Weakened dollar boosts exporters

Steve Crowder, CEO of Springfield-based furniture and décor distributor Decorize Inc., was amazed by the attitude of a European customer at a recent home furnishings show in High Point, N.C. “I watched him go through the showroom, and after he was done the salesperson told me that he did not once look at prices,” Crowder said. “He selected products he liked, the salesperson scanned them and finalized the order. I’ve never seen anyone do that, especially with the magnitude of that order.”

He said the customer ordered a shipping container full – worth about $60,000 – of Decorize items.

One reason for the flippant attitude toward prices could have been the weakness of the U.S. dollar, which has decreased considerably in value compared to other currencies.

The U.S. dollar buys about 8 percent fewer Euros, for example, than a year ago – giving foreign currency more purchasing power in American markets.

It’s not unusual for companies doing business globally to get some help from the weaker greenback – to a point.

“With a weaker dollar, it makes U.S. goods less expensive to foreign dollars, so it generally helps U.S. exports,” said Steve Blumreich, president of BKD Corporate Finance. “On the other hand, it makes imports more expensive.”

Decorize’s international sales have more than doubled in the last year, Crowder said, though he noted that foreign buyers only comprise about 4 percent of the company’s sales, which last year totaled $15.5 million.

The weakened condition of the U.S. dollar also has benefited Springfield-based global shipping logistics firm Marisol International. Managing Partner Mike Vogt said the weak dollar has significantly helped his exporting clients.

“They’ve seen their markets explode,” Vogt said. “We’ve had a few newer companies arrive on the scene because their products are more marketable overseas, but the main thing is a dramatic increase for our exporters.”

The reality of the situation, however, is not so cut-and-dried.

Crowder said that for Decorize, much of the positive effect of the weaker dollar is offset by historically high fuel prices.

That rise in prices, ironically, can partially be traced back to the dollar itself. Commodity traders often use oil as a hedge against a weak dollar; oil contracts are traded in dollars, making prices higher when the dollar is weak.

Crowder added that the devalued dollar also means U.S. money doesn’t go as far overseas, which translates into higher costs to create Decorize’s products, most of which are manufactured in Indonesia.

“A year ago, when fuel prices were lower, (the dollar) was the big driver of our labor and material costs. Now, they’re being driven by fuel prices,” Crowder said. “It’s like, ‘OK, the typhoon is coming – which is going to get you, the wind or the water?’”

Finance expert Blumreich said that give-and-take relationship is typical for companies trying to balance the rising costs of doing business and the possible boon from a cheaper dollar.

“If you work for the oil industry in the (United States), you’d rather have high oil prices because your company is going to be making more money, and you as an employee or owner are going to be doing better,” Blumreich said.

“If you’re talking to a consumer who is working for a fixed wage and (is) concerned about paying $4 a gallon for gasoline, they’re not very happy about a weak dollar and high oil and gas prices,” he added.

Marisol executive Vogt said fuel prices haven’t had as much of an impact on his customers, mostly because they can counteract the costs by increasing their volume.

“(Fuel) hasn’t been as big an impact for us, because the companies that had been doing a significant amount of exporting have increased that, and the actual transportation cost increase has not affected business as much as the lower dollar,” Vogt said. “As far as being a deterrent to business in the global import and export market, I haven’t seen it.”

Why the Weak Dollar?

While many factors go into the relative strength or weakness of a currency, BKD Corporate Finance President Steve Blumreich said there are a couple of key reasons for the current weakness of the U.S. dollar.

“The cause is concern from the rest of the world – China, Europe and Japan – that our deficit has gotten out of hand,” Blumreich said. “It creates concern about the ability of the U.S. to fund its debt.”

He pointed to both the U.S. trade deficit – the country is importing more goods than it exports – and the war in Iraq as contributing factors to the growing national debt.

Blumreich also noted that the overall downturn in the U.S. economy, especially the construction market, makes the dollar less expensive abroad.

“When there is a general contraction like that, it’s cause for concern by countries that are buying U.S. debt instruments,” he said.