Payment and costing
Currency risk on an import order.
Indonesian export is quoted in US dollars almost universally, so a European or British buyer carries exposure between their own currency and the dollar for the whole period between agreeing a price and paying the balance. The exposure is created the moment the price is agreed rather than when the money moves.
Where the exposure actually is.
It opens when you accept a price and closes when the last payment clears. On a sea shipment from Indonesia that period is commonly measured in months, because production, documents and the voyage all sit inside it.
The size of it is the whole order value, not the margin. A movement of a few per cent on a container is a real number against a distribution margin, and buyers who price in their own currency and pay in dollars discover that arithmetic on the invoice rather than at the quotation.
It also lands unevenly. A deposit paid at one rate and a balance paid at another means the effective cost of goods is not the price anybody agreed to, which makes costing after the fact more complicated than it should be.
The four things buyers actually do.
None of these is advice, and each has a cost, which is the part usually left out of the explanation.
- Carry it
- Accept the movement and price a margin wide enough to absorb it. Works for occasional buyers with healthy margins and stops working when volume grows or margins tighten.
- Forward cover
- Fixing a rate now for a payment later, through a bank or a broker. It removes uncertainty rather than saving money, and it obliges you to transact even if the shipment is cancelled.
- Hold a currency balance
- Keeping dollars for the trade so the conversion happens once, at a time you chose. Simple, and it ties up capital.
- Price in your own currency
- Occasionally possible with a large Indonesian exporter and rarely with a workshop. Where it works, the exporter has taken the exposure and priced it in, so it is not free either.
The rupiah question.
Your supplier's costs are in rupiah and their price to you is in dollars, so they carry their own exposure in the other direction. A sustained move can make a quoted price genuinely uneconomic for them, which is one legitimate reason a supplier reopens a price that was agreed months earlier.
That is worth understanding rather than treating as bad faith. It is also an argument for shorter validity on quotations and for having the conversation about what happens on a large move before it happens.
Questions buyers ask.
Should I hedge a single container?
It depends entirely on your margin, your volume and your own banking arrangements, and it is a question for whoever handles your finances rather than for a supplier or an agent. What is worth doing regardless is knowing the exposure exists and pricing with it visible rather than discovering it on the invoice.
Can I pay in euros or pounds?
Sometimes with a large exporter and rarely with a small producer, because their own costs and their own banking are in rupiah and dollars. Where a supplier agrees, they have taken the exposure and priced it into the number, so compare it against the dollar price rather than treating it as a convenience.
Why did my supplier reopen an agreed price?
Currency is one of several legitimate reasons, alongside a crop moving or an input price changing. It is worth asking which, because the answer tells you whether the relationship or the market changed. Short validity periods on quotations prevent most of these conversations.
Read next.
Paying an Indonesian supplier
T/T, letters of credit and documentary collection, what each actually protects, and the five rules that stop a deposit disappearing.
Working out a landed cost
Everything between the factory price and the shelf. The twelve lines it contains, and the four that buyers forget.
How to read an export quotation
Nine things a quotation has to say before it can be compared to another. What each line means and which absences matter.
How the money moves
Correspondent banks, charges nobody quoted, and why they received less than you sent.
Letter of credit
A bank promise to pay when named documents are presented exactly as specified. What it protects and what it very deliberately does not.
Trade finance, in plain terms
The gap between paying a producer and being paid by your customer is where importers run out of money.
Pricing what you import
Landed cost is the floor, not the price. What sits between, and the four costs that never appear on an invoice.
Buying before the harvest
Committing to a crop that does not exist yet. What it protects and what it exposes.
Sourcing from Indonesia?
Tell us the product, the quantity and the destination. We come back with what it involves before anyone talks about money.