Since September, there has been a dramatic change in the supply chain. A shortage of timber vessels has resulted in chaos at many ports, and contracts now being taken for prompt shipment could well wait in a queue until February or even March. One agent commented that he had well over 12,000m3 sitting on the quayside at Riga.
Extreme weather hasn’t helped either. In the third week of November snow storms hit the Baltic region with a vengeance, preventing some of the few ships in service entering the ports. Furthermore, the paucity of vessel space has not been confined to the Baltic region. There have been problems in other areas, including Sweden, where some parcels have been stuck at Kalmar for the best part of four weeks.
These problems are now combining with those identified in the last Baltic report. Rising demand for ships from China is pulling vessels away from the timber routes and many ship owners are favouring the higher rates that exporters of other commodities are prepared to pay.
The shipping lines have confirmed that increased freight charges are here to stay, and these are in addition to higher fuel costs, not because of them. Rix Baltic Lines has declared a new rate from the Baltic ports to be implemented from January 1. This will effectively increase costs by a minimum of £10/m3, and others will follow shortly. Also, stricter controls will be applied to volume declarations in a bid to “get the measure” of the unseasoned trade, where actual sizes and weights have been rather erratic for several years.
Taking to the road
These problems are forcing Finnish producers to consider switching to road transport to service European markets such as Holland, Belgium and France. Haulage costs are currently far more predictable than sea freight and, by considering this alternative, shippers are underlining the seriousness of the situation.
Nobody can predict what effect all this will have on the first quarter of next year, but it is clear that the shipping delays will slow down the rate of imports, particularly from the Baltic region. Whether this will help to create a better balance between supply and demand remains to be seen, but it is likely that there will be a shortage of the most popular carcassing specifications.
Shipping is by far the biggest problem currently being faced by the trade, but there are other issues affecting supply.
The sourcing of affordable spruce logs continues to be a problem both in Sweden and the Baltics, and shippers are forever being pressed to pay higher premiums at auction. Recent reports from north-west Russia paint a similar picture, but there shippers are facing the additional problem of heavy rain which has hampered logging and left many of the access roads unusable. The result is a shortage of whitewood at Russian mills, and the lack of fibre is undermining investment programmes aimed at new production equipment and infrastructure development. In some areas the export of logs is reported to be more profitable than the production of sawn wood so, even when logging conditions improve, volumes of sawn whitewood from the mills are predicted to run short of demand.
All this will lead to substantial increases in the price of whitewood which will start hitting the UK market from January. As there has been a downturn in demand through November, and there are still some volumes of landed stock available at the ports, UK buyers still remain sceptical about the higher costs predicted for the new year, and they refuse to believe the market will stand such increases.
Some importers and merchants have turned to the home-grown sawmills for their first quarter carcassing supplies, but it is expected that these productions will become fully sold within the next few weeks, and prices will start to increase in line with imports.
Redwood market
The market for redwood paints a very different picture. While some shippers may have kept a tight reign on their production and inventory levels, there is still a high volume of stock at most stages in the supply chain. At the lower end of the market, redwood carcassing grade (which represents approximately 40% of the species extracted) is hard to sell due to the preference for whitewood.
The prices of Russian fourths and Nordic fifths are in many cases trading well below dry-graded whitewood, which is a complete reversal in the way that the traditional UK market has operated. The only factor affecting redwood prices in the new year will be the increase in sea freight costs, increases in the actual raw material are not expected for some time to come.
Tactically it would be more prudent for shippers to turn the supply tap off and sell to other markets until UK stocks are substantially reduced. This would avoid the prospect of being forced to absorb increases in transport costs in order to compete with landed cargoes.
In spite of the difficulties which are plaguing the redwood sector, the market for selected specifications, which includes the wider sideboards and joinery dimensions, is holding firm, and one or two mills have closed some business for the first quarter at around £5/m3 up on current levels.
For those shippers in the value-added market, competition within the UK is tough, and this is mainly due to overcapacity caused by widespread investment in high volume planing machinery. The increasing loss of market share to MDF moulding producers is removing substantial volumes of second fix material away from the planed softwood market. Now virtually all of the major housing developers are using pre-primed MDF skirtings and architraves instead of redwood.
Speaking candidly about the ever-diminishing use of solid softwood in building, one leading building company commented that, where possible, they specify timber fascias and soffits, but performance and maintenance factors are of high importance. Pre-finished products such as plastic are taking the lion’s share of this part of the build, because coating with paints and stains is not desirable.
Engineered wood continues to eat into the territory traditionally occupied by solid timber joists and beams and, although there are no accurate statistics to gauge how much softwood volume has been lost in this market, it has reached a significant level.
While the high-specification softwood joist Ultrajoist has made some progress in retaining solid wood’s credentials, I-beams and LVL are still increasing their share of the timber frame construction market.
There is strong demand for truss material and the larger sizes used for room-in-the-roof designs are helping to boost volumes. Even though supply is limited, prices are still not attractive enough for all the potential producers to enter the market.
While traders are coming to terms with the immediate problems of shipping, whitewood shortages and redwood oversupply, the problem at the top of the end users’ agenda is environmental accreditation.
The recent preliminary assessment by the government’s Central Point of Expertise on Timber, which gives the FSC a superior “proof of sustainability” status compared to “proof of legality” for the PEFC, is likely to lead to a fiery debate within the trade. The Swedish mills are able to source FSC, but Finland is almost exclusively PEFC. The UK DIY sector and public-financed construction projects are increasingly specifying FSC, and this already puts up barriers to other supply sources.
There are many in the trade who remain confused as to the difference between the schemes and believe that there are more politics prevailing than logic.
Rising prices
There is certainly much to think about as the end of the year approaches. A rapid increase in the cost of logistics is likely to reach £10-12/m3 in the new year if fuel costs are taken into account. Raw material price rises are likely to push this up by a further £5/m3 for whitewood, while redwood will take longer to catch up. Delays in shipment times are likely to lead to shortages in the popular specifications, but much will depend on the strength in demand during the first quarter of next year.
With all this to consider over the festive season, it is a sobering thought that the cost of softwood will still be at least 5% below its peak price in the past five years.
