General

"An order with a production cost of 6 million yuan receives $1 million. The enterprise settles at the RMB/USD exchange rate of 7, which can be converted to 7 million yuan. When the exchange rate is settled, the middle price is 6.8, and the convertible RMB" "shrinkage" "is 6.8 million yuan.". After deducting costs such as operation and freight, the financial pressure of the enterprise can be imagined. Huacheng Import and Export Data Observation Report.

Under the influence of complex factors such as intensified geopolitical shocks, high inflation, and the strengthening of the US dollar, exchange rate fluctuations are frequent, and the demand for exchange rate hedging by foreign trade enterprises is increasing, especially for cross-border e-commerce enterprises with small and frequent transactions.

High demand management efficiency low

According to Huacheng Import and Export Data Observation, currently, two-way fluctuations in the RMB exchange rate have become the new normal in the market. Faced with increasingly complex exchange rate risks, more and more cross-border e-commerce enterprises have established the concept of exchange rate risk neutrality and begun to more actively manage risks.

A few days ago, Yibang Think Tank released its annual sustainability report, "Cross-border E-commerce Financial Services Report." Based on the analysis of questionnaire data from 620 cross-border e-commerce enterprises, the 2022 annual report shows that the financial service needs of enterprises are still mainly concentrated in overseas collection, financing, foreign exchange settlement, and other aspects. Compared with the 2021 annual report, the proportion of enterprises with foreign exchange settlement needs has significantly increased from 27.80% to 45.81%, and the demand ranking has jumped from third to first; The corresponding increase in overseas collection demand was 5.74 percentage points, with the ranking adjusted from first to second.

It is worth noting that although there is a stronger awareness of risk hedging, overall, cross-border e-commerce enterprises' ability to comprehensively use exchange rate hedging tools is still limited, and their management efficiency for exchange rate risk is relatively low.

According to a survey by Yibang Think Tank, in the process of foreign exchange settlement, 33% of sample companies believe that exchange rate fluctuations have a significant impact on their financial performance, and the proportion of sample companies that have used foreign exchange products/tools is second only to payment products/tools, ranking second in the utilization rate of various cross-border financial products/tools. However, only 21.03% of the sample companies use foreign exchange hedging products to hedge risks, 35.38% rely on empirical judgment and timely collection to hedge risks, and more than 30% (31.28%) of enterprises choose to passively accept risks. Huacheng Import and Export Data Observation reports.

Hit the pain point and escort out of the sea

From the perspective of the market, the current methods for cross-border e-commerce sellers to manage exchange rate risk mainly include timely exchange (sellers should make a capital demand plan and budget, and within a certain time window, choose to exchange when the exchange rate is more appropriate) and foreign exchange lock (by locking future exchange rates to avoid exchange rate fluctuation risk). The foreign exchange market is rapidly changing, and Lianlian International Co CEO Shen Enguang told reporters that in the absence of professional knowledge and talent, the vast majority of sellers are unable to reduce exchange costs through their own judgment on medium - and short-term exchange rate fluctuations.

In response to the pain points of exchange rate risk aversion for enterprises, cross-border financial institutions have continuously innovated foreign exchange products, providing escort for overseas enterprises to manage capital risks.

Lianlian International's cross-border foreign exchange management platform, Lianlian Planet, can customize multiple types of foreign exchange exchange and risk management solutions for sellers, such as entrusted exchange and locked exchange rates. Through cooperation with financial institutions such as banks, it helps offshore enterprises establish a full process foreign exchange risk management solution. For example, "Star Exchange Lock" mainly helps enterprises lock in future foreign exchange transaction exchange rates in advance and control exchange rate risk. "Star Chart" helps enterprises establish a risk identification, measurement, and analysis system to provide them with a clearer and intuitive understanding of their risk exposure, thereby making more reasonable hedging choices.

In addition to professional exchange rate hedging tools, multi-currency settlement is also a preferred option for cross-border e-commerce enterprises to effectively avoid exchange rate risk.

With the expansion of business, in addition to mature markets in Europe and the United States, cross-border e-commerce companies are focusing more on emerging markets such as Latin America, Southeast Asia, and the Middle East. The business needs of enterprises are gradually turning to multiple platforms, multiple accounts, and multiple currencies. Niu Naqing, a foreign exchange expert at PingPong Research Institute, said that at present, in addition to using mainstream currencies such as the US dollar, PingPong platform customers will also use more than ten small currencies such as the Mexican peso, Singapore dollar, Polish ztilo, and Czech krona for settlement. Compared to US dollar or RMB settlement, providing local currency payment options in these emerging markets will undoubtedly greatly reduce consumer payment barriers. Multicurrency collection and payment tools are also more conducive to helping cross-border e-commerce enterprises enjoy a faster and convenient accounting experience, reducing capital flow costs, Huacheng Import and Export Data Observation reported.

PingPong's foreign trade B2B collection and payment product, Fumao, recently launched a local collection service in Mexico. Enterprises can directly use the Mexican peso for transactions, without the need to convert it into US dollars in advance, effectively reducing exchange losses. Moreover, local collection accounts can be received in real time as quickly as possible through local clearing networks, speeding up the speed of fund receipt.

Lianlian International can currently achieve collection in 28 currencies. In addition to mainstream currencies such as the US dollar, euro, and pound sterling, it also supports settlement in currencies such as Indonesian rupiah, Thai baht, Singapore dollar, dirhams, francs, and krona. If an enterprise opens a local collection account in Indonesia with the help of Lianlian International, it can choose to settle the exchange into RMB and remit it back to China after completing the collection, or directly use Indonesian rupiah for overseas payments such as advertising, logistics, warehousing, etc., to more calmly cope with exchange rate risks, Huacheng Import and Export Data Observation Report.