Catching the falling dollar

Europe is lowering the boom on the greenback - and that's great news for many small U.S. companies.

By Renuka Rayasam, FSB magazine

(Washington, D.C.) -- When Peter Bowe first went to Iraq, his Baltimore Dredge Enterprises only narrowly beat out European rivals to sell dredges the government needed to desilt dams on the Tigris and Euphrates rivers and maintain dry docks near Basra. By the time the company started shipping its machines in 2006, a weakening dollar had made its price more competitive.

And this summer Baltimore Dredge won another big contract on a bid that came in 50% lower than those of Dutch and German competitors - thanks to the increasingly favorable shift in exchange rates. "It's really simple math," says Bowe, 51. "As the dollar moves down, it makes our prices more attractive."

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The greenback's decline - in the third quarter it depreciated 3% against seven major currencies, hit an all-time low against the euro, and reached parity with the Canadian dollar for the first time in more than 30 years - represents a boon to many U.S. businesses facing tough competition.

Small exporters are benefiting disproportionately, as their ranks have swelled in recent years. U.S. companies up against imports are also profiting as their prices become more attractive compared with those of foreign competitors. One exception: U.S. companies that vie mostly with rivals in China. They are enjoying little relief because Beijing keeps the yuan artificially low relative to the dollar. Another exception: energy-intensive businesses, for which the weak dollar helps push up the cost of oil imports.

For a growing share of U.S. entrepreneurs, however, today's exchange rates - driven by falling U.S. interest rates, among other factors - offer "a great opportunity to begin building trade relationships, so they have trusted buyers for the future," says James Lambright, chairman of the U.S. Export-Import Bank, which provides export loans, about 85% of which go to small businesses.

When Mike and Amy Cerny launched Fit Couture in Houston four years ago, they tried without success to expand sales of their custom exercise clothing to online customers in Canada. But since the sliding dollar has effectively lowered Fit Couture's prices, "we're seeing sales from places we didn't used to see," says Mike Cerny, 38. Over the next year he expects to add about 1,000 Canadian buyers and 200 from Europe. He's confident that once they try his goods, they'll become repeat customers.

Small companies that don't export - but do compete against imports - are also cashing in. Gilded Age, based in New York City, makes high-end casual clothing and has been growing steadily since it started in 2005. But in the past year sales have doubled. "A part of that is being driven by retailers looking to do more business here rather than with the Italian import lines," says CEO Mike Doyle, 46.

Brad Habansky, owner of Chicago men's wear boutique Guise, which carries Gilded Age, confirms that he is stocking more domestic clothing to offset the rising costs of European imports. Three years ago 85% of Guise's inventory came from Europe. Now it's about 50%. "I have to mark the products up so much it's almost out of range for most of my clients," says Habansky, 35. "I love the Swedish stuff right now, but we can get stuff that's very close in the U.S."

The dollar drop that's good for Gilded, however, is bad news for small companies that sell imports. Dutch Bicycle Co., based in St. Augustine, Fla., brings in handmade bikes from the Netherlands and pays more for them as the greenback falls. Owner Dan Sorger, 40, has been seeing strong customer demand for the bikes he peddles for $1,000 to $2,750. But he worries that sales could be dampened by his recent 10% price hike. That was his second increase this year, and it still doesn't cover his escalating costs. "It's not so much even about maintaining a profitable level as stopping the bleeding," Sorger says.

Baltimore Dredge has experienced both sides of the currency cycle, having seen the dollar rise sharply in the late 1980s. "It was very, very hard for us," says owner Bowe. "We tightened our belts and suffered."

And now comes the payoff. He expects his 112-year-old firm's exports to be up 20% over the next two years. He is building a third U.S. plant in New Richmond, Wis., and adding about 30 workers to his staff of 120.

- ADDITIONAL REPORTING BY STACY COWLEY Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.