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Is Euro vs. Dollar Value Affecting 3PL?

 

At the end of the fourth quarter in 2014, the euro was at its lowest point relative to the dollar in over nine years, trading at under $1.20. The dollar index rose over 15 percent in the second half of the year, one of its strongest performances against six other major currencies. Growth in the U.S. economy created a stronger dollar, which has significant implications for individuals and corporations who do business internationally. Currency fluctuations tend to affect transportation more than other functions in the supply chain. What are the potential consequences for third party logistics?

Slower Growth

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According to the ARC Advisory Group, the euro's decline relative to the dollar was responsible for a slower rate of growth in 3PL in the fourth quarter of 2014. Compared with a growth rate of 5.6 percent in the 3PL market over the first three quarters of 2014, the fourth quarter saw just 1.4 percent growth.

Increased Risk Mitigation Strategies

During currency fluctuations, companies look at new strategies to minimize risks in the supply chain. These may take the form of developing new supplier relationships, employing complex forecasting models, and evaluating alternative transportation modes and new routing options.

Operational hedging , which aims to bring more flexibility and agility into the organization's supply chain and distribution channels, helps offset the detrimental impact of the euro's decline.

Re-Evaluating the Supply Chain

International companies facing a currency decline that affects their competitiveness on the global market turn to nearshoring and regionalizing their supply chains in an attempt to reduce transportation costs. They may even change where they distribute their goods. During more sustained periods of currency flux, they may even change manufacturing locations. Warehousing is less of a consideration, since manufacturing and transportation by extension are the primary cost drivers in logistics.

More Focused Attention on Transportation Costs and Pricing

It's not uncommon for airlines or motor carriers to adjust their rates based on fluctuations in the currency market; pricing is often dynamic, not contractual. Most American corporations prefer to use dollars in their transactions with their European counterparts, so more care and diligence is required in forecasting exchange rates and how they are trending, and how fluctuations may impact pricing.

Planning for the Unexpected and Unpredictable

As a natural consequence of the Great Recession, many companies streamlined their supply chains in the name of efficiency and cost cutting. These new, lean supply chains are more vulnerable to adverse effects from major currency fluctuations, such as the decline of the euro against the dollar. In this lean environment, third party logistics becomes a strategic partner in managing the supply chain and controlling costs.

A 3PL has invaluable human and IT assets that provide more insight across the supply chain spectrum and offer more variable-cost flexibility to act on currency changes and other factors that affect logistics. This is especially true in niche industries such as apparel, specialty foods, or aerospace, for example.

Request a consultation from The Apparel Logistics Group to see how specialized 3PL services can help you manage periods of currency flux.

Posted: 6/22/2015 12:08:48 PM by Global Administrator | with 0 comments


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