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In recent years, the U.S. Dollar has dropped to record lows against the Euro. In addition, it has reached record lows against several other currencies as well. Although some U.S. business leaders, manufacturers and politicians believe this is good for the United States — helping to keep the costs of our exports unusually low so that they will be more cost competitive abroad — growing evidence indicates this exchange rate imbalance is causing various problems. In fact, it is beginning to have a significant effect on our overall economy and it is also impacting industries.

In large part, the current situation is caused by geopolitical actions and considerations. For example, a major factor is that the U.S. now has more than a $750 billion “current-account” trade deficit with other countries. This refers to the gap between what the U.S. makes through trade and investment and what it spends. Therefore, we are losing more than $750 billion, or an unprecedented seven percent, of the nation’s gross domestic product (BusinessWeek, October 2005).

It’s getting personal

For most of 2006, the dollar has fluctuated in value against the euro, ranging between 70 to 80 cents to one euro. Those who attended ISSA/INTERCLEAN® Amsterdam in May 2006 experienced firsthand what a strong euro and weak dollar feels like. Many found that:

• Hotel rooms priced at 250.00 euro a night cost about $320.
• A budget of $10,000 to send four representatives to the show required an additional $2,750 or more to offset the exchange rate.
• If a U.S. manufacturer, for example, had a large booth, which might be supported by a $75,000 budget, they had to spend more than $95,000 this year, simply due to the exchange rate. All other costs — booth services, set-up and teardown — would be at least 25 percent higher as well.
• Even enjoying a locally-brewed Heineken after the show, priced at 5.00 euros, cost about $6.30.

While everyone in the industry obviously doesn’t attend or display at international shows, there has been a growing European influence on the U.S. Jan/San market in recent years. For example, microfiber and flat mop systems entered the U.S. via European suppliers. Several large U.S. equipment manufacturers are now owned by European firms and we are seeing more products from these ports than ever before.

Even if what is shipped is not a complete product or machine, the weak dollar is directly affecting the costs for these parts and components, which U.S.-based firms must pay to use in construction of their own products. The weak dollar makes equipment parts more expensive.

Although many suppliers try to absorb some of these costs, they can only absorb so much. Worse, the swing in the dollar’s value has been so significant that it simply cannot be totally absorbed. In fact, over the past two to four years, the differences in the exchange rate, in many cases, is more than the average gross profit margin a manufacturer may make on specific equipment. With this the case, the additional costs must be passed on, reflected in higher list prices and costs to the customer. In a very competitive and price sensitive industry, such as ours, this resulting cost increase can make or break a sale.

Interestingly, the United States Commerce Department does not gather data on the number of small and mid-sized businesses that import goods to sell in the U.S. Evidence, however, suggests that importers, businesses and U.S. manufacturers are scrambling to find ways to survive the weak dollar.