Stronger Dollar, Weaker Trade
The strong U.S. dollar hits U.S. manufacturers hard, including the makers of some of Alabama’s top exports.
“We’re still moving a lot of cargo through our port,” says James Lyons, CEO of the Alabama State Port Authority in Mobile. ‘It’s just not quite as much.”
Along the port of Mobile, cargo ships carrying everything from coal, lumber, iron and steel to frozen poultry and soybeans are leaving the state docks, bound for ports around the world. These days, however, the strong U.S. dollar is making it harder for some Alabama exporters to sell their goods and products to their foreign buyers.
Exporters across Alabama and the nation, in fact, are waiting to see what impact the strong U.S. dollar will have this year on their bottom line. Currencies like the Brazilian real, China’s yuan and even the euro have fallen in value against the dollar. China’s central bank, in fact, devalued its own currency in August, a move that experts say could help the country boost its own exports.
“Strong dollar” sounds robust, but it does not mean a strong economy, and it’s flat bad for manufacturers looking to sell overseas.
The U.S. dollar index, which measures the value of the dollar against other currencies, is at a peak for the decade. The dollar has been averaging about 96.00 for 2015, which is 7 percent higher than the previous decade high reached in 2009 and 28 percent higher than the decade low reached in 2008.
When buyers’ currencies are weaker against the U.S. dollar, then U.S. exports are more expensive to buy, explains James Lyons, CEO of the Alabama State Port Authority.
So far, Lyons says he has seen declines in shipment of frozen poultry, forest products, coal and metallurgic coal.
“We can tell that we’ve seen some softness in our exports,” Lyons says. “Just anecdotally, in talking to some of our customers who export, they’re having to lower their prices to compete with foreign suppliers. So, it’s having a definite impact on our business, and, more importantly, on our customers in Alabama who rely on exports for a portion of their business.
“We’re still moving a lot of cargo through our port,” Lyons says. “It’s just not quite as much.”
In 2014, U.S. exports reached $2.35 trillion, according to the U.S. Department of Commerce. That same year, Alabama exported $19.4 billion in goods, which included $3.1 billion in shipments to China, $4.25 billion to Canada and $2.3 billion to Mexico. The statewide figure is up from $19.3 billion in 2013. Major exports from the state include transportation equipment, computer and electronic products, chemicals, machinery, petroleum, coal, food and agricultural products.
Meanwhile, at Huntsville International Airport, jets owned by the Swiss-based air cargo carrier Panalpina fly to overseas destinations carrying goods such as farm equipment and heavy machinery.
In February, Panalpina announced that it would begin offering freighter service for exporters from its Huntsville hub to Viracopos São Paulo, Brazil.
“The question everybody has is how the fourth quarter looks, which is typically the high season,” says Ferdinand Kurt, CEO of Panalpina for the Americas. “It could be, depending on if the U.S. economy continues the way it has been performing, then we may actually have a bit of a strong peak season, but it’s a little bit too early to tell how it is going to develop.”
Kurt says, however, that Brazil’s stalled economic growth is another factor that has hurt exports to that country.
“Brazil is going through a recession,” says Kurt. “The dollar exchange rate devaluation of the Brazilian real has played a huge role, but equally, it has also been driven by the collapse of the consumer market in Brazil.”
Other international factors also stir up the trade mix.
For example, Lyons says the slowdown in frozen poultry shipments is not entirely due to the strong dollar.
“Part of it is that the Russians have an embargo against U.S. poultry,” he says, “and the Chinese won’t take them now because of the avian flu. So tying it directly to the dollar isn’t a good comparison, but the dollar certainly has an impact.”
As with poultry, the steel industry is facing other challenges. Katherine Mitchell, a spokesperson for Nucor Corp., which operates the Nucor Steel Tuscaloosa facility, says their biggest issue is not the strong dollar but massive levels of cheaper imports coming into the United States from China, which Mitchell says has dealt a devastating blow to the U.S. steel industry.
Hilda Lockhart, director of the Alabama Department of Commerce Trade Division, says time will tell, however, the full extent to which the strong dollar will have on exports from Alabama.
“For the second quarter, things are looking stronger for Alabama,” says Lockhart. “Our exports from June 2014 to June 2015 saw a decrease of just over 2 percent; whereas, the United States saw a decrease of 5.22 percent.”
Among Alabama’s top five trading partners, Canada, Mexico and Germany are all still posting positive levels of exports from June 2014 to June 2015, she says. Alabama’s exports to China and the U.K., on the other hand, fell slightly this year, she says. Exports to China fell by 4.5 percent and those to the U.K. fell less than 1 percent. She says, however, that the full impact of the appreciated dollar may not be known until the end of the year.
“For the most part,” she says, “I think Alabama is about where we usually are with the mid-year report. You will see some markets down and industry sectors down. But you don’t know where we will pan out until it’s all said and done.”
But Lockhart says the state’s export numbers may soon get a boost thanks to the presence of Airbus. In June, Airbus brought in its inaugural shipment of large aircraft components for the first A320 Family jetliner to its new assembly line in Mobile.
“We’re hoping that — with Airbus coming and with transportation equipment still remaining very competitive for Alabama — a lot of these are going to help us maintain our export volumes from the state to throughout the world,” Lockhart says.
Lockhart, however, says Alabama exporters can weather fluctuating currencies by developing strong relationships with customers to encourage loyalty to their products. “We know that price is not always the deciding factor,” Lockhart says. “We also encourage companies to look toward emerging markets like Eastern Europe and South America while the dollar is strong.”
Lyons says companies that export, however, can experience the upside to the devaluation of currency in certain countries.
“On the flip side, ” says Lyons, “it’s much cheaper for a U.S. company to buy foreign goods because the dollar is stronger. It’s worth so much more, so they can buy more goods from Europe or somewhere else.”
Meanwhile, the state Chamber of Commerce has several overseas trips planned this year and next to find more customers for Alabama businesses, Lockhart says. “So even if the strong dollar does prevail,” she says, “we’re going to try to make sure we can get some of these companies to find those new markets if they need to.”
Lockhart says Alabama exporters may get some help since Congress passed the controversial Trade Priorities and Accountability Act (TPA) earlier this year. TPA, or fast-track authority, will allow the president to send trade bills to Congress for an up-or-down vote without the threat of a filibuster or amendments to the bill and promises to give U.S. exporters a greater ability to compete in the global marketplace. The Alabama Department of Commerce and other proponents of TPA say it will help clear the way for the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) trade agreements, which could help increase Alabama exports.
TPP is a 12-nation trade accord among the United States, Australia, Brunei, Japan, Malaysia, New Zealand, Singapore, Vietnam, Canada, Mexico, Peru and Chile. The TTIP, on the other hand, is designed to increase trade between the United States and the European Union.
Critics of the TPP say it has been negotiated in secret and that its terms have been kept hidden from the public. Other critics say the TPP undercuts national sovereignty in environmental and health standards. Also, the TPP contains no currency provisions, so there’s nothing to prevent trading partners from cutting their currency relative to the dollar.
Nonetheless, it looks good to the state’s commerce officials.
“We feel that for Alabama exporters, it is going to be a step in the right direction to help them secure more buyers and be more competitive,” says Lockhart. “That is what we are counting on to help offset some of these issues like the strong dollar.”
Gail Short, Chad Riley and Tyler Brown are freelance contributors to Business Alabama. Short is based in Birmingham, Riley in Mobile and Brown in Huntsville.