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International Business NewsJune, 2015

Compensating For A Stronger Dollar

In this issue:Tools to reduce impact of a stronger dollarTips to bolster your international programTrade finance resources

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Held & Associates

TOC & Letter from the Publisher

Tools to Reduce Impact of a Stronger Dollar

Stronger Dollar, continued

Transimpex, Translators & Interpreters

Stronger Dollar, continued/ Commerce Bank

Trans-Pacific Trade Pact to Increase Exports

Stronger Dollar, continued

International Trade Finance Resources

InterMark3

IBNewsmag TM: in this issue

June is punching out as a pivotal trade month.

Much has been written about both the pending Ex-port-Import Bank (ExIm) reauthorization and Trade Promotion Authority (TPA) for the President.

Without a 5-year reauthorization of ExIm, many Heartland small business exporters may be left with fewer options to finance their deals. ExIm opponents cling to the false notion that ExIm guarantees are corporate welfare hand-outs paid for by tax-payers.

Notwithstanding the $675 million returned to tax-payers through the US Treasury from ExIm proceeds in 2014, if ExIm is left to die, many small and large companies may have to lay off workers. In fact, some 164,000 American jobs could be in jeopardy. How would your elected officials opposed to ExIm explain that to their constituents?

Seemingly more contentious, Trade Promotion Au-thority (TPA) legislation looms big in the next few days. Under TPA, once a free trade agreement (FTA) is submitted to congress by the president, it must be presented for an up or down vote, preventing legis-lators from adding various amendments to the bill.Opponents want to hold TPA and subsequent FTAs by their respective throats to pander to their labor constituents. In reality, our able-bodied and fair-minded US Trade Representative negotiators sweat day and night to insure that no American rights or laws are violated in these FTAs, and that the US gets the best possible deal.

The longer we argue about ill-founded notions, the longer US competitors have to gain ground on American-produced goods, and longer our GDP loses ground.

— Frederick Baehner

Letter Fromthe Publisher

IBNewsmagTel 816.616.7779 Fax: [email protected]

6655 Troost Ave., Kansas City, MO 64131, USA

In God we trust!

PUBLISHER/EDITOR:Frederick Baehner

ADVISORY BOARD:Jo Anna Edgerton, Doris Ganser, Paul Mastilak

DESIGN & PRODUCTION: Tom Gilland, www.GillandGraphx.com

page 3June 2015

With the continuing fluctuation of the dollar versus foreign currencies, many Heartland small to medium-sized companies (SMEs) are struggling to prop up export sales. For example, exports to Europe face a strong headwind where the euro has weakened as much as 20% over the past few months.

Underscoring the strong dollar issue, Farm Journal Managing Editor, Katie Humphreys, “In fiscal year 2015, exports are expected to take an $11 billion nosedive compared with fiscal year 2014. Imports, on the other hand, are forecast up $3 billion from fiscal year 2014.”

In comparison, when the agricultural trade-weight-ed dollar depreciated more than 20% between 2002 and 2011, it supported record ag export growth between 2010 and 2013. In examining methods to offset the diminishing euro and resulting fall-off of Heartland exports, we decided to cover it from sev-eral viewpoints.

“The stronger US dollar continues to be a drag on the Heartland economy. Recently, more than one-third, or 34.0 percent of the bank CEOs reported that the strong US dollar was having a negative im-pact on their local economy, said Ernie Goss, Jack A. MacAllister Chair in Regional Economics at Creigh-ton University’s Heider College of Business. “Gains in the US dollar have made US goods, especially agricultural and energy products, less competitively priced abroad.”

“I think one of the best ways to protect your com-pany against the vagaries of the value of the dollar is to hedge your bets by soliciting suppliers and cus-tomers outside the US. As the dollar rises, you’ll be able to cut your losses by buying from abroad,” said Prof Goss. “Then when the euro rises and the dollar loses value, you’ll be able to sell more abroad.”

Along with more attention to company operations, running a tighter ship like this is one of the obvious remedies to mitigating currency fluctuations. But, what are some of the other strategies SMEs can em-ploy to compensate for the fluctuations?

