Mainebiz

V O L . X X I N O. I X their overseas partners will eventually even out. Yet others actively hedge risk with sophisticated strategies like futures and options trading, many with the help of outside experts or in- house specialists. A bad guess on a currency's future value can be disastrous. "You learn quickly when you get punched in the eye that you have to protect yourself, you have to put your hands up," says Rick Moskowitz, vice president at KeyBank's foreign exchange group in Boston. He says companies shouldn't be afraid to institute FX strategies, which may at first seem daunting. An adverse event, like losing a lot of money, may be all the impetus a company needs to start hedging or more aggressively using other risk-mitigation strategies. Take Sterling Rope Co. Inc., a Biddeford climbing and rescue rope maker that must print its price lists about six months in advance for European trade shows, where its distributors place orders. "We pegged our price list at $1.32 to the euro, and so are taking a 20% hit on pricing right now," Sterling Rope President Carolyn Brodsky notes. Based on that exchange rate, which was figured last fall, the company is now getting 75.75 euro for its $100 wholesale product, or about a 19% discount on top of its dis- tributor discount. Brodsky says that based on today's exchange rate, she should be getting 93.40 euros for that $100 product. South America is another trouble spot for many companies, including Sterling Rope, especially with the peso trading better against the euro than it does against the dollar, Brodsky says. at means her products' prices just became 30% more expensive. "e price of our product is very expensive relative to the products com- ing from Europe," she says. "Our larg- est rescue distributor, and one of our largest customers in general, canceled their March order. We are giving that distributor an extra 15% to 20% dis- count to help him adjust pricing and to keep him from canceling more orders." Adds Brodsky, "All of this will greatly affect our profits this year, basi- cally wiping them out on many of our international sales. But you can't risk losing your customers or letting your competitors get a foot in the door." Taking the long view is wise, says Adrian Kendall, an attorney at Norman, Hanson & DeTroy LLC in Portland. "It's difficult to get new clients," he says. "ere are costs to get new vendors or suppliers and costs to qualify a product." He says one way to help keep a strong business relationship during currency hiccups is to add an exchange rate price adjustment clause to a con- tract stipulating that if the exchange rate on the actual date of payment differs by more than a certain percent- age of the base rate, the contract price should be adjusted accordingly. e long view also may be wise in terms of how much longer the dollar's strength will hold. "I still see a strong U.S. dollar ahead of us till the end of 2016," says Craig Donlan, director of for- eign exchange for TD Bank in Toronto. Plugging the gaps Perhaps the most well-known recent FX loss came from WEX Inc. (NYSE: WEX), a corporate payment solution company based in South Portland. In February, WEX reported 2014 fourth quarter earnings that included an $8.1 million non-operat- ing expense related to FX losses. e company noted it has accounts in 17 different currencies because of its broad global operations. During a conference call with ana- lysts at the time, WEX Chief Financial Officer Steve Elder said the company has undertaken a lot of changes to its FX hedging programs, tightening them in a lot of cases and bringing down the total exposures since the end of 2014, according to a seekingalpha.com transcript of the call. e company has been posting jobs for foreign exchange analysts both at its headquarters and at WEX Europe in West London. As this issue of Mainebiz went to press, WEX was in a quiet period prior to reporting its most recent results. Two common hedges companies use are forward contracts and currency options. A forward contract locks in a set amount of currency for settlement at a determined future date and at a predetermined exchange rate. Fixing prices in advance can help businesses budget and plan for costs, notes Kendall, who recommends choosing a conserva- tive forward delivery date. A currency option also sets an exchange rate by a certain date at a certain amount, but the company is not obligated to exercise the option. If the exchange rate is in their favor, they can forego the option and take the spot rate instead. Some companies try to mitigate risk by keeping all their business in Carolyn Brodsky, president of Biddeford- based Sterling Rope Co. Inc., is keeping a sharper eye on currency rates after being hit with exchange losses. P H O T O / T I M G R E E N WAY Looming risk Foreign exchange concerns grow as Maine expands international trade B y L o r i V a l i g r a » C O N T I N U E D F R O M C O V E R M AY 4 , 2 0 1 5 22 E X P O R T S & I M P O R T S F O C U S

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