Currency woes

On 16 October (before I started this blog), I posted the following to some local email groups. I thought it worth reproducing here:
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Catastrophic Collapse of the South African Rand (Our national monetary currency).

We have just witnessed a historical event, never seen before, but I fear
this may be just the start.

To put things into perspective... during the first half of October 2008,
the typical daily movements in our currency (based on 9am spot fixes) have
been in the ranges of:
Euro to Rand: -3.2% to 1.59% (-39c to +21c)
GBP to Rand: -3.36% to 0.99% (-53c to +16c)
US$ to Rand: -3.41% to 2.35% (-30c to +22c)

This morning we woke up to (SA) overnight trading on the international
markets, that have led to a sudden overnight change in the value of the
Rand of:
Euro: -11.61% (R1.48 loss)
GBP: -11.88% (R1.94 loss)
US$: -13.52% (R1.26 loss)

These are the largest single daily losses on our currency, EVER !!!!

For those of us working on margins of 10% or less (seems to be almost
everyone in this difficult economy), our overnight increase in replacement
landed costs on imported goods, has wiped out our profits in one blow.
This means if we sell an item today and replace it immediately, our
replacement cost is higher than our selling price!

When margins are higher and exchange rate movements are in their normal
range, we can ride the highs and lows (do Rand-Cost-Averaging on imported
goods), to maintain a relatively stable pricing structure locally.

However, with these drastic movements, this is impossible to achieve and
would be financial suicide.

For some time now I have priced many of the big-ticket imported items
(paramotors, wings, reserves, etc) in the currency of my supplier, with the
rate payable being that of the last spot fix on the date my customer pays
me. However, due to the generally downward slide of the Rand, many of
these deals were done at a loss, due to the timeframe from when I order the
goods, receive the pro-forma invoice, take this to my bank for payment,
process XC controls and wait for the final forex transaction to go through.
This can take up to 7 to 10 days during which time I am losing out on
exchange rate losses.

At the current volatile rates, it is simply impossible to fix a price until
AFTER the final forex transaction. Even then, some of my costs follow
later, such as freight charges, which are also affected by XC rates.

On items imported for stock, this is less of a problem. However on items
imported on demand, this represents a major problem for which there exists
no easy solution.

The only option remains to provide our local customers with an ESTIMATE instead
of an invoice to make their payment on subject to exchange rate movements
(indicating the foreign value and the quoted rate). The invoice will follow
only AFTER the final forex transaction reflecting the actual exchange rate
acquired and the final Rand price.

The customer will then need to "top-up" his payment if the Rand lost
ground, but will receive a refund if the Rand strengthened between his
initial payment off the quote and the exchange rate on the day of the
actual transfer abroad.

This sucks, but desperate times call for desperate measures.