Australian Seafood: expect the unexpected
As the world continues to recover from COVID-19, more disruption may be on the horizon as the effects of geopolitical conflicts ripple around the globe. Global inflation, due to the rising cost of fuel and transport, coupled with persistent supply chain issues, adds pressure.
The Reserve Bank of Australia has been watching inflation carefully and in its meeting on 3 May announced its first cash rate increase since 2010, lifting the rate by a higher-than-expected 25 basis points from 0.10% to 0.35% and boosting the dollar. Whilst markets had been anticipating modest increases over the balance of the calendar year, this came as a surprise: until recently the thinking was that the RBA would hold firm at 0.10% until after the 21 May federal election.
The year ahead for Australian seafood
China has long been the dominant consumer of Australian seafood exports, but the extended lockdowns and COVID-19-related embargo led many in the industry to actively seek to diversify export markets. The need for specialised equipment (predominantly from China) for handling fresh fish also a consideration. Supply chain snarls, semiconductor shortages, and disruptions affect both sides of the equation. Planning for the 2023 fiscal year
CONTINUING RBA RATE RISES
The RBA indicated that additional rate rises would follow the May increase, adding that a rate of 2.5% by the end of the year was ‘not unreasonable’ as inflation is projected to increase. This more hawkish position supports the dollar, but puts pressure on consumer pricing.
US FED RATE HIKES
The US Fed is signaling a more aggressive schedule of interest rate increases and balance-sheet unwinding to rein in inflation. This may lead to continuing short-term greenback strength.
While Australia is more self-sufficient in the energy sector than other countries in the region, continuing sanctions against Russia affect fuel costs for shipping and manufacturing, tightening margins for exporters and importers.
GEOPOLITICAL TENSIONS (Ukraine, Russia, China, Europe)
To date, the war in Ukraine has had less direct impact on Asian economies than on the US and Europe, but challenges loom on the horizon if tensions between Russia, China and the US/Europe coalition persist.
CHINA’S ECONOMIC OUTLOOK
They say when China sneezes, Australia catches a cold. All indicators point to a slowdown in the Chinese economy. Inflation affecting food and energy costs could narrow the scope for the People's Bank of China’s (PBoC) lowering interest rates.
Watchwords Tactics like these might help to increase your business’s resilience for the year ahead.
Diversifying supply chains and seeking to expand customer bases closer to home could help your business weather unexpected events. Many companies began this process over the past two years.
Eyes on the margins:
Whether you’re importing or exporting, favourable currency movements can present opportunities to increase profitability. If you’re ill-prepared, this same volatility can work against you. Can you re-price goods or absorb tighter margins?
Keep your long-term goals in sight, but try to build flexibility into your planning. Recognising timelines for cash inflows and outflows can help smooth the bumps. Layering hedges, of various durations and proportions, is one way to go. Another might be to negotiate payment terms to better align revenues with expenditures.
Planning for the worst and expecting the best is probably the most important watchword of all. Click here to meet Marcos Orfanidis, National Business Development Manager at Corpay Cross-Border Solutions who works with Seafood Industry Australia Members.
About Corpay Cross-Border Corpay is a leading global foreign exchange and currency risk management specialist. To learn more about Corpay and our experience in providing FX services to the seafood industry, please visit our website.