Navigating rising FX challenges in freight & logistics

On April 2, 2025—"Liberation Day"—the US unleashed a wave of tariffs that’s sending shockwaves through global trade. UK exporters are now grappling with a 10% tariff on goods and a staggering 25% tariff on steel heading to the US, slashing their competitiveness overnight. Experts caution that Trump’s tariffs could result in a significant £22 billion export loss for the UK, leaving industries scrambling to adapt.

While freight transport and logistics services aren’t directly hit by these tariffs, the potential ripple effects are impossible to ignore. Supply chain disruptions, shrinking export volumes, and most critically, volatile FX markets are creating a perfect storm for the industry. In fact, export levels for transportation services are expected to drop by 2.4%.

With fluctuating exchange rates presenting a risk to profit margins and pricing stability, it's crucial for freight and logistics businesses to develop robust FX strategies to navigate these growing obstacles. Let’s dive into how FX impacts the sector and what firms can do to stay ahead.

 

Freight transport and FX risk

Freight transport firms face unique challenges when it comes to managing FX risk. Various factors contribute to this heightened exposure, including:

Payments – The FX market plays a key role in determining costs for shipping companies, impacting everything from crew payments and port duties to fuel expenses and logistics fees. With transactions conducted in multiple currencies, international shippers are exposed to FX risks, where currency fluctuations can drive up costs, shrink profit margins, and disrupt cash flow.

Freight duties - Freight duties form another expense for air and sea transportation businesses and can be heavily influenced by currency volatility. For example, if the currency a shipping firm is paying freight duty in is particularly strong, this would dent profit margins and drive expenses up.

Fuel costs - Bunker fuel can account for a staggering 50-60% of a ship's total operating costs, making it a major expense for the shipping industry. With fuel typically traded in USD, the dollar’s 2-year high in January 2025 has created an additional squeeze, albeit this pressure has now subsided thanks to a sharp devaluation in the in the Dollar. Nevertheless, these sharp swings demonstrate how impactful a volatile FX market can be in a short space of time.

On top of this, tighter environmental regulations are reshaping the landscape of the shipping industry. The European Union’s new marine fuel regulations, effective January 2025, require companies to switch to cleaner, low-emission fuel alternatives—many of which are in short supply. Those who fail to comply face steep financial penalties. For shipping companies, this is a double-edged sword: comply and absorb higher fuel costs, or risk fines that could cripple operations.

 

How can freight and logistics firms improve FX risk management?

To minimise FX risk, freight transport and logistics firms should consider implementing a robust FX risk management strategy. There are a number of steps that these firms can take to achieve this.

Compare the market

The ability to put FX trades up for competition is crucial for securing the best pricing and achieving best execution, both of which are essential for effective risk management. However, freight transport and logistics companies may face challenges due to limited access to Tier 1 FX liquidity. This forces them to rely on a single bank or broker for their hedging needs. Fortunately, emerging technology driven FX solutions are tackling this problem, enabling firms to secure competitive rates from various banks while streamlining the complexity of FX trades with automated workflows.

Use of Transaction Cost Analysis (TCA)

TCA was designed to uncover hidden costs, helping freight and logistics companies to understand the true cost of execution. Regular quarterly TCA from an independent provider can be integrated into operations to ensure consistent FX performance, allowing firms to benchmark FX rates against industry standards and refine hedging strategies for better results.

Outsourcing

Outsourcing is no longer seen as a compromise on transparency or quality—especially when you choose the right partner. In fact, it can enhance FX transparency and execution quality. By leveraging outsourcing, freight transport and logistics firms can free up valuable time to focus on what really matters: navigating supply chain disruptions and tackling market volatility head-on. Why settle for the old way when outsourcing offers a smarter, more efficient solution?

Strong governance

Freight and logistics firms face a complex supply chain, from scheduling and equipment prep to securing shipping lanes and insurance. This operational complexity can make it difficult to maintain FX transparency and robust foreign exchange governance. By enhancing FX frameworks with better oversight, policy adherence, and transparent execution, firms can boost cost-efficiency and oversight of their FX execution. Integrating ESG governance principles into financial operations can support better risk management and align FX practices with broader sustainability and compliance goals.

 

How MillTech can help

With tariffs set to continue to impact the freight industry, it’s crucial for businesses to equip themselves with the right FX risk management tools to safeguard their bottom lines against currency fluctuations. Leveraging real-time FX rates from multiple banks and forward contracts can help businesses minimise exposure to these fluctuations, protect their bottom lines, and enhance financial stability in an increasingly volatile market.

The MillTechFX Global FX Report has highlighted a variety of challenges that businesses are contending with in light of volatility. An average of 81% of corporates across The UK, Europe and North America are now actively hedging their FX risk, and of those that do not hedge, over half (52%) are now considering doing so. With volatility influencing business decisions, the cost of protection is also a significant consideration, with four in five corporates globally experiencing rising hedging costs in the last year. This rise was most felt in Europe, where 98% of respondents said that costs had risen. Businesses in the UK and North America were less likely to be impacted by rising hedging costs, but those suffering were still in the significant majority, with 70% and 73% respectively saying that costs had risen.

MillTech can help by onboarding firms with multiple Tier-1 banks, with preferential FX rates via an intuitive, tech-enabled platform. Exposures and hedge performance can be monitored in real-time to enable fast, informed decision-making, with all post-trade processes being fully automated and integrated via APIs.

 

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