Weak dollar softens blow of high material costs for exporters
Iowa manufacturers are ratcheting up double-digit growth in the value of goods they export to overseas markets, but record-high oil prices and rising raw material costs could throw a wrench into future profits.
Aided by a weak dollar that made U.S. products relatively inexpensive overseas, exports of value-added or manufactured goods by Iowa companies soared 22 percent in the first and second quarters of 2004 over the same periods in 2003. Iowa’s export growth outpaced the national average, which was up 13 percent in the second quarter.
“Anecdotally, I would say we’re seeing a lot more interest in exporting,” said Allen Patch, director of the U.S. Export Assistance Center in Des Moines. “We’re getting a lot of inquiries, and (companies that currently export) are telling us that the low dollar is helping. If you’re competing with a Dutch or a German or a Japanese competitor, it definitely gives a boost.”
Bridgestone/Firestone Inc., whose agricultural tire division in Des Moines exports to about 70 countries, has reaped the biggest benefit from the weak dollar in Southeast Asia and Eastern Europe, said Ralph Burchfield, president of the company’s off-road tire division.
“It’s helped us tremendously to get a price increase to offset the terrible costs of materials going up,” he said. In other markets, such as South America, Central America and Mexico, the effect has been more muted because those currencies have not appreciated as greatly as in Europe. In the European countries, “where we are benefiting is basically in us being able to supply to the original equipment companies exporting out of Europe to other countries,” he said.
Another Central Iowa manufacturer, The Wittern Group in Clive, says demand for its vending machines in Europe has increased due to the weak dollar, but not by as much as it had expected. The company, which employs about 450 people in two Greater Des Moines factories, manufactures, finances and administers management agreements for vending machines that it sells through independent distributors worldwide.
“Because of the euro, (vendors) spent money on currency exchangers, and didn’t purchase capital goods such as vending machines,” said Heidi Chico, Wittern’s vice chairman. Another factor slowing European sales has been the war in Iraq. “If you look at our growth in exports, it’s more in the Americas than it is in Europe,” she said.
Higher material and energy costs, meanwhile, are “hammering” manufacturers, Burchfield said. The price of raw rubber, for instance, has almost doubled in the past three years, and natural gas costs have gone up 30 percent in two years.
“The issue we’re concerned about is how oil prices are going to affect inflation,” he said, “because in the long run, you have to raise prices and customers say, ‘I’ll have to wait to buy.’”
If the dollar’s value relative to other currencies stays low, it may allow U.S. manufacturers to offset increased production costs through favorable exchange rates, said Kathy Hill, director of the international marketing department of the Iowa Department of Economic Development. However, “there’s just so much energy cost that a company can absorb before it has to begin raising prices.”
Wittern has seen steel prices go from about 18 cents per pound a year and a half ago to about 40 cents currently. “Our suppliers are telling us that we’ll get up to 50 cents a pound by the end of the year,” Chico said. “That’s a high increase in the cost of a commodity to produce these machines.”
How is the company dealing with these kinds of cost increases?
“I think you need to be creative in how you go to any market,” she said. “We’re strategically focusing on how we can be value-added to our industry. (For example), we have a vending management division that helps large corporations manage multiple locations with commission and income from the vending machines. We also provide financing of our equipment. Those are value-added options that our competitors don’t have.”
For more information about export assistance programs, contact the IDED’s international marketing department at 242-4743, or visit www.iowaexports.com. The U.S. Export Assistance Center can be reached at 288-8614.
GUSTAFSON IS INTERIM EXPORT DIRECTOR
The Greater Des Moines Partnership recently contracted with the former president of the Iowa State University Foundation to serve as interim director of its export assistance center.
Peg Armstrong Gustafson, who is serving as interim director of ISU’s Midwest Agricultural Trade Research and Information Center, has been working with the Partnership for about the past six weeks.
Gustafson, who has run a technology consulting business with her husband since 2000, had extensive experience establishing marketing offices worldwide as a senior vice president during her 18-year career with Pioneer Hi-Bred International Inc.
“Agriculture is an interest for me, and my husband and I feel we have a responsibility to serve our community,” she said. Having recently ended her tenure as president of the ISU Foundation, “this came at a time when I felt I could do what they were looking for.”
Gustafson said she expects to serve three to four months in the interim position until a permanent director is found. The opening was created when the previous director, Tom Rial, resigned in March. Funding for the position comes from a three-year MATRIC grant that runs through July 2006.