There can be no denying that, with the exception of some companies in the tech sector, 2020 was a brutal year for businesses across the board.
The pain was felt acutely by exporters despite the vital service they provided in helping get PPE where it was needed most.
Unfortunately, as we look ahead, it's clear that some of the key challenges facing exporters in 2020 will persist in 2021.
The legacy impact of the Coronavirus pandemicWhile trade volumes improved through the third quarter of 2020 as the global economy quickly bounced back from the first wave of coronavirus infections, it is now clear that hopes for a V-shaped recovery were over-optimistic as the world wrestles with a deadly second wave.
Against this backdrop of surging cases and tougher coronavirus restrictions it looks as though the start of 2021 will remain a difficult environment for exporters, particularly if we see a tightening of borders for freight as we did temporarily between the UK and France at the end of 2020.
In the coming months, as a greater portion of the global population are vaccinated against Covid-19, we should see a rebound in consumer and investment confidence, which would allow for another recovery in trade volumes.
However, it’s important to note that it could take until 2022 or later to return to pre-pandemic volumes, and the sustainability of this recovery will be largely dependent on how much fiscal support governments are willing to provide to protect jobs and household incomes.
Consequences of BrexitExporters breathed a collective sigh of relief on Christmas Eve following the announcement that the UK and EU had managed to strike a last-minute Brexit trade deal.
While the new trade accord doesn’t deliver on everything that the UK government promised, it will help prevent significant disruption to the flow of goods between the UK and EU.
This isn’t to say that things will be completely smooth however. While the Brexit trade deal establishes zero tariffs or quotas on trade between the UK and the EU, exporters will face new hurdles.
These include preparing the correction documentation, such as export declarations and exit Safety and Security declarations, in addition to licenses on certain controlled goods.
The new measures could also result in lengthier shipping times, particularly in the initial few months whilst exporters are adjusting to the new procedures, which could have a knock on impact on costs.
US-China trade tensions to persist under BidenUnder the Trump administration we have seen US relations with China put under considerable strain, as the two powers engaged in a costly trade war, a war with major ramifications for export businesses.
According to analysis by the Peterson Institute for International Economics, US tariffs on Chinese goods have risen from an average of 3.1% at the start of 2018 to 19.3% today.
However, while Joe Biden is not likely to be quite as antagonistic towards Beijing, most analysts expect to see the incoming administration largely maintain the current tariffs as it seeks to keep the rising influence of China in check.
Joanna Konings, Senior Economist with International Trade Analysis at ING comments:
‘US trade policy under President-elect Joe Biden looks likely to continue to put pressure on US-China trade relations while de-escalating other disputes. The tariffs on US-China trade flows are likely to remain in place, though talks may resume.’
However, elsewhere we could see a rolling back of Donald Trump’s ‘America first’ trade policy, with a de-escalation of tensions with the EU and other US allies as Biden seeks to maximise pressure on China by presenting a united front.
‘As part of a Biden campaign pledge to “work with our closest allies” on trade, US tariffs on steel and aluminium may be reduced, and the threat of US tariffs on EU cars forgotten.’
Currency volatilityWhile fluctuating currency prices are an ever-present challenge to exporters, the events of 2020 and the dramatic volatility we witnessed in exchange rates throughout the year have highlighted just how important it is for businesses to take steps to protect themselves from the impact this can have on cash flow.
A specialist currency broker can offer you a range of services to help protect your export business from currency volatility and maximise profit margins.
For instance, forward contracts are one of our most widely used services and allow you to fix an exchange rate in advance of making a transfer.
Fixing a rate in this way ensures that exporters are protected from any unfavourable shifts in the currency market between an order being taken and clients settling their invoices.
Alternatively, if you wish to hold out for a better exchange rate, you can set up a limit order. With a limit order you can target an exchange rate above the prevailing rate, with your transfer being made automatically the moment your target rate is struck.
Currency wallets are also a useful tool for exporters who need to make transfers in multiple currencies, giving them the option to buy currency in advance and store it securely until they need to make a payment.
2020 was undeniably a difficult year for many, and it's clear that the start of 2021 will still see exporters face more significant challenges. However, those that are able to weather the storm may see these hurdles lessened as the year continues.
If you have FX requirements we can help you maximise your returns and protect your profit. Get in touch with our team on Business@currenciesdirect.com or call +44 (0) 20 7847 9400.
Currencies Direct is one of Europe's leading non-bank providers of currency exchange and international payment services. Since we were formed in 1996, we've maintained our focus on providing innovative foreign exchange and international currency transfer services to corporations of all sizes, online sellers and private individuals. We have also expanded our services to provide dynamic and pioneering "business to business" solutions to help companies, tier 2/3 banks and other non-bank financial institutions to process their international payments. Our headquarters are in the City of London (United Kingdom) and we have operations in continental Europe, Africa, Asia, and the United States. Currencies Direct is jointly owned by private equity firms Palamon Capital Partners and Corsair Capital.