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Tim Harcourt
Chief Economist
Australian Trade Commission
Sydney
Email: tim.harcourt@austrade.gov.au
10 March 2008
Craig Clifford is an export veteran. His family business Incat which builds high speed catamarans was started by his father Robert in 1972. Incat is an innovative, highly skilled, sophisticated business that sells car-carrying fast ferries all over the world from their Tasmanian base.
Incat has had its ups and downs in a competitive market, and has had to cope with the tyranny of distance between Hobart and its far-flung customers. But the company does so with determination and the spirit that comes from being Tasmanian. As Craig says: “We Tasmanians know we live on an isolated island off a larger isolated island at the bottom of the world. But that just makes us work harder and work smarter. We constantly update our vessels as we know the competition can only copy last year’s model. The other thing about being Tasmanian is that we know the ocean better than anyone else and that makes us design leaders in our business.”
But Incat is now facing a challenge impacting on many Australian and Tasmanian exporters – the ever rising Aussie dollar which is now just under 95 US cents with some market pundits predicting parity with the greenback in June. I asked Craig Clifford what this high exchange rate has meant for his family’s business.
“You can’t handle it 100 per cent, but you can handle it partially,” he says. “We have some customers who pay in euros and some in sterling, so the US dollar/Aussie dollar exchange rate is not an issue.”
In addition, Incat also imports some components, so the high dollar can be of benefit. “We purchase some machinery from overseas so that can help on the cost side,” he says.
Incat’s case is not unusual. After all, 45 per cent of Australian exporters are also importers and do see some benefit in a strong Aussie dollar if they are importing capital and machinery. For instance, a Tasmanian example is Burnie-based Caterpillar, which produces 24 per cent of the global market for mining haulage trucks. Whilst the high exchange rate can affect price it can also help reduce the costs of components.
According to Caterpillar’s Managing Director Andrew Ransley, the mining boom is ensuring strong growth even in a high Aussie dollar environment: “We export specialised underground mining equipment and are receiving strong demand from all over the world due to the global resources boom. We have customers in countries as far flung as Brazil, Peru, Chile, Mexico and Guatemala and now even Africa is getting on the action and we are exporting to South Africa, Botswana and Namibia. You can’t get much further from Burnie than that!” Caterpillar’s exports have generated jobs for 750 workers which makes it a major employer on the North-West Coast of Tasmania.
So we have Cats and Incats – two high profile Tasmanian exporters coping with the dollar. But what about the little guys? I spoke with Patrick Maguire who runs a small whisky distillery outside Hobart called Sullivans Cove. In a very short space of time, Sullivan’s Cove is regarded as one of the best distillers of malt whisky in the world, winning numerous awards and now exporting to Sweden, Canada, Netherlands, Singapore, New Zealand and even Britain, where the Scots have admired this newcomer’s quality. Patrick’s problem is not demand but supply. “Sometimes I get orders from a Dutch customer that would clean out my stock,” he laughs. The exchange rate hasn’t put a dent in the popularity of his product either. “So far it hasn’t affected sales. It’s the duties at the other end that make the difference. As our products are aimed at the higher end of the market, I’m confident our spirits can wear an increased price,” he predicts.
In these instances, Tasmania exporters are coping with the high dollar although they are relying on innovation, strong relationships and natural hedging (using other currencies) to absorb the adverse affect of the high exchange rate. Austrade research overall shows that one in two exporters worry about the rising dollar, although four out of five say it will not affect their decision to export, expand output or employ new workers. Around 25 per cent of large and medium sized exporters undertake hedging strategies but only 5 per cent small exporters do so (which is a concern given that they make up just over two-thirds of Australia’s 44,000 exporters).
But having to deal with fluctuating exchange rates is part of an exporter’s lot, as is dealing with uncertainty in the global economy. However, as shown in these Tasmanian cases, exporting can be rewarding as exporters on average, grow faster, earn higher profits, are more productive and pay their workers higher wages than non-exporting businesses. That way they can be like Incat, which together with Perth-based Austal Ships, services 75 per cent of the world market for vehicle-carrying fast ferries.
No man is an island and we can look to the Tasmanian spirit when exporting beyond our shores. |