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Dollar's slide lifts local exporters

By Alwyn Scott
Seattle Times business reporter

ALAN BERNER / THE SEATTLE TIMES John Cahill, marketing/purchasing manager of Pac-Rim Building Supply in Renton, stands atop materials headed for Japan. He says his company isn't reaping a windfall from the weak dollar because of intense competition from China, whose currency is pegged to the dollar.

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On Bainbridge Island, Tom Burgess is preparing to sell garden tools to England.

And in Bellingham, Canadian shoppers are snapping up DVDs and video games at Target. Whenever the U.S. dollar falls below Canadian $1.40, says store manager Lenny Walker, "you start to see them coming down."

The arcane world of currency prices is taking on real-world significance around Puget Sound these days. As the dollar continues its sharp slide against foreign monies, such as the yen and euro, it creates a little bit of business heaven for U.S. producers and exporters.

U.S. goods are cheap to foreigners, and foreign goods are more expensive here.

"Any time you see a weaker dollar, your products become more competitive in the international marketplace, and that's certainly true for us," said Weyerhaeuser spokesman Bruce Amundson. The forest-products giant is selling more softwood pulp to Europe, because it is cheaper.

The dollar's decline has given a bit of a boost to Pac-Rim Building Supply of Renton, which marketing/purchasing manager Cahill describes as a "Home Depot for export."

And it's given encouragement to Burgess, whose plan to sell an innovative garden implement in England pencils out better each time the dollar falls.

Unlike past currency swings, however, the picture is a little less rosy this time around.

Structural changes in the global economy have muted both the gains to the U.S. and the pain to foreign competitors. Manufacturing has spread around the globe, spreading currency risk with it.

And intense competition from China and other developing countries has narrowed the margin for gains by U.S. manufacturers.

Toyota and other Japanese automakers, for example, now make huge numbers of vehicles on U.S. soil. That eliminates all the currency effect for U.S. buyers — and all the potential gain for Detroit.

"In the late '80s, Toyota was doing two or three price increases (a year) because of yen appreciation," said David Bora, vehicle-supply manager at Toyota's office in Portland. "It was crazy."

Today, with about three-quarters of those cars made in the U.S., price increases have been far more modest — about 1 percent across the board at Toyota, Bora said.

The price of the Japan-made Prius went up about $500 during the summer to a base price of $24,200. That was one of the few increases, said Michael Loney, general sales manager at Toyota of Seattle. Car purchases are so price sensitive, he said, that manufacturers "are more concerned about market share than losing a few dollars here or there."

Airbus hunts bargain

Other big foreign companies are trying to accommodate the dollar's slide. European Aeronautic Defence & Space (EADS), the parent of Boeing rival Airbus, is looking to buy more airplane parts from the U.S. to cut costs, said Kevin Steck, vice president of business development at EADS unit Composites Atlantic in Kent.

"We know that Airbus is actively soliciting U.S. suppliers as a result of the weaker dollar," he said. Purchasing parts from U.S. suppliers holds down the cost of those parts in euros.

But not all of those deals are so simple. For example, Steck's unit makes wire harnesses that go into lighting systems for the cargo holds of Boeing jets. The parts are made in Ellensburg but then added to larger assemblies in Canada.

Circle of trade

The Canadian unit sells them in dollars to Honeywell. So ironically, this little American part of EADS is being pressured to keep costs down so that as the Canadian components' cost goes up, EADS can compete with other U.S. suppliers selling to Boeing.

"It means we're less likely to win work in the U.S. than before," Steck said. The company is trying to streamline its manufacturing to cut costs so that it can avoid raising prices.

Cahill's company, Pac-Rim Building Supply, shows another side of the currency slide. His business is geared toward Japan; Japanese text is on his Web site.

While the weak dollar makes his products less expensive in yen terms, his business isn't reaping a windfall, he says.

Among factors, the biggest is China, where manufacturers compete on many products that Cahill sells. "For commodity items like hardwood flooring and lumber and plywood, they've come in and taken over," Cahill said.

China has an extra advantage: Its currency, the yuan, is pegged to the dollar. That means prices for Chinese goods have fallen just as much as those for U.S. goods, preventing the U.S. from offering a better price.

Cahill is selling a six-panel hemlock door for $110. The price includes delivery to Japan. Because of the currency shift, the price has fallen about 15 percent in yen terms.

But that's not good enough. Chinese companies are selling a similar door for $75, below manufacturer's cost in the U.S.

"I'm basically giving it away as a loss leader to get the phone to ring," Cahill said, "and they're still cheaper."

Other factors have hurt the business. The Japanese craze for American-style homes has faded, while European houses have become popular.

How different it was a decade ago. The dollar was about 20 percent weaker against the yen than it does today. American homes were the rage in Japan. And Chinese exports were more limited.

Then the Asian financial crisis hit and Asian currencies tumbled. The value of the dollar doubled overnight. That opened the door for Chinese expansion, and many U.S. suppliers went out of business, Cahill said.

Today, the weak dollar causes customers "to take a second look at our products," Cahill said. But he is relying on savvy marketing, too. At a recent Tokyo trade show, he offered free shipping to new customers on orders as small as $4,000.

"We can't necessarily try to compete on price," he says. "We have to have something of perceived value."

Some old relationships haven't changed. Canadians still like to shop in the U.S. when the dollar falls.

This time, with the strengthening Canadian dollar worth as much as 84 U.S. cents in recent days, U.S. retailers near the border are enjoying a flood of shoppers — especially in the Thanksgiving shopping weekend that fizzled after Friday.

"Our weekend traffic is certainly up," said Cara Buckingham, marketing manager at Bellis Fair Mall in Bellingham.

Retailers can't tell who's from Canada at the checkout. But they like to watch car license plates. "On Saturday, maybe 30 percent of the cars in the parking lot were Canadian," said Walker at Target.

Tom Burgess hopes the currency factor helps him sell a funky garden tool through B&Q, a building-supply chain in Britain.

His company, Bainbridge-based Lion Trading, is offering the "Winged Weeder" from Idaho, a modified hoe with a steel arrowhead instead of a hoe blade — perfect, he says, for a nation of gardeners.

It sells for about $50 here. But because of the dollar's decline, Burgess can sell it for 25 pounds in the U.K. Without the currency move, it might cost 33 pounds. "That's 30 percent," he said. "The weakness of the dollar really makes it viable and worthwhile to pursue."

Alwyn Scott: 206-464-3329 or ascott@seattletimes.com

Copyright © 2004 The Seattle Times Company

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