THE WORLD IS MOVING
AND WE HAVE TO
MOVE WITH IT
This article was first published in the September/October issue of Panels & Furniture Asia.
I am very pleased with the number of orders Global Timber has managed to sign over the last 10 months – not just American and European lumber/timber, but also European logs. This is a sign that the world is once again moving after a slowdown as COVID-19 started to show its ugly face back in February 2020. The world slowed its pace to slower than slow. Fast forward to around August 2020 – our sales started to normalise again, and by September, the pace for new orders took off. We do, for sure, plan to move with the world’s new pace. We are satisfied with a full orderbook and aim to expand our capacity every day to better ourselves.
You will seldom hear these words from a director, but the wood industry is not normal at moment. Nothing is normal in the world. I am not sure even an industry veteran would be able to recall any similar situation from their past. It does not matter what industry one operates in; the wood industry is probably not the most affected, but we have been hit badly.As a trading company, we see things from many angles. The incidents that have occurred over the last 18 months have moved the industry from a buyer’s market to a seller’s market. It is a natural part of all these incidents that has brought the supply chain to its knees. If there are not many products to sell and many who want to buy products, it is a natural process that prices will increase – and so they have. The situation is simple: an extremely high demand versus an extremely low supply situation. And this does not look to change in the near future.
The reason for all this came when news of the virus was announced 9 January 2020. In matter of months, the virus that emerged from Wuhan, China, had spread across the globe to about 20 million people. As of mid-June 2021, COVID-19 has infected over 170 million people and caused over three million deaths.
All countries around the world have been hit – some worse than others. I think we have all been under lockdown and at the time of writing, I am still under lockdown here in Malaysia. We are not allowed to cross state borders or drive more than 10km from home. Those who want to visit the office need special permit from the right authorities. My kids are under 12 years old and are not even allowed to be seen in public. It is possible for me to apply for a permit to leave Malaysia and return within 60 days, but I most likely will need to spend 14-21 days in isolation at destinations in South East Asia before another 14 days isolation in a hotel here in Malaysia once I return. It is crazy cost wise, insane businesswise, physically draining and mentally sickening. Thank goodness I can work from home and am allowed to take a daily walk in the open.
End user markets shifted from shopping at old-fashioned retail stores to shopping online. Consumers were simply forced to stay home, and stop travelling and going on holidays. Instead, we started to spend holiday money on home improvements projects. Without in-person shopping, wining, and dining, a new hobby came up – e-commerce. Manufactures that usually sold their products via retailers suddenly struggled to ship the orders they had on hand and items that had been already produced.
Some of our customers told me that they were simply told to leave ready loaded containers at factories instead of sending them to ports and get paid by buyers. Online custom manufacturers started to see a boom in orders. The world shifted from one fashion to another, and sure enough, we all began shifting the same way. The world is moving into e-commerce, and we are all moving with it.
At the moment, not many manufactures are thinking about how the value of American hardwood (e.g., White Oak) dropped about 60% around Q3 2019. This was not fun for the sawmillers back then and it was not sustainable pricing at all. The industry has been suffering from low prices for a long period and there were not many smiles on faces back then. There was an oversupply and less demand. For sure, there were some trade barriers that made a big impact on the slow demand. At that time, larger furniture/flooring buyers from the western world got hit by higher manufacturing prices and started production locally rather than internationally and far away from home. They could not control the situation abroad but were safe domestically.
Between Q4 2020 and Q2 2021, lumber prices have increased about 80% and there are for sure more smiles on sawmillers’ faces today compared to back then. However, a good number of sawmills are no longer around as they simply did not survive to experience better prices. For sure the sawmillers saw the 60% in price as a disaster and now manufactures feel that the 80% increase as a disaster.
Due to the pandemic, there was and still is a lack of workers at factories and in the logistics sector in general. Ports do not operate normally. First, containers were stuck in China because production went down for a while. Then the US shut down, way too late, and COVID-19 hit with a magnitude unseen elsewhere in the world. Factories shut down and the whole world followed suit. “Stay home and be safe” was the message. That also meant that there was no one to drive the trucks and load, unload and move containers. The containers were stuck where they were.
Big ports in the US are also a culprit with delays in the last 10 months or more. There is a high volume (up 20% from 2019) of arriving cargo, mainly from Asia to the US west coast terminals, all resulting in demand for drivers and chassis that far outpace the availability of these resources. This affects all shipments and thereby also the wood industry. The only outcome from such a situation is increased logistic prices. We are not even in shipping peak season at the moment; the cost of shipping a 40’ container from Vietnam to the US was about US$3,000 two years ago and about $15,000 today. To keep the world moving, many countries help by stimulating local economies. For example, Denmark gave incentives for home improvements. The US offered something like $1,000 for people to stay home and be safe instead of going to work. However, despite how vaccinations are underway, no one wants to work as they get $1,000 to stay home. For how long will this continue?
News now is that there is a new restriction on receiving containers in German ports – from 72 hours to earliest 48 hours prior to vessel arrival. There is also a new situation at Yantian Terminal in China, where there is up to a 12-day delay and with only 30% of manpower capacity. The bottleneck of 330,000 TEU from the Suez incident and now another 500,000 from Yantian will continue to heavily affect Asia, and could potentially cause a delay all the way up to Chinese New Year 2022 and massive disturbance to the upcoming Christmas shipments. From my understanding, this is all due to the lack of manpower caused by the new COVID-19 outbreak in the Yantian area.
At Global Timber, those in the Supply Chain division surely have the toughest job at the moment as they try to book containers and find vessel space to ship our orders. Vessels are delayed, postponed or even cancelled.
The world is still moving and it is important we move with it. We need to get the world back to a new normal. Do not think about the old normal – what was normal two years ago will never be again. We all need to adapt and not think that there will be no trauma after all this. Do not expect all these incentives to continue. Expect to pay higher taxes in the near future. Expect long delays in shipment and expect wood and raw material prices in general to stay up there for at least the rest of 2021 and very likely into Q1 2022.
Due to the upcoming herd immunisation with vaccines being rolled out in a faster pace month by month, I can see light at the end of the tunnel, but I still cannot judge how long this tunnel is. We need to let the world turn and we have to continue turning with it. Otherwise, we will lose the fight.
By: Per Friis Knudsen
Per Friis Knudsen is the director of Global Timber Asia and is responsible for sales and trades in Asia. He has years of experience in the global wood industry, and is a qualified furniture maker with comprehensive expertise in the wood furniture business. Before joining Global Timber in 2013, Knudsen worked and travelled across countries and cultures. With Asia being his greatest interest, he decided to settle in Malaysia from where he has worked with hardwood trade ever since.
