Currency Adjustment Factor (CAF)

What Is the Currency Adjustment Factor (CAF)?

The currency adjustment factor (CAF) is an extra cost on trades between the United States and Pacific Rim countries. The levy is forced by shippers around there to cover currency variances while goods are in transit and to account for a declining value of the U.S. dollar over the long haul.

Understanding Currency Adjustment Factors

The currency adjustment factor is applied notwithstanding the freight costs incurred during trades between these countries. It was established in response to the extra costs that shipping companies were causing when they were dealing with [exchange rates](/verifiable currency-exchange-rates) between the various currencies. The CAF is a percentage that is applied to fees, notwithstanding the base exchange rate. It is calculated based on the average of the exchange rate over the prior 90 days.

The currency adjustment factor increases in direct response to the United States dollar dropping in value.

Due to this charge, numerous carriers try to go into all-inclusive contracts that will incorporate all potential charges that can be incurred to offset the impact of the exchange rate on profits. These issues most generally happen on sea freight going between the U.S. furthermore, the Pacific Rim countries, yet they can likewise be seen in different forms of shipments and with different countries outside of the U.S. also, the Pacific Rim.

Illustration of a CAF

Consider an illustration of the currency adjustment factor being applied on a shipment between U.S.- based Onyx Technologies and Japan-based Nikita Corporation. Nikita has shipped Onyx a large shipment of silicon chips for Onyx to install into their digital cameras. Nikita is sending this delivery by liner ship, and the name of the carrier service that runs these ships is Dermont Shipping.

Dermont Shipping represents considerable authority in these types of conveyances, and they are aware that the exchange rate between the U.S. dollar and the Japanese yen can be very unpredictable. Not having any desire to get found out in the center of a devaluation of one or the other currency, Dermont requests the shipping contract to be all-inclusive, and that means that there will be an adjustment worked in to cover any drop in value. It helps out Dermont out in light of the fact that, at the hour of delivery, the adjusted fee would have remembered a 51% increase for top of what they were at that point paying, and that means that half of their profits would have gone towards paying for the loss in currency value.

In the event that Dermont had not mentioned an all-inclusive contract, either in light of the fact that they were not acclimated with shipping between these countries or on the grounds that they wished to levy their own CAF against the two players, they would have expected to compute their estimated fees in advance and written them into the contract. Any other way, they would have needed to pay those fees using cash on hand.

Features

• The CAF is planned to make up for currency vacillations between those countries' currencies and the U.S. dollar that might influence shipping rates.
• The CAF was added by foreign shippers to adapt to a declining value of the U.S. dollar over the long haul.
• The currency adjustment factor (CAF) is a surcharge imposed notwithstanding freight and customs charges on imports from certain Asian countries.