Importers face toughest conditions since 1992 recession

Moneycorp, 17 Dec 2008, David Kerns

• Weak Pound and soaring transport costs deal severe blow to importers
• Lack of currency hedging leaves SMEs that import goods ‘worryingly exposed’ to current exchange rates
• Almost two thirds of SMEs that trade internationally did not place forward contracts in 2007, when Sterling was stronger1
• Economic conditions cause 23% annual increase in company insolvencies2

Importers are facing the toughest conditions in 16 years, foreign exchange specialist, Moneycorp, claimed today. The weak Pound and soaring cost of transporting goods from abroad have dealt a combined blow to importers, particularly those trading with the Eurozone – the UK’s number one import market.

The growing proportion of SMEs that trade internationally (37%3) is more likely to be exposed to poor exchange rates than larger companies due to their lack of a treasury function that manages currency risk. Indeed, almost two thirds of SMEs that trade internationally did not place forward contracts in 2007 to lock into more favourable rates. What’s more, many companies that hedged currency have now used up their contracts and have to exchange money at current rates. The vast majority of SMEs are now bearing the brunt of the Pound falling 14% against the Euro in the eight months to the end of April.4

Company insolvencies for the first quarter of 2008 are up 23% on the same period last year2 and with economic forecasts remaining gloomy, the number of small firms going into administration could continue to rise.

Mark Deans, Dealing Manager commented: “Running a small business carries a number of risks and, as our figures suggest, too many SMEs have left themselves exposed to currency fluctuations for which they are now paying the price. SMEs are often natural risk-takers, but a lack of hedging during the good times is making the current challenges even more difficult to overcome for such an important part of our economy.

“However, companies shouldn’t resign themselves to poor exchange rates. Significant savings can be made by shopping around for the best deals particularly if you currently use a bank for international money transfers. Better rates can generally be secured by using a foreign exchange specialist, like Moneycorp.”