Katrin Albers opens the freight invoices at Brenner Pumpen on the first working morning of each month, with a coffee and a desk calculator she refuses to replace. The company makes industrial pumps in Duisburg, sells most of them in the eurozone and pays its 340 staff in euros. The ocean freight for its containers to Shanghai, Santos and Jebel Ali arrives in dollars, every line of it, down to the fee for a door seal.
"We price our pumps a year ahead," says Albers, who runs logistics for the company. "The freight we buy three weeks before the ship sails, in a currency we do not earn. For a long time nobody here thought of that as a currency position. It is one."
A dollar business by habit
Shipping has been priced in dollars for as long as anyone in the trade can remember. Ships are bought in dollars, financed in dollars, insured largely in dollars and fuelled with bunker oil quoted in dollars at every major hub. Charter rates, freight indices and the second-hand values brokers publish each week are all dollar numbers. A carrier that billed a German shipper in euros would be taking the currency risk off the customer and onto its own books, and carriers see no reason to do that for free.
The habit is built into the paperwork. A standard booking confirmation has a field for the currency. In our review of forty forwarders' rate sheets, thirty-seven had it pre-filled with USD.
Where the exposure hides
The base ocean rate is the obvious dollar line. The less obvious ones sit beneath it: the bunker adjustment factor, the low-sulphur surcharge, the peak-season charge, the emergency surcharge that appears whenever a strait closes. On a forty-foot box from Rotterdam to Shanghai, Albers counts eleven lines, and nine of them are in dollars. The two euro lines are the terminal handling charge at the European end and a documentation fee.
Demurrage and detention, the daily penalties for keeping a container too long, are the easiest to miss. They are usually quoted in dollars, accrue for days or weeks and get settled long after the shipment has left anyone's mind. If the euro moves by five cents in the meantime, the bill moves with it.
What a five-cent move costs
Brenner ships about 1,900 forty-foot boxes a year. At an all-in average of $2,400 per box, that is roughly $4.6m of freight. A slide in EUR/USD from 1.10 to 1.05 adds about €200,000 to the annual bill without a single rate changing. For a company with operating margins in the high single digits, that is the difference between a good year and a flat one.
It works the other way too. When the euro firmed in the spring, Brenner's freight bill fell by more than its logistics team had managed to negotiate off the contract rates. "I would love to take credit for that," Albers says. "I can't."
How shippers hedge it
Large shippers treat freight like any other dollar cost and fold it into the treasury's hedging programme. They forecast the year's freight spend, buy dollars forward in monthly slices and let the forwards run off as the invoices arrive. Mid-sized companies tend to do less. Some buy a single forward for the expected annual spend. Many do nothing and absorb the swings.
Felix Aydın, who advises exporters on currency risk at the Frankfurt firm Mainkai Treasury, says the first step is simpler than a hedge. "Most companies have never added up how many dollars they pay for logistics," he says. "Once they see the number, they notice that their dollar receipts from export sales already cover part of it. The natural hedge is sitting in the same building."
Brenner now keeps a dollar account and pays freight from the receipts of its sales to Brazil and the Gulf, which are invoiced in dollars. The remaining gap, about a third of the freight bill, is covered with forwards bought each quarter.
Euro freight that never took
Carriers have offered euro-denominated contracts on European trades from time to time, usually at a premium over the dollar rate that buried the benefit. Uptake was thin. The terminals, feeder operators and inland barge lines around Rotterdam will quote in euros, but once a box is lifted onto a deep-sea ship, the currency changes.
Asking a carrier to bill in euros is asking it to sell you a currency option. It will, but it will charge you what the option is worth.
That is Aydın's summary, and rate desks at two carriers said much the same in private.
Watching the rate
For shippers like Brenner, EUR/USD has become a freight indicator in its own right. Albers now receives the treasury's weekly currency note alongside the forwarders' rate reports, and she books long-haul contracts when the euro is firm rather than waiting for the tender calendar. It is a small change in practice. Over a year, she estimates, it has been worth about two points off the freight bill.
She has kept the calculator. The spreadsheet that replaced her monthly arithmetic has a new column, headed "at today's rate", and it is the first one the finance director reads.
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