How Innovative tools can reduce the impact of a stronger dollar By Frederick Baehner

IBNewsmagTM

June 2015page 4

Commercial banking services to help exporters

Brian Gordon, Senior VP & Manager of Commerce Bank’s International Depart-ment, commented that in ad-dition to working with the US Export-Import bank (ExIm), Commerce Bank is one of the first banks in the Midwest to offer a full range of interna-tional banking services. These

include: letters of credit, foreign exchange, financial tips for traveling abroad, purchasing foreign curren-cy, wire transfers and other related services such as foreign check processing, documentary collection, working capital loans with agency guarantees, for-eign receivables insurance and/or guarantees for short- and medium-term foreign receivable financ-ing and confirmation or insurance of letters of credit. (www.commercebank.com)

With a network of over 600 banking relationships in more than 130 countries, it is one of the few banks in the Midwest to receive the Presidential “E” Star award (now known as President’s Excellence in Ex-port Service award) for export service excellence in facilitating international trade.

Maximize dollar receivables by hedging

One Heartland company learned that its European customers began complaining that it was costing too much to buy from them due to the rising value of the dollar. In this particular case, Bio-Microbics, a Shawnee, Kansas, manufacturer and exporter of wastewater treatment systems to over 60 countries needed a specific margin to maintain gross profit.

Robert Rebori, President of Bio-Microbics explained, “We of-fered to collect in their local cur-rency to make it easier for buyers to purchase our systems. So we take the float, whether it’s posi-tive or negative.” He continued,

“The added cost is really in the

conversion to US dollars when we bring the pay-ment into our own bank here in the US.”

Hedging and the Export-Import Bank

Roger Furrer, a managing partner of Bannockburn Global Forex in Cincinnati, noted a situation that aided an exporter by helping them buy forward con-tracts in euros, which aided the firm’s cooperation with the US Export-Import Bank (ExIm). “We work with a Heartland manufacturer that exports on a cy-clical basis and had always contracted in US dollar, sometimes going out 6- 9 months. When their cus-tomer began insisting they contract in euros, they asked us to help them contract forward in euros to maintain their margin as it related to dollars. This allowed the company to satisfy their customer’s re-quest to price in euros while maintaining the margin with the certainty of receiving the desired US dollar equivalent.”

ExIm agreed to extend a line of credit to them, but insisted on contracting with a hedge of 90% on its accounts receivable. ExIm advanced them 90% of the dollar amount which equaled some 600,000 eu-ros. “This is another way of currency hedging, along with ExIm financing, can protect a small business ex-porter by reducing its payment exposure.” said Mr. Furrer.

Another financial strategy sought by small exporters is to reduce their borrowing rate of interest. ExIm offers low-cost working capital loans, along with credit insurance to bolster export sales and profit-ability.

Innovative Tools, continued on page 6

Brian Gordon, Commerce Bank

The Bio-Microbics 40,000 gallon per day MyFAST Wastewater Treatment System installed at the Golden Eye Resort in Jamaica.

Robert ReboriBio-Microbics

International Business News

page 5June 2015

While much has been made of the advantages of-fered by ExIm, certain constituencies in congress are in opposition to continuing ExIm based on er-roneous notions of its contribution to the national economy.

According to ExIm Chairman, Fred Hochberg, “Nearly 90 percent of our authorizations directly serve small business-es. This coupled with the fact that there are nearly 80 coun-tries with their own version of export banks, if the US loses ExIm, small and

large business exporters will struggle to compete in the world market place.”

Not only does ExIm return nearly one bil-lion dollars annually to the US treasury to help offset the budget deficit, it also sup-ports more than 164,000 American jobs that could be eliminated if ExIm is not reauthorized.

The bank also offers lending products to indirect exporters. These are typically smaller companies that produce inputs for larger exporters, and they signifi-cantly contribute to the total GDP. As of 2010, while direct exporters contribute 28% of the nations GDP, indirect export-ers, many of which are small companies, push the total contribution to some 41% of the GDP.

An example is Davis Tool Inc., (DTI) of Hilsboro, Oregon. DTI is an indirect ex-porter of precision-machined parts, sheet metal parts and assemblies serving aerospace, medical and computer com-panies. DTI exports its products both di-rectly and indirectly by shipping parts to other manufacturing exporters, such as The Boeing Company, America’s largest exporter. With 160 employees and occu-

pying 200,000 square feet of production space, DTI is part of a global supply chain for its markets.

DTI President, Ron Davis, Jr., in a recent ExIm post said, “We consider ExIm Bank financing for US air-craft and parts manufacturers like us to be a major support for our supply-chain business.”

Western Forms is a direct exporter in Missouri that manufactures aluminum forms for concrete buildings with nearly 50% of its sales outside the US. Dan Ward,

Innovative Tools, continued from page 5


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Think Globally, Bank Locally.

