goods, storage requirements, etc., to improve warehouse space utilization and goods in/out efficiency. For example, place popular products in convenient locations near the shipping area for quick sorting and loading for delivery; at the same time, reserve a certain amount of flexible space to meet the temporary large influx of goods during e-commerce promotions and other situations.
Improve the warehouse safety management system: Install facilities and equipment such as fire prevention, moisture prevention, and theft prevention, establish strict warehouse personnel operating norms and safety inspection system to prevent goods from being damaged due to accidents such as fire, flooding, and theft. For example, regularly check whether the warehouse's fire prevention facilities can be used normally, require warehouse staff to strictly follow the stacking norms for goods operation, and avoid damage caused by unstable stacking due to excessive stacking height.
Implement inventory management optimization strategies: Adopt appropriate inventory management methods, such as Economic Order Quantity (EOQ) model, to balance inventory holding costs and stockout costs, avoiding inventory backlog or stockout affecting the timeliness of logistics services and customer satisfaction. For example, by analyzing historical sales data and market demand forecasts, accurately determine the replenishment time and quantity of various goods to ensure that the warehouse has sufficient goods for timely delivery without occupying too much funds and storage space due to excessive inventory.
Four, cooperation risk response
Partner Selection and Management
Strictly evaluate the qualifications of partners: When selecting suppliers (such as transportation vehicle suppliers, packaging material suppliers, etc.), cooperating freight forwarders, overseas warehouse partners, etc., conduct a comprehensive and in-depth investigation of their business qualifications, reputation, financial condition, service capabilities, etc. For example, check the vehicle operation permit of transportation suppliers, past transportation accident rates, and customer evaluations, choose partners with excellent qualifications and good reputation, and reduce cooperation risks from the source.
Sign a detailed cooperation contract: The contract clearly defines the rights and obligations of each party, service standards, fee settlement methods, breach of contract responsibilities, and other key terms, so that there is evidence to rely on in case of disputes. For example, in the contract with the overseas warehouse partner, it is necessary to clearly specify the charging standards for goods storage, define the compensation responsibility for goods loss or damage, and specify the service response time of the warehouse to avoid disputes arising later due to unclear responsibilities.
Regular assessment and dynamic adjustment of cooperation relationships: Establish a regular partner performance evaluation mechanism, rate partners based on actual performance during cooperation, such as on-time delivery rate, service quality, cost control, etc., communicate and rectify with underperforming partners in a timely manner or terminate cooperation, and actively seek higher-quality alternative partners.
Customer cooperation risk response
Conduct customer credit assessment: Before signing logistics service contracts with clients such as cross-border e-commerce sellers, investigate the client's credit status, operating history, financial strength, etc. For clients with higher credit risks, you can require them to provide advance payments, guarantees, etc., to reduce the risk of accounts receivable recovery. For example, obtain the client's credit report through a third-party credit rating agency, or inquire about their payment habits from past business partners.
Establish customer communication mechanism: Maintain close communication with customers, timely feedback on the progress of logistics services, understand changes in customer needs and business conditions, and prepare in advance for possible cooperation changes. For example, when a customer needs to reduce the volume of logistics orders due to adjustments in their own business, the company can communicate and negotiate, try to recommend other more suitable logistics solutions, or expand new customers to make up for the business volume gap.
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