By Eliot Bassett, MD at Lumon Pay, corporate division, a foreign exchange and currency risk management service
MANUFACTURING is one of the first sectors to be affected by any geopolitical uncertainty. While the current conflict in the Middle East is, of course, the latest global event to cause supply chain confusion and currency volatility, it certainly isn’t the first.
A continuous stream of geopolitical events over the past few years, including the Russia-Ukraine war, post-Brexit trade adjustments and even the blockage of the Suez Canal back in 2021, have deeply impacted manufacturing. The sector operates on incredibly tight margins, and, as a result, it is exposed to even the smallest change in global trade or currency volatility.
This constant state of flux has become the new normal for the industry. Therefore, it is vital, now more than ever, that foreign exchange (FX) continues to be a persistent focus for manufacturers.
How the industry is affected
Manufacturing companies are currently facing significant financial pressures – inflation alongside increased transactional friction and supply chain disruption are causing real unease.
The recent Manufacturing Pulse Survey 2025 showed that ‘tariffs and sanctions’ was the top supply chain issue in 2025, and it is expected to still be the case this year. This demonstrates that global tensions are now very much intertwined with operational decision making. The survey also revealed that while 62% of manufacturing organisations planned to localise their supply chains, only 8% were planning on doing so in the next 12 months. This means manufacturers are continuing to depend on global supply chains.
With this dependency comes greater currency volatility, and therefore risk for manufacturers reliant on imported goods. Short-term currency instability, caused by disruption in Middle East shipping routes, like those in the Strait of Hormuz, are creating operational and logistical challenges, driving up insurance premiums as well as shipping costs. Even manufacturers that do not import directly are affected as costs trickle down from suppliers.
Long-term currency movement is also an important consideration for manufacturers, alongside shorter-term FX volatility. Businesses are paying close attention to these broader changes, in particular the strength of the US dollar due to its central role in global trade and its influence on commodity pricing.
However, these relationships are not purely mechanical, so manufacturers need to find strategies that mitigate these fluctuations and protect themselves against risk.
Reshaping FX risk
By treating FX risk as a permanent operational factor, rather than an occasional disruption, manufacturers can be better prepared to anticipate and mitigate the effects of currency volatility on their profit margins. Resilient manufacturers protect their business by planning ahead.
However, we are starting to see a growing financial sophistication among small to medium sized manufacturers, with some implementing formal frameworks and policies, such as currency hedging. Hedging allows companies to secure an exchange rate in advance of a contract being signed or agreed, meaning the value of a future payment or receipt is protected from market movements. In just the last 12 months, we have seen a 4.9% swing in the GBP/USD rate. This means that on a contract worth one million USD, the change in value to a British business could be as much as £37k.
By outsourcing to expert FX risk management services, manufacturers are able to adopt practices similar to those used by larger-scale businesses, planning ahead to temper any fallout from continued geopolitical events.
Sometimes, it’s the job of currency risk management to show manufacturers a different perspective on FX. No-one can predict what’s around the corner. Simply relying on market-led decisions and focusing on the best possible price and the race to the bottom, can actually be detrimental. Instead, by establishing a good structure and having well thought out strategies can help lower FX risk to a minimum.
Geopolitical tension is always going to be a major factor for manufacturers, with the potential for huge financial implications. But, by understanding FX risk, making it an inherent part of operations and integrating clear robust policies, manufacturers will have all the tools they need to weather the storm for their business and their customers.
Learn more about Lumon’s foreign exchange and currency risk management service, and explore the possibilities available to you.
