Currency volatility puts pressure on UK packaging companies

UK food and drink packaging companies are facing rising currency costs across the supply chain as geopolitical tensions continue to create volatility, new research finds.

The FX Factor Report, from foreign exchange and currency risk management specialist Lumon Corporate, found that currency fluctuations were the biggest risk facing UK packaging companies. Business leaders also highlighted concerns around geopolitical developments and the resulting supply chain volatility.

Key commodities used in food and drink packaging, including paper, corrugated board and food-grade plastics, are linked to the US dollar. The report found that up to 50% of input costs for UK food and drink companies are affected by the US dollar, increasing exposure to currency movements.

For 47% of senior leaders, currency fluctuations created difficult timing gaps between paying suppliers and receiving customer payments, exposing businesses to exchange rate movements and cutting profit margins by up to one third.

The impact is also being felt across business finances. 46% said currency instability meant they had to hold higher cash buffers than normal, while 45% said it reduced the funds available for investment and growth.

Meanwhile, 37% said currency volatility makes cash-flow forecasting more difficult, while 18% reported that retail customers expect them to absorb all foreign exchange movements