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Import-export solutions during crisis

November 22, 2022

Over the last several decades, globalization has strengthened international trade and create intricate—but tightly calibrated—supply chains. However, all it takes is a global political, economic or health crisis for even the most well-oiled import-export supply chains to collapse.

Import-export solutions during crisis

It's no surprise that every link in the chain feels the impact when an event hits the whole world at the same time. In the past years, the entire business community had the same priority: protecting cashflow.

Emergency government programs and relief measures put in place by financial institutions kept a lot of companies afloat, but they were stopgap solutions. The clock is still ticking and those companies will eventually have to pay back their loans. 

When you need to keep your supply chain going, some strategies that predate the crisis still prove effective.

Keep an eye on the exchange rate 

Planning is the name of the game. If you make large transactions in foreign currencies, keep on using forward and futures contracts to set the date, currency and exchange rate of the transaction in advance. If you skipped that step and now you're at the mercy of market fluctuations, you can still limit the damage. 

For example, a few weeks before the 2020 pandemic, a Quebec mining company bought US$800,000 in machinery. For a number of reasons, including the relative stability of the exchange rate over previous months, the company diverged from its usual practices and neglected to use a forward and futures contract. When the pandemic hit, the Canadian dollar fell and the company had to react fast.  While the real cost of the expenditure was skyrocketing, the company worked with Desjardins to limit the damage. It avoided the worst-case scenario with smart advice and quick decision-making.

Don't get squeezed by lead times 

The concept is simple: the importer pays, the exporter supplies. When delivery and payment are close together, risks are low. But things get complicated when there's a lag of weeks or even months before you receive goods you paid for in advance. This can bring things to a screeching halt and cause serious issues for companies, which need cash to operate.

All too often, companies wait until after a contract is signed to discuss payment methods, which can mean the agreement is incomplete or poorly suited to the country where the transaction is taking place. It's important to explore your options with your advisor before making anything official.

In addition to renegotiating payment agreements, a letter of credit is a great way to protect your cash flow without interrupting the supply chain. With letters of credit, the importer and the exporter ask their respective financial institutions to represent them. The 2 companies send their terms to their financial institutions (see sidebar), which then make sure that all preconditions are met before transferring the money. When an exporter sends documents an importer has requested (such as the results of a third-party quality test) to its financial institution, the institution forwards them on to the buyer's financial institution so it has the information it needs to process the payment.

Documentary letters of credit: a handy tool

You're free to negotiate the terms of your contracts with your suppliers. Whether or not they're based on international trade rules such as Incoterms, the rules can still be reflected in the letter of credit. For example:

Incoterms clauses

  • Organization and payment of carriage fees (sea, air, rail, road)
  • Location, organization and fees for loading/unloading
  • Insurance for the goods
  • Responsibility for clearing customs

Other provisions

  • Down payments
  • Inspection reports
  • Details in the event of logistical issues

This solution gives both parties peace of mind and provides a good foundation for the relationship. While letters of credit are especially helpful with new partners, they're also a simple way to add an extra layer of vigilance in uncertain times. The important thing is to give yourself some additional security when a foreign exporter requires payment in advance.

Relationships are everything 

Chances are you can work it out 

ake for example a Quebec steel importer with a long history of international transactions and strong, long-standing relationships with its suppliers. In normal times, the importer is responsible for carriage, including sea freight. However, a conflict in a distant country or a global health crisis can significantly affect the number of ships available. Millions of tons of grain stalled in Ukraine as a result of Moscow's attack, or a ship stuck in quarantine with a Covid case can cause a mad scramble for another transportation solution. An agreement must be negotiated with the supplier to reduce the risks. For example, a clause stipulating that the exporter must arrange for another mode of transportation in the event the vessel is unavailable, and that the importer will bear the costs.

This type of agreement would have been virtually inconceivable just a handful of years ago. Now is the time to put the good relationships you've been cultivating with your partners to work for everyone's benefit.

There are a number of tools for limiting risk for your company, including secure payment methods, quality tests, currency futures contracts, and credit insurance. Don't skip any steps when the supply chain is tenuous and unstable. These are good business habits you should quickly adopt and maintain.

Any help is welcome 

Your relationships with your financial partners are just as important as your relationships with your suppliers and can be a big help when global markets are off kilter. Your financial partners are a very valuable part of your support system and can pull in other experts to find the best solutions for your situation.

Start with your financial institution—it can be a huge help for international transactions. For instance, it can provide you with greater stability by firming up exchange rates in advance. Desjardins also has international trade specialists who can help you with a wealth of issues. They're available in several Canadian provinces, in the United States and in France. With 38 locations through our partner, CIC Aidexport (part of Crédit Mutuel Alliance Fédérale), Desjardins can also assist you in more than 50 countries.

Other Desjardins partners, such as regional export promotion organizations, help businesses in a variety of ways, including with market studies, export plans and applications for subsidies. EDC can also give you a hand finding information on target markets, insuring your receivables or increasing your guarantees if you need to finance an export project.

Diversify your suppliers 

Everyone knows you should never put all your eggs in one basket, and that's even more true in times of crisis. If you have a broad pool of suppliers for the things your business needs to function, you'll be more agile and have greater peace of mind.

It can be a good idea to have different suppliers in strategic locations around the world.

Geographic diversification helps ease transportation issues and mitigate the effects of changes in the economic, political, and health situations, over time and from one region to the next. If you have a supplier in Italy, another in the US and a third in China, for example, you maximize your chances that one of them will be available and functioning at any given time.

Even if Plan C turns out to be a bit more expensive than Plan A, you'll be able to keep your business running when there is a hiccup in the supply chain. The more flexible you are, the better the chances you'll receive your goods—and get them on time.

Solutions close at hand 

When you're looking for new suppliers, why not check on this side of the border? If you're not sure where to start, ask Desjardins. Our network includes more than 360,000 local businesses. You could do some networking and find the perfect supplier you've been looking for. Lots of new businesses and products have popped up in recent years, so you may be surprised to find exactly what you need right in your own backyard.

That may prove beneficial both strategically and commercially. Say you already sell a product that is 45% Canadian content. If you can increase that percentage to 51% you can use the “Made in Canada” seal (conditions apply) and raise the product's value in the eyes of consumers. Plus, when you do business with Canadian partners, you no longer have to worry about customs or the thousands of kilometres between you and your profit margin.

No matter what your ideal scenario is, a good balance between local and international suppliers can play a key role in optimizing your costs and protecting your supply chain.

Track market trends 

Good business strategies put you in a position to act early and fast. With a solid game plan and a seasoned team by your side, it's much easier to make changes on the fly when opportunity knocks or the situation dictates.

Stay abreast of market trends and monitor them closely so you're ready. If you're part of a business association, discuss your challenges with others in your network. Talk to your sector-based association and reach out to your financial partners or even your competitors to get a good picture of the industry.

Despite the surrounding noise, stay attentive to your clients and watch consumer trends. You'll be able to move quickly when it's time to turbocharge your e-commerce platform or update your product line. Ultimately your ability to innovate and adapt your supply chain will be key to helping your business safely navigate rocky waters.

There's no magic formula for times of uncertainty. You need to adapt and manage risks simultaneously. Run a tight ship financially and operationally, but think outside the box about your processes. And whatever you do, be flexible. Taking an open, people-first approach to finding solutions for your business will put you in the right position to seize new opportunities as they arise.