The short to medium-term impact of the Covid-19 pandemic in the hardwood trade is going to be several factors worse than the 2007/08 crash.
That’s the broad view of importers and distributors, who variously described it as “devastating” and “a massive shock to the system”.
However, a month into the UK lockdown some say they are in a better place, albeit not a particularly good one, than they expected when the crisis unfolded. A couple said they’d done around 35% of normal business through April, another 40%.
“You can’t describe business being down 65% as anything less than disastrous,” said an importer. “But at the start we were looking down the sharp end of doing very little at all. So we’ve got some cash flow and we’re making some room in the warehouse for incoming stock. It’s not great, and we’re still at the beginning of lockdown, but we did expect things to be worse at this point.” Business is also reported to have picked up as customers “settled down to the new norm”. “Around 80% of our customers closed down almost immediately,” said an importer.
“But there are signs of sales coming back, albeit modestly. Customers that stayed open are starting to buy more and some that closed have reopened and are looking to buy again.
We’re obviously in for a long haul. We don’t know which customers are going to prove resilient, and which aren’t, but at the moment we’re anticipating being busier in May.”
Customers that have remained most active are reported to be small to medium sized businesses; joiners supplying the limited number of construction sites still operating, merchants selling to white van man and the refurbishment market, kitchen companies, the DIY sector, plus carpenters and joiners servicing NHS projects.
“It seems to be the bigger companies, that need substantial cash flow, that have closed completely,” said an agent.
Among the customer sectors causing the hardwood trade most concern is shopfitting.
“Retail wasn’t in a good place going into this and refits were already down,” said an importer. “I think shopfitters are in for a tough time.”
All hardwood traders approached, large and small, had furloughed staff. One importer distributor had furloughed everyone except a management team who were fielding customer enquiries from home, although they anticipated reopening branches in May.
Another had kept just its headquarters site operational. A third company had closed Scottish and Irish depots, as per government instructions, but kept English and Welsh sites open with 40% of personnel, reflecting the volume of trade and to maintain social distancing.
Furlough payments were reported coming through on time and to be straightforward to claim. Business interruption loans, however, were described as muddled.
“We’re hearing of customers being turned down because, while they’ve got a fantastic order book, their history over the last three years doesn’t look great. Another was refused because they’d closed entirely in the lockdown, even though they had a fantastic history and made a profit every year,” said an importer. “We’re also hearing that businesses on the continent are getting government loans through much quicker.”
Another added that companies just outside the lower turnover loan band could be put at a competitive disadvantage. “If your turnover is £45m or below you have six years to pay a loan back, plus a one-year payment holiday. If it’s over £45m, you’ve got three years and no holiday, so you’re paying back over twice as fast,” they said.
Credit insurers are also reported to be cutting cover for hardwood customers which have closed in the lockdown. “There seems to be no rhyme or reason why they’re reducing cover for one company, and not another,” said an importer/distributor.
Predictably, hardwood buyers have also been asked for longer payment terms. “In our experience, it’s particularly the bigger firms, so it’s difficult to argue,” said an agent/importer. “They cite cash flow, but it has caused some resentment, particularly as they still expect their rebate.”
One agent said their main focus at the moment was getting paid. However, another importer said that, while they expected bad debt to rise, so far, they hadn’t had major issues on this front.
“Some customers contacted us early and said they didn’t know how they were going to pay what they owed. But when things turned out not quite as bad as anticipated, they came back and said they could pay half now, half next week. We haven’t had customers asking for months to pay yet, or had to report anyone to credit insurers,” they said. “The key to this is communication. Where customers keep us informed of their situation, we can help each other out. The worry is the ones who bury their heads in the sand.”
Asked how different species were faring, one importer said it wasn’t a question they were particularly addressing as “so little of anything is selling”.
Within that context, however, others said that among tropical species, sapele and meranti remained out front, iroko was doing reasonably, and framire selling if it could be sourced. Oak was, of course, the lead European species, followed by beech and ash. American cherry, maple and walnut demand was reported as “lacklustre”, but white oak was faring relatively well, although difficult to source in 10 and 12 quarter.
According to the latest American Hardwood Export Council (AHEC) newsletter, UK importers were also seeing an upturn in red oak. “While prices are starting to firm as Chinese demand recovers, the remaining differential between red and white oak seems to be telling and we’re seeing rising demand for mouldings and other joinery products,” said one company.
The AHEC report also quoted importers saying they were seeing reduced availability of American FSC-certified. “We detect declining interest among US mills in certification generally,” said one.
Taking currency fluctuation out of the equation, hardwood prices were reported as generally stable, apart from for white oak, which was described as still “hot” due to supply constraints.
More broadly in terms of supply, the pandemic is reported to have disrupted shipments from Italy and the Balkans. Many French hardwood mills were also said to have initially closed, but with some starting up again when furlough payments were delayed. There seem to have been limited issues with supply out of Asia, but in the US the wet winter has left some mills short of raw material, and production overall was curbed by the trade war with China. Some companies also reined back or stopped production due to the pandemic, notably, it’s reported, in New York state.
“But we’re seeing some gearing up again,” said an importer. “They’re classed as an essential industry and they’ve introduced new work practices to ensure personnel distancing, such as working two shifts instead of one.”
In Africa, there are renewed problems at the port of Douala in Cameroon.
“They’ve introduced new management software that doesn’t seem to be working and backlogs are building up again,” said an importer. “As a result, storage is at a premium and suppliers are asking us just to take stock and pay later as the cost of keeping it at the port is so prohibitive.”
UK importers have widely asked suppliers to postpone shipments.
“Most have been accommodating,” said an importer. “The Europeans have been good, as have the Americans, who’ve been able partly to offset lower European sales with renewed demand from China and domestic business. The situation in Africa has been more mixed.
We’ve asked suppliers for deferment on cargoes we weren’t expecting for a while only to be told they’ve already been shipped,” said an importer.
While hardwood companies’ storage is reported to be tight, they say anticipated hardwood log jams at ports haven’t yet materialised to any extent.
Looking ahead, some hardwood companies told the AHEC newsletter they expected some work practices introduced in the pandemic to stick, notably remote working, more online trade and less overseas travel and face-to-face supplier contact.
Opinion is divided on whether there will be pandemic business casualties. One company thought it was inevitable, another, however, pointed out that more closures were predicted in the financial crash than materialised.
“I think we’ll see the same again,” they said. “Provided businesses run a tight ship and access available support, they should pull through.”
“We’re not seeing panic out there yet,” said another importer. “I think, like us, many companies will have put new disciplines in place to prepare for Brexit; getting more professional, tidying up the business round the edges, so we’ve gone into this in quite good shape.”
A worry for more than one company is what happens coming out of the crisis.
“What we don’t need is a scramble for business as companies fight for cash flow. That would be very damaging,” said an importer.
In the meantime, the immediate outlook, said another importer expressing a commonly held view, was “the most challenging we’ve known”, even if to date business for some hasn’t been as bad as feared.
“The key will be control and prudence. You can’t afford to live on the edge. It’s not a good place to be right now,” they said. “As a result, we may miss some opportunities more gung ho businesses will grab, but we’ll probably sleep better than they will.”