Fred Hochberg,Ex-Im Bank

Dan Ward, Western Forms

IBNewsmagTM

June 2015page 6

A Community Bank of Global Scale.

Discover Commerce Bank International Services

At Commerce Bank, you’ll � nd community bank principles, with a full suite of innovative global business solutions delivered in a personal way. That means when you call, you talk directly to an International Specialist.

Whether your focus is on exploring new markets, global risk management or growing your international sales, our goal is to be there when you need us with the customized solutions you need to achieve your goals.

To work with a community bank with a global scale, contact our team of International Specialists.

Trade & Trade Finance Team: 816.234.2608 816.234.2603 314.746.7317Foreign Exchange Team: 816.234.2610

commercebank.com

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Western’s Director of Trade Finance, said, “We use a number of ExIm financing and credit insurance products to support our export program. If congress kills ExIm, or even limits its reauthorization to five months as it did last Fall, we simply can’t rely on it to help finance our international sales. We need to work further out so the 5-year reauthorization being considered in Congress this month is much needed to support closing orders.”

ExIm does not replace a shipper’s bank, but works with them to support exporters with credit terms to compete with foreign companies.

ExIm recently unveiled a spanking new website, www.eximbank.com, which purports to better pres-ent its benefits, along with a toll-free number for in-creased accessibility with a live operator from 7am to 7pm daily. It is fighting for its very life should con-gress not reauthorize its charter and extend it over five years.

Growth capital and export finance through Internet portal

A parallel issue faced by many exporting SMEs is that of raising capital required to export. Few com-panies feel that capital is amply available. And most small-business owners have limited time to ply the fundraising trail.

TradeUp Capital Fund (www.tradeupfund.com) is a digital finance platform for exporters. Exporters and accredited investors (angels, superangels, VCs, PE funds, family offices and lenders) can connect and

transact on debt and equity deals of $100,000 to $20 million, providing much-needed capital to fund export growth.

This is traditional fundraising applied online. Export-ers can access online platforms to connect with a wide range of accredited investors and funds that, upon investing, become owners or shareholders of the company, or receive interest payments on a loan to the company.

TradeUp also serves companies that need financing to fulfill overseas export orders. Companies can ac-cess flexible working capital financing to US export-ers, including P.O. financing and asset-based loans in the $1mil-$5mil range with advance rates of up to 75% against exportable inventory – raw, WIP, fin-ished goods - and up to 90% against accounts receiv-able from overseas buyers.

Using TradeUp, companies can also access export trading company services, where a US company sell-ing overseas can outsource the export process. The service includes delivery ex works from the US op-erations and logistics, and structuring of appropriate trade terms with the overseas buyer, thereby mak-ing this like dealing with any domestic customer. By outsourcing this activity, the exporter gets money for the export sale and takes risk off the table selling to the overseas buyer. The transaction sizes can be a few hundred thousand to several million.

Kati Suominen, founder and CEO of TradeUp Capi-tal Fund, explains, “We primarily work with proven companies that are already in business, have at least $500,000 in revenue, and are already exporting — or have very clear plans on how to globalize.”

How a stronger dollar affects agricultural commodities

While many ag commodities have suffered export losses, Heartland beef exports have grown steadily, according to the US Meat Export Federation (US-MEF) mainly due to a strong demand in Asia despite higher prices.



Western Forms’ Big Panels are crane-set forms ideal for highway retaining walls and similar large jobs for nonresidential applica-tions. (left) Western Forms equipment is used to firm commercial buildings in addition to residential structures of all kinds. (right)

IBNewsmagTM

June 2015page 8

Since the beginning of the US economic recovery in July 2009, the nation’s gross domestic product (GDP) has expanded at a puny pace even though employ-ment growth has been fairly strong. Offsetting the job expansion, there has been lethargic capital spend-ing and productivity growth. During this time, GDP per hour worked (productivity) expanded at a com-pound annual rate of 0.7%, which is one-third that in a typical recovery, and less than one-half of the an-nual pace since 1964.

Tom Duesterberg of the Aspen Institute argues that the collapse of US export leadership has contributed to this decline. He finds the US is party to just two of the more than 400 regional free trade agreements that have come into effect since 1995. As a result, World Bank and Eurostat data show the US share of global exports have sunk from 14% in 2000 to approximately 9% in 2013.

Professor Ernie Goss, Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business writes in a recent blog.

Have weaker exports contributed to differentials among productivity growth for the states? Since 2009, the top 25 productivity growing states increased ex-ports at almost twice that of the remaining 25 states. Over this period of time, North Dakota came in at the top for productivity growth and expanded exports by 34.5%. Meanwhile, Florida, the bottom productivity growth state, grew exports by only 13.1%.

