How OFX helps Nichibo reduce their foreign exchange risk
Nichibo is New Zealand’s leading exporter of used vehicles selling to dealerships worldwide. Exporting from head office in Japan and celebrating their 30th year in business, Nichibo’s numbers are impressive, achieving half a million vehicle sales to their 500+ NZ based customers in two decades alone.
Their advantage is an end-to-end business solution, offering a number of services, including shipment, inspections, door-to-door delivery and pricing security for their customers through smart management of foreign exchange.
Robert Young, Director at Nichibo, explains that “on the surface we are in the used vehicles export business from Japan to the world, but primarily to New Zealand. But when people ask what business I’m in I reply, “the service and certainty business”.
“Used vehicles are a commodity we have become very trusted and efficient in handling through our supply-chain. We handle between 35,000 to 40,000+ vehicles per annum and you can quickly see how such turnover could lead to a significant foreign exchange risk.”
How to manage risk when time is your enemy
The enduring problem with FX, for many businesses with global operations, is that the rates are always in flux. This volatility can happen at any time and it leaves a lot of uncertainty around margin security. It’s this awareness of margin risk that led the company to seek out solutions to manage it and provide their customers with a sense of certainty.
Robert explains, “from the day our customers buy a vehicle from us in Japanese yen to receiving the invoice and paying us for the vehicle, it might be anywhere from two weeks to two months after the initial purchase order. That’s a lot of risk, and a lot can happen in that time.”
“Time can be your friend or your enemy. When time is on your side, time is your friend, and you can wait for a better exchange rate. When time is your enemy, and your due date is coming up, and you have to transact, then no matter what the rate is and no matter what exchange rate you’ve calculated your pricing on, you need to transact and face the potential of losing money on FX.”
“A customer might buy between $100k-$300k worth of stock from us. In the time from them purchasing it until the payment is due, the exchange rates move the number of points that could effectively be the margin gone. We needed to find a way to bring certainty to our client’s business by eliminating FX risk and locking in our customer’s profit margin through a smart FX function.”
After working with their bank to manage this, it eventually reached a point where the banks were no longer in touch with what this growing business needed. In a search for a better alternative, they found OFX.
How OFX works to understand today’s growing businesses
Nichibo stumbled across OFX just over 8 years ago, when it was formerly known as NZForex, and the deep currency knowledge and personal support from an OFX account manager enabled the company to provide a complete offering.
Chief Operating Officer Brigitta Galambos speaks to the support OFX provided during this time, “you can deal with a lot of other service providers, and with staff turnover they move on, and you’re constantly having to re-educate them on who you are, what you do. And for OFX, we’ve had the same team look after us for so many years. It’s so good to have consistency of service like that.”
“We talk about relationships all the time with our dealer base and our customers, and how important it is. It’s the people who we deal with in those businesses that tend to keep us there. So, again, consistency with your staff and how OFX looks after us is awesome.”
“We work with your corporate team, so if Joel’s [Senior Client Manager at OFX] not there, everyone else is able to help us book in those deals every day. Our team just works with your team.”
Robert adds, “as we’ve grown, OFX has come to us with other solutions. So now that we’re publicly listed, they’ll [OFX Account Managers] provide us with a detailed market to market report every month.”
The partnership between OFX and Nichibo enables savings for the business and creates certainty for their clients as well. This mutual benefit is an example of how a company can use FX risk management to their advantage, and with the right help, develop a currency plan that drives the business forward.