Feedback from the UK pallet sector is currently more positive than for a number of years, although tight supply of timber, rising costs and stubborn margins have helped to dampen manufacturers’ enthusiasm. The consensus from the UK fencing industry, meanwhile, is that inconsistent weather has disrupted sales momentum during a season that had started late in any Case.
Focusing first on pallets, a number of manufacturers confirmed that they have been in the unusual position of pushing through price increases for their end products over recent months. One company claimed that, once higher costs had been taken into account, it had achieved increases of up to 10% on certain contracts although the average rise had been more like 3-5% above cost. “We are starting to get better prices and we are seeing less reluctance among customers to accept them,” said a senior spokesperson. He suggested that the collapse of some well-known UK pallet manufacturers had helped to convince customers that “they need supplies and they need their suppliers to be profitable”.
Having highlighted this general improvement, he quipped: “If we are not careful, we will be losing our charitable status.”
<b>Rising costs</b>
Several other leading pallet manufacturers agreed that their product prices had been rising steadily over recent months but argued that costs were rising at least as fast. In response, some companies are understood to be seeking further significant increases this summer. One said: “Demand has been generally very busy but margins have been under pressure for the last quarter because we have been carrying these extra costs.”
Pallet producers pointed to an estimated 50% increase in the cost of nails since the start of the year owing to the impact on global steel prices of voracious demand from the Chinese; that said, nail prices appear to have reached a plateau in recent weeks. In addition, timber prices paid by pallet manufacturers have been climbing steadily over the past few months: for example, it was claimed this week that the cost of material from the Baltics had risen by between 8-12% this year “depending on the difficulty of the specification”, although other industry figures placed the increase one or two percentage points lower.
A large number of pallet industry experts were also voicing concern this week about the difficulty in obtaining sufficient supplies of timber to meet production needs. One metre lengths, for example, were said by one contact to be “in critically short supply”. Availability is understood to have been affected by a number of factors, including: mill closures for the holiday season; a shortage of logs in some areas; and shipment problems.
A buyer of timber from the Baltics explained that the firm pulp market had diverted material for pulp logs so that pallet wood offers from regular suppliers had diminished markedly. Meanwhile, buoyant Mediterranean demand for cargoes other than timber had exacerbated problems in securing vessels “at the right price” and delays had emerged in loading ships, he added.
One source predicted “serious shortages” of imported pallet timber over the next six months and expected manufacturers to come under unrelenting pressure to pay higher prices. Another pointed to mounting concern among some pallet manufacturers as to where to source their material, adding that “some are already starting to panic”. This was not the universal view, however, with several other contacts arguing that timber was available “if you are prepared to pay the price”.
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“Even though people harden prices when they are busy, they always seem liable to panic when demand drops” |
<b>ISPM 15</b>
According to information from the Timber Packaging and Pallet Confederation TIMCON, the EU is scheduled to implement the phytosanitary standard ISPM 15 on March 1, 2005, but it may not be fully implemented in the US before the third quarter of next year. Leading UK pallet manufacturer Scott Timber Group, which has expanded further recently with the acquisition of Wigan-based James Industrial Ltd, has described ISPM 15 as a “minefield”, with “different countries demanding different levels of treatment”, and has responded by launching a help desk to provide customers with regular updates on related developments and to help them “avoid exaggerated disruption to their core business”.
Meanwhile, the weather is blamed for unspectacular sales of fencing and other garden-related products. According to leading garden centre chain Wyevale, a damp March meant a late start to the season while downpours in the second half of June destroyed sales momentum. As a result, the company was expecting a 10% shortfall in first-half profits.
Another leading manufacturer of garden products confirmed that sales had fallen short of expectations during the year to date, albeit “not significantly”. The weather and increased public worries over higher interest rates were blamed for a drop in sales of most fencing products, although decorative fencing panels had improved on budget predictions over recent weeks and sales of garden buildings and decking had held up pretty well throughout the season, TTJ was told. Another contact said that an increase in sales of “heavier duty” fencing panels reflected a continuing willingness among sections of the public to pay extra for a more robust product.
As is often the case, the experiences of different fencing producers in different parts of the country can vary tremendously. This week, for example, one manufacturer pointed to “dreadful” sales in the five months to February followed by an excessively busy two-month period starting just before Easter; since then, however, business had returned to being “abnormally quiet”, he said. For another fencing specialist, 2004 to date had brought an estimated 15% increase in sales compared to last year and the “strange” phenomenon of good orders continuing into the summer holiday season. However, a spokesperson for the latter emphasised that the strength of competition had prevented his company from pushing through any price increases.
<b>Fencing demand</b>
In general, the sawn fencing market appears to be showing signs of slowing as we head into the main holiday period, while demand for round fencing is stronger. One source said of the latter: “Volumes seem to be finding a ready home in the market and there may even be a bit of a shortage.”
Most fencing manufacturers were claiming to be paying more for their supplies of timber, although one or two said they had managed to peg their buying prices and even to secure the odd reduction. According to some domestic sawmillers, attempts to raise prices over recent months had met only limited success “because even a slight rise seems to have taken some of the heat out of demand”. An importer of Baltic timber said his suppliers had raised their prices by 5-7% since the start of the year while fuel surcharges had added another 5-7% to shipping costs. “It hasn’t been possible to pass on all of these increases,” he said.
The UK fencing sector has also had to meet the cost of adopting alternative timber preservatives in the wake of new regulations governing the use of CCA. One contact suggested this switch had added up to 9% to associated costs this year. He complained that “none of these extra costs are being passed on in the treated timber” and that the industry was generally guilty of attaching an unrealistic price tag to their products. “Even though people harden prices when they are busy, they always seem liable to panic when demand drops,” he added.
According to wooden case and crate producers, it has not been possible to pass on recent rises in costs in full. These have included a “steady increase in timber buying prices”.
