Rising loonie makes travellers winners, but some businesses losers

Canadians travelling abroad are clearly winners as the loonie flies ever higher above parity with the U.S. greenback, but many Canadian companies are feeling the pinch, sometimes in ways that are completely new.

Canadians travelling abroad are clearly winners as the loonie flies ever higher above parity with the U.S. greenback, but many Canadian companies are feeling the pinch, sometimes in ways that are completely new.

For example, some manufacturers say they’re being charged an extra three to four per cent by Canadian suppliers if they pay in U.S. dollars, which are now worth less, said Craig McIntosh, CEO of Acrylon Plastics in Winnipeg.

“There’s American suppliers who we pay in U.S. funds. If they have Canadian operation, they’re starting to charge us a surcharge to pay in U.S. funds,” he said. “That’s new. They started this about three months ago.”

“You like to have the convenience of buying locally, but when you start getting those surcharges we’re…moving away from Canadian suppliers who are doing this to us to buying directly from the United States,” he said.

With the loonie closing at $US1.0445 on Friday and economists predicting it could go as high as $US1.09 by the end of next year, both manufacturers and consumers have some decisions to make.

Bruce Cran, president of the Consumers’ Association of Canada, said Canadian prices haven’t fallen much since the loonie first began its climb, which encourages Canadians to spend their money south of the border where prices are lower.

“Eighty per cent of us live by the border somewhere and our immediate solution is to just cross over and buy, which is very sad for retailers and sad for the country,” he said.

“I don’t think consumers benefited from the two GST reductions, and we certainly haven’t benefited much from the rise in the Canadian dollar.”

Anne Kothawala of the Retail Council of Canada said Canadian stores have to deal with high Canadian import taxes and that cross-border shopping takes money out of Canadian communities.

“(Shoppers) should continue to support Canadian retailers and continue to do all their shopping locally because…they are supporting local economies,” she said.

One sector that is making more money thanks to the high loonie is the travel industry, where Canadians now get a favourable exchange rate when vacation abroad.

Combine that with political instability in parts of the Middle East and airlines beefing up flights to Mexico and Europe and travel deals are more abundant than ever, said Gary Ralph of the Association of Canadian Travel Agencies.

“There’s other factors having an awful lot more impact on tourism than the loonie and the loonie is sort of the icing on the cake,” he said.

Ralph said more Canadians are booking vacations in advance in hopes of locking in hot deals available right now.

“If you can book early for things like that and take advantage of paying at least a deposit early, then you’re taking advantage of what the loonie is today,” he said.

But the dollar’s impact on exporters may have one of the biggest effects on Canada’s economy and jobs.

Jeff Brownlee of Canadian Manufacturers and Exporters said that even though a few cents rise doesn’t seem like a lot to most people, CME’s research has shown that for every one cent increase in the loonie relative to the greenback, it costs Canadian companies $1.5 billion more to do business globally each year.

Brownlee said the volatility of the loonie makes it hard for Canadian companies that sell their products abroad to plan expenses.

“A lot of exporters are forced to be basically like fortune tellers to try to figure out where the value of the loonie is going to be in six or eight months time,” he said.

As the loonie rises, Canadian products become more expensive to sell abroad, making it harder for Canadian companies to compete with manufacturers in countries with weaker currencies.

Some Canadian companies are spending their more valuable loonies on buying new, innovative equipment so they become more productive and better able to compete, Brownlee said.

But that automation and financial investment means some jobs and even businesses could be at risk.

“Any time that the dollar goes up like that there’s always the potential (for job losses) when companies are forced to find efficiencies, and certainly since 2002 there have been a lot of job losses in the manufacturing industry,” he said, adding that since the recession many companies are already running lean in order to compete globally.

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