SCDigest Editorial Staff

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The changing value of the dollar will also mean the net prices of many offshore sources will increase – or in the case of China, may drive price increases from Chinese factories. What do you say? Send us your comments here

Supply Chain and logistics practitioners in the US might soon be impacted by the world of finance and economic policy, as the steep decline in the value of the dollar combined with growing affluence in other areas of the globe are likely to change sourcing and logistics patterns.

The likely result: higher levels of export logistics activity, and changes in the relative prices of goods from global sources.

The Dollar’s Steep Slide

For a variety of reasons, the value of the dollar has been drifting slowly downward against many foreign currencies over the past few years, before dropping even more sharply this summer. 

For example, the dollar is at its weakest value versus the Euro since 1999; an index from the bankers at J.P. Morgan comparing the value of the dollar to a basket of the currencies of 16 large US trading partners is at a low not seen in more than 10 years.

Some expect further weakening. "I expect to see more and more weakening of the dollar in the coming months and years," predicts Princeton economist Alan Blinder, a former vice chairman of the Federal Reserve Board.

One exception: China, which maintains a fixed exchange rate versus the dollar. However, by doing that as the dollar declines in value elsewhere, it will make the sales of Chinese companies to the US less profitable, and should force many Chinese suppliers to raise prices.

Get Ready for more Export Logistics

So what does this mean for supply chain and logistics professionals? The good news is that exports from the US to the rest of the globe should increase, as US manufactured goods become relatively less expensive versus competitive sources.

Indeed, the US trade deficit has been shrinking significantly, as import volumes have slowed and export volumes surged in 2007.

The opportunity for exports is also enhanced by growing affluence in many parts of the globe, increasing their demand for globally produced goods. India and China continue to enjoy thriving economies, while Russia, the Middle East and Africa are benefiting from strong oil and other commodity prices.

All this combines to suggest companies should be looking hard at export logistics processes and flows to ensure they can best capitalize on global market opportunities.

Changing Sourcing Cost Dynamics

The changing value of the dollar will also mean the net prices of many offshore sources will increase – or in the case of China, may drive price increases from Chinese factories.

On the margin, this may mean some decisions to go offshore will not be profitable – a line that will continue to shift in favor of domestic production if the dollar does continue to fall further.

The Wall Street Journal, for example, reported last week that Volkswagon “is considering building cars in the U.S. again for the first time in nearly 20 years, as a way of reducing its exposure to currency fluctuations. By making cars in the U.S., where costs and revenue are in dollars, companies help to insulate themselves from unfavorable exchange-rate changes.”  Volkswagon has been losing money in North America, in part due to the Euro’s strength against the dollar.

Perhaps more importantly, the value of the Mexican peso has not changed much versus the dollar, meaning that some offshore work going to Asia may look more attractive south of the US border.

The decreasing value of the dollar is not all good news, of course, as it is likely to be accompanied by rising inflation and lower total economic growth, according to many economists.

Do you agree or disagree? Share your perspective by emailing us at feedback@scdigest.com