Stage 3 helps shipping industry navigate stormy seas
As chief financial officer at Stage 3 Systems Inc., Emily Tsen always plans ahead.
Stage 3 provides software solutions for the international maritime and shipbuilding industries, from helping ship owners manage the monumentally complex task of vessel construction to providing shippers with more certainty through stormy weather, shifting tides, and labour and mechanical challenges.
Its business focuses on shipbuilding centres, vessels at sea and ports the world over and, while keeping commerce moving in all weather is her colleagues’ great challenge, mitigating the risk posed by volatile foreign currency markets is Tsen’s.
“Currency predictability or currency rates are important to us as we manage our cashflow,” says Tsen. “So the recent six to eight months of currency fluctuations has really kept us on our toes in terms of managing our expenses and our margin.”
While Stage 3 does most of its business in U.S. dollars, its payroll is mainly in Canadian, thus a strong greenback and weak loonie is generally advantageous to the threeyear-old company. However, an unexpected turnaround in the Canadian dollar earlier this year forced Tsen to change all her forecasts.
“Being a small company, where margins are tight and cashflow has to be really managed on a day-to-day [basis], relying on a foreign currency on a 69- cent dollar versus a 72-cent dollar, is very different,” she says.
“When the Canadian dollar gains strength, then I lose my ability to manage my cashflow a little bit.”
She’s not alone. Enterprises everywhere are dealing with the fallout from Brexit, declining oil prices, the shifting tides of the U. S. election campaign and a host of other factors that have served to destabilize currency markets.
Britain’s decision to leave the European Union has really upset an already- unstable applecart, says Michael O’Neil, a senior analyst at Agility Forex, a Canadianbased fintech company offering cut-rate currency pricing.
It is, he says, “the overriding factor” in world markets right now, where daily currency exchange runs in the US$5.5 trillion range.
“Nobody knows how it’s going to roll out and that’s the biggest risk, the biggest uncertainty.”
Brexit has put trade deals at risk. Banking is London’s major business. With the U.K.’s departure from the EU, British banks will have to acquire 27 new banking licences instead of the one under which they currently operate. Many could decide to go seek new homes in places where it’s easier to do business.
Furthermore, more than a third of foreign exchange — trillions of dollars’ worth every day — is conducted through the United Kingdom. FX is a pillar of British banking and O’Neil says the EU has no interest in backing non-EU clearing houses.
The sterling has collapsed, affecting global trade. Now, says O’Neil, markets are talking themselves into believing European growth will slow more than it already has, depressing commodity prices and further slowing the global economy.
“In a nutshell, FX market volatility has risen and this volatility will be the norm heading right to the end of the year and the U.S. election,” he says.
It’s nothing new. This kind of volatility comes and goes. But the ripple effects of such slowdowns compound the challenges faced by folks like Emily Tsen.
The shipping industry is reliant on trade and trade fluctuates with the ups and downs of markets. Right now, the Chinese commodity market has burst, cutting into the shipping business.
That means less income for companies like Stage 3, on top of fluctuating currency rates and rising expenses. Additionally, some of Stage 3’s key expenses — like hosting services — are in U.S. dollars. “When you have key expenses in U. S. dollars, you can predict the stability of those expenses,” she says. “But when the currency fluctuates, those expenses can go up or down.”
Without additional sales to support the gap, it’s a hit, es- pecially for a small business like Stage 3. Add to that the uncertainties of global trade, and it’s an even greater challenge.
“The shipbuilding industry is facing a lot of challenges right now,” says Tsen. “We are fairly lucky in that when customers take on our product, we tend to be fairly sticky because we are injected directly into their business processes.
“What’s affecting us now is that when the shipping industry is on a downturn, there are not a lot of capital projects, there’s not a lot of spending happening. So it’s a bit of a challenge for us to gain new customers at the moment.”
So she looks for efficiencies wherever she can find them, and Agility Forex — as a small business, a kindred spirit of sorts — is one of them.
“I benefit from the efficiencies of their process of online transactions that’s fast, efficient and convenient,” she says. “I don’t have to write a cheque or go to a bank to trade in currency. And the banks are highly commissioned.
“With Agility, you can transact online and they have complete visibility and transparency in the margins of buy-and-sell.”