Exports dip as sales overseas cool

Posted on Written by Reagan Haynes

Marine manufacturers who have been supplementing lagging domestic sales with robust export sales say that as America’s financial crisis spills across borders, overseas sales are dipping too.

Following an unprecedented increase in boat sales abroad that began in early 2004, the market has slowed in recent months, as the global economy follows the U.S. recession and the dollar strengthens.

Nevertheless, builders of boats and accessories who have had positive results in exports say tapping overseas markets is integral to their overall success and, even though they’re slowing, are providing much needed revenue.

In the first half of 2008, U.S. exports of boats were up 21 percent from a year ago, says John Vanderwolf, a recreational boating industry analyst for the International Trade Administration.

The latest boat data, through September, shows U.S. exports were still up 18 percent from a year ago to total $2.047 billion, Vanderwolf says. U.S imports are still roughly half that ($1.018 billion), having declined 11 percent.

Vanderwolf, who has been covering the industry for 20 years, says while the drop-off in exports and strengthening dollar will affect manufacturers, it won’t mean disaster for companies that have grown to rely on that revenue.

“I think the growth of exports will continue to slow in the final quarter because of the credit crisis spreading overseas,” Vanderwolf says. “But in markets where the availability of credit remains strong, I think boat exports will not significantly tail off.”

That’s because the overseas financial crisis isn’t as deep as it is in the United States, he says.

“I think it’ll have some effect, but I don’t think it’ll be gloom and doom for the boat industry,” Vanderwolf says.

Where we are now
Although there is no data yet for the final quarter of 2008, some manufacturers had come to rely on exports to fill in 20 to 40 percent of sales in some cases, says Thom Dammrich, president of the National Marine Manufacturers Association.

“Until recently, exports had been strong and that’s one of the things that’s really been helping manufacturers,” Dammrich says.

It’s too soon to say how much the export market is softening, but anytime a segment begins to slow, people are concerned it will get worse before it gets better, Dammrich says.

“The economic slowdown is just beginning to happen in Europe and I think [it] will get much worse during 2009,” he says. “I would say they are nine to 12 months behind us economically right now.”

Some companies might have to reduce production and staff to respond to the decrease in revenue, but Dammrich says the lag in overseas sales is not as significant as the domestic falloff.

“It’s not going away completely, so companies are not going to lose 40 percent of their business,” he says.

At Sabre Yachts in Maine, exports have been a focus for the last 15 years, says vice president of marketing and sales Bentley Collins.

About five years ago, exports accounted for less than 10 percent of revenue at the company. In 2007, it made up about 25 percent, depending on the product, says Collins.

In the last six months, that percentage has been slashed by about a third.

“It’s just stopped at this point in time,” Collins said. “There are no export sales.”

A four-year trend

Numbers from the National Association of Manufacturers show tremendous growth for boat exports in the last four years. Between 1998 and 2002, exports to Canada grew 4.4 percent, compared to 29.6 percent between 2003 and 2007, accounting for about 35 percent of all U.S. exports.

Canada is by far the largest buyer of U.S.-built boats, bringing in nearly $650 million in the first three quarters of 2008, compared with less than $600 million in the first three quarters of 2007, according to data from the Department of Commerce and the U.S. Trade Commission.

Australia jumped 60 percent between 2003 and 2007 to become the second-largest buyer of U.S. boats at 6 percent, according to numbers from the NAM, and accounted for about $134 million in the first three quarters of 2008. In the four-year period before 2003, Australia accounted for only about 1.7 percent of all U.S. boat exports.

The downward trend in exports is affecting other industries, too.

“In general, export growth had been really strong until around October, when growth started to really slow,” says David Huether, chief economist with the National Association of Manufacturers.

Between the first quarter of 2007 and the same period in 2008, there was a 6.4 percent increase in exported units; between the second quarters of 2007 and 2008 there was a 17.3 percent increase, according to data from the U.S. International Trade Commission.

