Negotiating supply deals in Canadian dollars can help ease the pain of a rising U.S. dollar for Canadian firms
TORONTO—Canadian manufacturers feeling the heat of the slumping loonie can either grit their teeth and bear it or adjust their sourcing strategies to stay in the black, according to a United States-based procurement expert.
Companies that source supplies south of the border—or have sourcing contracts negotiated in U.S. dollars—are no doubt spending more as the loonie reaches a more than decade low, and are facing the prospect of pushing their bottom lines into the red, according to to Paul Noel, senior vice-president of procurement solutions with Ivalua Inc.
“If you’re buying lots of stuff from the U.S. … then you’re going to have a problem,” Noel said in an interview from California. “That takes quite a bite into manufacturing costs and either gets passed on to the consumer and you lose some market share or you eat it and hope you get some relief somehow.”
Relief can be had for those who negotiated index-based pricing, whether through supply or transportation deals, he said, which helps alleviate the ebbs and flows of fluctuating currency.
“This all comes down to how you’ve organized your supply chain,” Noel said. “In the best(-case scenario) you’re a Canadian manufacturer and you’ve gotten prices quoted to you in Canadian dollars and your suppliers are suffering instead of you, or you were smart enough to sign forward contracts to hedge against any fluctuations in the exchange rates.”
On the opposite side of the coin, Noel said now is a good time to negotiate deals in order to benefit when and if the loonie bounced back down the road.
“The same thing applies to the opposite case here, where oil prices have fallen and you want to reap those benefits or at least be insulated from the shock of it (when they rebound),” he said. “It’s really about how forward-looking you are and what risks you decided to balance out when you initially negotiated with suppliers.”
Another positive for Canadian firms to come from the strong American dollar is the impact it has on U.S.-based firms working globally, who are faced with weakened demand due to rising costs for customers.
“The rising dollar also creates a competitive advantage against American competitors that can’t sell as well overseas because of the strong American dollar,” he said.
Noel admits, however, there is no cookie-cutter approach to dealing with the high-priced greenback.
“Some of it depends on how and where you sell,” he said. “If you’re selling goods largely in Canada it may be a better strategy to ask suppliers to (work) in Canadian dollars.
“If you happen to be competing in the global market, that’s a different (issue).”
Working in transportation industries like aircraft and recreational vehicles makes the situation a difficult one to gauge, Noel said, as the market is impacted several ways by currency values.
“It’s a quandary, but you can’t expect to be reactive on these things,” he said. “You need to be proactive. That would be the big lesson here. These types of large economic factors are very hard to react to once they happen.”