Why Currency Risk Is Hidden in FOB Pricing
When a Chinese factory quotes you a price in US dollars, they are doing the currency conversion for you — at whatever rate existed when they built the quote. That rate is baked into the price. When the rate changes, the factory absorbs the difference — up to a point.
That point is usually the next RFQ cycle. A factory whose cost structure is in RMB and whose revenue is in USD will reprice their quotes to reflect the current exchange rate when you come back for new pricing. If the dollar has weakened against the RMB (or whichtever currency from the factory's local country currency) since your last order, your new quote will be higher — not because the factory's costs went up, but because the currency moved.
Most importers experience this as an unexplained price increase. Factories rarely explain it as a currency adjustment. The conversation becomes a negotiation about cost when it should be a conversation about rate.
The Currencies That Matter
The primary currency pair for most importers sourcing from China is USD/CNY — US dollar versus Chinese yuan renminbi. A strengthening yuan means your dollar buys less factory output. A weakening yuan means your dollar goes further.
For importers sourcing from Vietnam, India, Bangladesh, or other manufacturing regions, the relevant pairs shift accordingly — USD/VND, USD/INR, USD/BDT. The principle is the same: your supplier's cost structure is in their local currency, and movements in that currency affect your effective purchase price even when the quoted price in dollars hasn't changed.
Raw material costs add another layer. A factory sourcing steel, aluminum, cotton, or petroleum-derived materials is exposed to global commodity prices that are themselves denominated in dollars and influenced by currency movements. A factory whose raw material costs rise due to currency shifts will eventually pass those costs forward.
What Tracking Actually Looks Like
Currency tracking for importers doesn't require a treasury function. It requires a discipline of checking rates at key moments in the sourcing cycle and building rate assumptions into cost models explicitly rather than leaving them implicit.
At RFQ stage: note the rate on the day you receive quotes. This is your baseline. If the rate moves significantly before you place the order, requote or build a buffer into your cost model.
At order placement: confirm the rate. If you're paying a deposit at placement, the rate at that moment determines your actual deposit cost in local currency terms. If the rate has moved significantly from the RFQ date, discuss with the factory whether the quoted price is still valid.
At payment: the balance payment rate is your realized cost. Tracking the difference between the rate at quoting and the rate at payment tells you whether currency moved in your favor or against you — and by how much.
Building Currency Into Your Cost Model
A cost model that treats the factory quote as a fixed number is a cost model that will surprise you. A cost model that treats the factory quote as a function of the current exchange rate — with explicit assumptions about where the rate will be at payment — is a cost model that manages currency as a variable rather than discovering it as a variance.
For programs with long lead times — 90 to 120 days from order placement to payment — the currency exposure is meaningful. A 3% move in the dollar against the yuan over that period changes your effective cost by 3% on the factory portion of your landed cost. On a large program, that's not a rounding error.
The importers who manage this well build a currency assumption into every cost model, track actual rates against that assumption, and update their models when rates move significantly. It's not complicated. It's just discipline applied to a variable that most importers treat as fixed.
Have you had a currency move materially affect a program's margin — and did you see it coming or discover it at payment? Do you currently have a method of monitoring currency fluctuations? We'd like to hear how you manage currency exposure in your cost models.