That was because of two things: The dollar dropped from its 16-year high in 2002, which began affecting flows in the latter part of 2003; at the same time, global demand picked up, and the global economy has been sluggish, growing at less than 1 percent in the last two years, Huether says.

The data weighs growth in countries differently, depending on how much product the United States sells in each. For example, Canada has a large weight because of the volume of American exports. Looking at growth this way gives a more accurate picture instead of looking at global demand in aggregate, says Huether.

Based on that, exports have been growing about 4 percent annually, Huether says, but he expects that growth to tail off in 2009.

What builders are seeing

European sales have helped dramatically at Washington-based Nordic Tugs, accounting for more than 20 percent of overall sales last year, says dealer sales manager Bob Shamek.

It’s difficult to nail down with the fourth quarter not yet completed, but Shamek says counting sales in Japan and Europe during the last 12 months, exports probably make up about 25 percent of sales.

While the value of the euro and British pound are falling — hitting countries like Germany and England — some markets are improving, such as those in Norway, Italy and Spain, Shamek says.

“A year from now, I’m going to say Europe’s numbers are probably going to be down, unless something turns around,” Shamek says. “Our prices have stayed the same, but the price has gone up for them.”

For example, says Dammrich, a boat that cost $50,000 in Canada a few months ago would now cost about $67,000.

“I would say, anytime a specific market is 25 percent of a business or more, and it drops away, that’s a pretty significant depletion in the market,” Shamek says.

The declines in value of the euro and British pound have been the biggest influences on dipping export sales, he says. But, if the Japanese yen stays strong, as it has been, sales there should increase for Nordic Tugs.

With European exports down and Japanese up, export unit sales have remained steady for Nordic Tugs. But because Japanese buyers have ordered smaller boats, dollar values are down somewhat. Last year, Nordic Tugs exported one 32-foot, one 37-foot and one 26-foot boat to Japan, as opposed to one 42-foot and one 37-foot to Europe, Shamek says.

More dealers
Strong sales in Europe, Russia and Australia helped make a record year for Grand Banks, says director of brand and marketing David Hensel. Despite selling fewer units, Grand Banks continues to sell larger vessels to increase profits.

The fiscal year that ended March 31 was so lucrative Grand Banks grew its dealer network, adding locations in southern France, Spain, Croatia, Turkey, Ukraine and Russia, Hensel says. Existing dealerships in Scandinavia and Australia, along with the new outlets, provided the revenue that made the year so lucrative.

However, as the economic malaise in the United States has spread to the rest of the world, overseas sales have flattened, Hensel says.

Other manufacturers agree that even though overall export sales are down, they are increasing in some countries.

Hatteras Yachts, owned by Brunswick Corp., has made a concerted effort to grow in Europe, Canada, Kuwait and Dubai in the last year, says marketing director Eric Cashion.

“Like anyone else, when you have small domestic sales, you tend to go after low-hanging fruit,” says Cashion.

The broader the customer base, the more stable the company, says Cashion.

The number of units shipped overseas has doubled since 2007, Cashion says, and, as a result, Hatteras added sales managers to locations in Latin America and EMEA (Europe, Middle East and Africa).

Brunswick, the world’s largest boatbuilder with multiple brands in addition to Hatteras, cites lagging export revenues as one reason for a recent round of layoffs.

“As the dollar has firmed up against the euro, you’re seeing a little cooling in the European market, where it was extremely hot,” Cashion says. “But fortunately, with our partners in Europe, we still remain strong. And we still have a tremendous amount of growth and potential in the Middle East, the Caribbean and South America. The Middle East market has remained extremely strong.”

Cashion thinks the higher-end clientele helps Hatteras weather economic storms.

“I think, like everyone, we’ve seen ebbs and flows in the business, but we tend to feel it last, after smaller boats, because they’re hurt immediately by fuel prices,” Cashion says.

Accessories holding up
While most boat manufacturers are seeing declines in export sales, some accessories manufacturers are doing well.

Atlantic Towers has offered its “Tower in a Box” for seven years, and that product has proven lucrative in the export market, says Shelley Golden, director of marine sales.

