When Hedging Gets Expensive: Payment Terms as an Import Risk Tool
Importers across South Asia learned an uncomfortable lesson this month. On 9 and 10 October 2026, the Reserve Bank of India issued a pair of circulars requiring banks to hold a 20% cash reserve against qualifying foreign-exchange derivative contracts above $2 million, part of a broader defence of the rupee, which had fallen more than 7% against the dollar in 2026 and brushed its record low. Within days, bankers told Reuters that hedging costs for importers had jumped by 80 to 150 basis points, some lenders had begun charging extra fees per dollar per month, and a few had quietly paused forward contracts for smaller corporate clients altogether.
For anyone trading fresh produce, the message is blunt: currency protection is no longer a given. And when hedging becomes expensive or unavailable, the structure of your payment terms stops being a financing detail and becomes your primary risk management tool.
Why Fresh Produce Importers Feel This First
Garlic and ginger are thin-margin, high-volume commodities. A shipment priced at $1,200 per tonne can see its landed cost swing 5-8% purely on exchange-rate movement between contract signing and payment settlement — often 30 to 90 days later for a typical LC or collection transaction. On a tight trading margin, that swing can erase the entire profit of the deal.
The traditional answer is a forward contract. But the Indian measures show how quickly that door can narrow. When banks must tie up 20% of a hedge's notional value in cash, they ration the product: fees rise, tenors shorten, and smaller importers — the majority of fresh produce buyers — find themselves at the back of the queue. The same dynamic is playing out in other emerging markets where Sinosure's own claims analysis, published in the Berne Union's October bulletin, notes that foreign-exchange restrictions have become prevalent across South Asia, Latin America and Africa, with some governments now requiring approval for currency repatriation.
If you cannot reliably hedge, you need payment structures that absorb currency and counterparty risk without demanding fresh capital up front.
Matching the Payment Instrument to the Actual Risk
There is no single "best" payment term for garlic imports — there is only the term that matches your real constraint. A practical hierarchy:
Sight LC remains the reference instrument when a supplier relationship is new. The bank pays against compliant documents, not against your bank balance arriving early, and you avoid prepaying a supplier you have not yet audited. The cost is bank charges and margin requirements, but for a first shipment from a new origin it is usually worth it.
Deferred LC shifts the payment date forward — commonly 30 to 90 days after the bill of lading — which lets you sell a portion of the cargo before funds leave your account. In a rising-rate or tight-liquidity environment, that deferral is effectively free working capital, and it shortens the window during which currency movement can hurt you, because your selling prices can be adjusted as the market moves.
D/P and D/A collections strip out much of the LC cost. Under documents against payment, you only pay when the documents are presented; under documents against acceptance, you sign a bill of exchange and pay at a fixed future date. They work well once trust is established, but the bank does not guarantee payment — which is precisely where credit insurance enters.
Open account terms of 30 to 120 days, backed by export credit insurance such as Sinosure cover on the supplier's side, are increasingly the norm for repeat buyers. The importer gets full payment flexibility; the exporter's receivable is insured. The Indian episode actually strengthens this model's logic: if hedging is expensive, spreading payments across a season and settling as local revenues come in is often cheaper than locking in a large forward position — provided both parties have protected the credit risk separately.
The mistake importers make is defaulting to one instrument for everything. A sight LC for a first container, a 60-day OA facility once Sinosure-backed trust is built, and a D/A for regional re-export trades can coexist in the same procurement year.
Reducing Upfront Risk Before Terms Even Matter
Payment terms manage risk after shipment, but a growing share of importer losses happen earlier — deposits paid against goods that never match the sample. This is where the refundable deposit model deserves more attention than it usually gets. Zileeland operates exactly this structure from its Dubai cold-storage facility at Ras Al Khor Central Fruit & Vegetable Market: the buyer places a deposit, inspects the actual garlic — pure white and normal white in 5-5.5cm bags, plus peeled garlic — at the warehouse, and completes the transaction only once the goods are confirmed to spec. If they are not, the deposit comes back. For importers operating in volatile currency environments, that means no hard currency is committed against unverified goods.
The same logic applies to storage. Fresh produce punishes delays, and a supplier who offers a complimentary storage period at an overseas warehouse effectively gives the importer a buffer: land the cargo, complete inspection and clearance at your own pace, and avoid demurrage-driven decisions made under pressure. Zileeland extends this service to its Dubai warehouse customers for precisely that reason.
Practical Steps for the Current Environment
Three actions are worth taking this quarter. First, reprice your hedging assumption: if forward costs have risen 100 basis points or more in your market, compare that against simply negotiating deferred terms — the bank margin on a 60-day deferred LC is often cheaper than the all-in cost of a hedged 90-day sight LC. Second, ask suppliers what insurance backing sits behind their open account offers; a Sinosure-supported receivable is a materially different proposition from an unsecured one. Third, test any new supplier with an inspection-based structure before committing to term payments.
Currency regimes in emerging markets will keep surprising traders — that is their nature. The importers who thrive are not the ones who predict the rupee or the naira, but the ones whose payment structures make the direction of the currency almost irrelevant.
WhatsApp +86 135 3884 6949 | Email: business@zileeland.com
Joseph (Dubai Warehouse): +971 56 659 3694
