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Suppliers supply and distributors distribute - a regular blog
Translational kinetic energy is the key to the movement of a yo-yo.
For many suppliers who price in GBP, recent foreign currency exchange movements have given GBP the look of a yo-yo. But whether it can be said that the key to the strengthening or weakening of GBP as against other currencies is as a result of translational kinetic energy is far from certain.
For suppliers making sure that their international distributorship agreements allow for changes in prices is clearly important. Such change may be achieved in a number of ways. For example, by reference to the supplier’s price list from time to time. Alternatively, how the supplier prices particular orders may be determined by the supplier’s standard terms and conditions of sale.
A third way is to include a contractual mechanism enabling prices to be adjusted by reference to movements in foreign exchange markets. Sometimes this mechanism includes a collar and cap mechanism.
Whether or not this is the case, the purposes of such a provision are twofold. First, to provide supplier and distributor alike with some certainty. Second, to give comfort to the distributor in particular that the need for fairness between the parties is recognised.
Where such a provision is not included in the distributorship agreement, a supplier may choose to look carefully at the remaining provisions or at its general terms and conditions of sale in order to determine a way forward when foreign currency movements adversely affect its selling prices. But what is sauce for the goose is also sauce for the gander – it can be expected that a distributor suffering from adverse foreign exchange movements may also choose to look at the contractual documentation to determine what can and cannot be required by the supplier.
What is apparent is the need for the issue of changes in exchange rates to be addressed. This is not least because without resolution each of the supplier and the distributor may have an incentive to look more closely at the terms of the agreement between them and the performance of such terms by the other party as a way of exiting the agreement and, furthermore, doing so at a time which may not suit such other party.
Meanwhile back to watching the yo-yo which is Brexit – but without the translational kinetic energy!