The 27-year-old company’s custom business has always had some success overseas, but the main source of export revenue is the tower. It can be shipped to Japan, for example, and bolted right onto a vessel.

“We made our own marketing decision about three-and-a-half years ago to seek the international market,” Golden says. “Now it’s almost 20 percent of our business, which is a significant chunk. And what our distributors internationally are saying is, new boat sales have slowed to a halt.”

Instead, people are buying used boats and making them new, Golden says, which benefits New Jersey-based Atlantic Towers.

“Accessories manufacturers typically do fairly well in this kind of market,” says Golden. “People don’t get out of boating; it’s a lifestyle choice. And I think if anyone did better research of the used-boat market, like private sales, we’d see that it is huge. We see that end of it — people buying a 15-year-old boat and making it new for themselves.”

The Middle East is also a focus for Atlantic Towers, says Golden.

“The Middle East is not financially suffering,” he points out. “They’re being careful, but they are not seeing what the EU is seeing now.”

Orders from European distributors that came in during the late fall have been equal to or slightly larger than usual, Golden says.

“We don’t see our custom building as having any growth this year, that’s been pretty much flat for the last two years,” Golden says. “But we have this other product line that is growing enormously.”

At November’s Marine Equipment Trade Show (METS) in Amsterdam, attendance was down 6.5 percent from 2007 but saw strong sales, considering the economic climate, Dammrich says. Attendance was also up 10 percent from 2006 levels.

“The quality of people there was outstanding,” says Golden, who attended the show. “We didn’t feel like it was down.”

History
Currency fluctuations have driven the bulk of the growth in U.S. exports in the last few years, says Sabre’s Collins. In a five-year time frame, the dollar, weakened from a value of $1.17 against the euro to a value of $1.60, Collins says.

Now that it has strengthened (to $1.25 in November), American boats don’t appear to be as good a deal as they were a few months ago, Collins says.

“So we had good period of growth,” Collins says. “Unfortunately, now it’s come to a screeching halt. The reality is, the American economic downturn is not only happening in America, it’s everywhere.”

“The American dollar, through all this madness, has actually gained strength, which makes no sense, but that’s what’s happened,” Collins adds. “So not only are we getting hammered in the export market, we’re getting hammered here as well. We’ve inherited too much debt for the dollar to have any basis and strength.”

Nordic Tugs’ Shamek agrees.

“The dollar will undoubtedly go down again,” says Shamek. “That’s a good news/bad news thing. As the dollar goes down in value, and others [currencies] go up in value, our price of fuel here in the U.S. will go up again. Needless to say, I’d rather see a stabilization.”

Getting into exports

Regardless of today’s market, it’s always a good idea to expand revenue potential, many manufacturers say.

Genmar has grown its export business by five times since 2004, says chairman Irwin Jacobs.

“It’s become a very important part of our business,” Jacobs says.

Despite the huge marketing expenses, the efforts pay off, Shamek says. The expenses include gaining knowledge of sometimes-intricate foreign markets, and figuring out rules and regulations in other countries.

Buying into the NMMA and American Boat and Yacht Council’s certification programs has helped prepare Nordic Tugs for that, Shamek says — decisions that have also benefitted U.S. customers, since they also get higher-quality boats inspected by outside agencies.

Now, many manufacturers consider overseas sales an integral part of the business.

“Export business is down, but it’s still a critical part of our overall plan and we are continuing to research further and have a greater overseas presence,” says Shamek.

This is a bad time for exports, coming off of a very good time, Collins agrees. It’s a good time for manufacturers who haven’t tapped foreign markets to do the homework it takes to get involved.

“Someone who’s just starting now — forget it. They may as well just park their program,” says Collins. “But it’s a great time to be doing research.”

“Even with the weak economy, we’re very gracious and thankful we’ve got those export orders, as few as they may be,” says Shamek. “And we managed to make business connections in those overseas markets, which will hopefully continue to bring us diversity in our market share going into the future.”

This article originally appeared in the January 2009 issue.

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