Additional statistical analysis shows a strong positive association among export growth, capital spending and productivity gains at both state and national lev-els. The data provides solid support for Congress to boost the nation’s capital spending, economic com-petitiveness and productivity growth by immediately providing President Obama with fast track trade au-thority so the Trans-Pacific Partnership trade pact could be implemented.

Passage of Trans-Pacific Trade Pact To Increase US Exports and Economic Growth


page 9June 2015

January-April beef exports to Japan increased year-over-year in both volume and value. The same was true for Korea, where exports increased 4 percent in volume and 8 percent in value. April was an es-pecially strong month for exports to Korea, where US beef has gained increasing popularity in the retail sector, according to the USMEF.

Despite a weakened peso, demand for US beef has held up well in Mexico. Though down 3 percent year-over-year, export volume was still the largest of any international market, reflecting strong growth in variety meat. Exports increased 2 percent in value to $365.9 million, ranking second behind Japan.

The demand for soybeans, for example, is heavily dependent on exports. Currency fluctuation affects the pricing of this commodity more directly than a commodity primarily consumed or used domesti-cally, such as corn. Aside from an expected record or near-record South American soybean crop, prices have been negatively affected by the strong dollar.For example, new crop soybean futures are around $9.50 per bushel, and the U.S. dollar has appreci-ated 17% since February 2015.

When a country prices a US commodity, the ex-change rate also comes into play. The exchange rate is how much it would cost the grain buyer to pur-chase the US dollars he needs to buy the corn. This gets tricky; not only are they buying corn but they are also buying US dollars.

Like commodities, currencies trade on exchange markets. The prices fluctuate based on the global supply and demand of various currencies.

Although currency is only part of the many reasons for lower exports and prices, it will be an important factor to watch going forward.

IBN

Longer Term Overall Strategies

In terms of mitigating challenges SME exporters face with the stronger dollar and weaker world econo-mies, consider the following longer-term strategies:

• Market quality, value, and brand over price – Don’t underprice in a race to extinction.

• Obtain up-to-date business intelligence on markets, competition and customers – to stream-line and re-define export strategies.

• Add follow-on services, warranties, etc. – low cost way to enhance value.

• Offer open account terms – The Export-Import Bank can provide credit insurance on foreign A/R allowing you to offer longer terms. This will make you especially competitive in high interest rate countries.

• Price in foreign currency and lock in the rate with a forward contract (on page 5).

• Shift INCOTERMS – let foreign buyers handle transit and insurance in their currency.

• Leverage lower energy costs – will this permit re-pricing?

• Negotiate with suppliers, especially if any in-puts are coming from countries with a devalued currency.

• Use your bank’s Treasury services to match any overseas expenses with overseas receipts.

• Consult with freight forwarder – are lower shipping costs available? (Lower energy costs, consolidation of shipments, extra capacity on cer-tain routes).

• Take advantage of stronger dollar to book lower cost overseas trips now to develop more interna-tional business and spend more time with your foreign sales reps and distributors.


IBNewsmagTM

June 2015page 10

The voice of international trade in the HeartlandNow in our 12th year of continuous publishing by InterMark3, Inc., IBNewsmag is an independent online magazine for Heartland traders - small to medium-sized enterprises (SMEs) - in our ten* state Midwest region. *Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, Oklahoma, North & South Dakota, Wisconsin and portions of the Chicago area.

In every issue, and on our website – www.IBNewsmag.com – we’ll bring you the latest international BREAKING NEWS – current news items that may affect your international business and of a regional interest for our Heartland region readers. In addition to special events, we will announce SME company news as appropriate. So feel free to send your editorial suggestions and news releases. Email them to: [email protected].

International Trade Finance ResourcesCommerce BankTrade FinanceBrian GordonSenior V.P. & Mgr. International [email protected] 816-234-2608

Export-Import bankCredit Insurance & FinancingMark KleinExport Finance [email protected] T 312-735-1883

TradeUp Capital FundDigital finance platformKati SuominenPresident/[email protected] 202-294-8871

Small Business AdministrationOffice of International TradeLarry D. CresswellRegional Manager, Export Solutions [email protected] 314-260-3788

Bannockburn Global ForexCurrency HedgingMehgan [email protected] 816-249-2151

Trade Acceptance GroupCredit risk insuranceUrsula [email protected] 847-268-3611


page 11June 2015

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