Meaning of Rate of Exchange (ROE)
ROE is an abbreviation for Rate of Exchange. An Exchange Rate is a rate at which a foreign currency (USD) will be exchanged for another Currency (AUD – Australian Dollar)
Example = ROE USD/AUD = USD 0.66
• 1 crate @ USD 10,000 converted rate of exchange of USD 0.66 = AUD 15,151
What is the meaning of Currency Adjustment Factor? (CAF)
CAF is an abbreviation for Currency Adjustment Factor. Shipping Companies will invoice the importer in Australian Dollars by converting the Foreign Currency Amount into Australian Dollars and adding a CAF fee in % (percentage). This % will vary depending on how much the Freight Companies will want to protect themselves with any variation on the Rate of Exchange –
CAF is like a “buffer ” on any fluctuation of the currencies.
Let’s take the same example as above but we then add a CAF fee of 2.5% on the exchange rate, this will change the final amount.
Examples of CAF Fee of 2.5% on the rate of exchange
• 1 crate @USD 10,000 converted at of exchange USD 0.64 (this rate of exchange includes a CAF fee of 2.5) = AUD 15,625.00
The Outcome of adding CAF fee on the exchange rate.
As you can see from the above two examples, there has been an increase on your final costing of your goods from AUD 15,151 > AUD 15,625 a difference of AUD 474.00 which can affect your final costing of your goods.
How to avoid paying a CAF fee % on your invoice
Some Shipping Agents will allow you to pay in foreign currency for example in either USD or EURO for your international freight charges.
There are however some considerations:
1. A Freight company might charge you a Bank Fee, which could be higher than your current CAF fee
2. As an importer you will have to ensure you have enough cashflow to pay in foreign currencies and hope that you have “gained “value by forward buying your foreign currencies.
Advice for New Importers
Don’t forget to always consider the CAF Fee % when costing your products to give yourselves a buffer on the fluctuation of the currencies. It is very important to always ask your shipping agent how much CAF they charge so that you can calculate it in your costings, or you will find yourself, out of pocket if the currency you are buying your products loses value by the time and you have not covered yourself.
If you need more help on Rate of Exchange or Currency Adjustment fees, feel free to contact Cinzia Sangalli by completing the contact us form.