Latvian plumbers, Lithuanian tailors and Estonian plasterers: no matter where you look, there’s a Baltic states worker providing their services here in the UK.
Britain was one of only three countries – with Ireland and Sweden – to extend full working rights in 2004 to citizens of the new EU countries, including Latvia, Lithuania and Estonia.
Since then, recruitment agencies specialising in supplying motivated, hardworking and reliable east European workers have sprung up around the country, as many UK companies look to offset a shortage of home-grown skilled, semi-skilled and unskilled labour with Baltic tradespeople.
What does this have to do with the Baltic timber trade you might ask? The answer is, everything. The mass migration of Baltic workers to the UK and Ireland (around 2,500 job applications by Latvians are approved every quarter in the UK) has left sawmills and timber producers in the three Baltic countries starved of labour. Production volumes are down and, coupled with the availability of raw material, timber exports to the UK are falling.
Labour costs
“Labour costs are undoubtedly a significant factor,” said Simon Butler, joint managing director of Riga Wood Ltd’s UK operation. Estimates say the cost of labour went up by around 30% last year and is expected to do the same in 2007. “This is hampering production, as is a lack of labour, as most of the workforce is in Ireland or London,” added Mr Butler.
“A lot of Latvians have left the sawmilling industry to come here, not necessarily to work in sawmills, but simply because they can earn more money,” agreed Keith Purcell, of Evans Bellhouse Ltd. “As a result, the Latvians are bringing in Moldovans to work in their mills.”
Despite steady UK demand for birch plywood from the Baltics, Mr Butler admits there is a problem with getting raw material. “We have supply issues with our factories in Latvia,” he said. “The cost of logs has gone through the roof – in some cases as much as doubled – which, if you’re making birch plywood, is a large part of your costs.”
Riga Wood has had to increase prices in the UK: it’s had three price rises already this year, the last of which saw prices for some items up 20%. Mr Butler believes customers are fairly resigned to this. “It depends on what industry you’re in,” he said. “If you are building a lorry for £80,000 and you have £200 of timber in the floor, what might seem like a big rise to us is not going to make that much of a difference. But for importers and merchants, it’s a real headache.”
Russia’s decision to put export duties on unprocessed forestry products like roundwood timber has been the main cause of the supply problem. Under its plan, duties will increase in three stages, from the present price of €4/m3 to €50/m3 within two years.
The Russian domestic market has been very strong but, while there are plenty of forests in Russia, the availability of sawn goods is fairly limited. Raising export duties is a canny move to enable Russian producers to get as much value from the raw material as possible. “Rather than export it to countries that have aligned themselves to the west, they want to use as much as possible in their own country,” said a spokesperson from MBM Forest Products. “It’s going to have a significant impact on the supply of timber from the Baltics.”
He believes it will be left to four or five key suppliers who have the power and the clout to source what limited log supplies there will be. “We think we’re working with one of the mills that will have the finance and ability to source those logs – it’s going to come down to money and muscle,” he said.
Looking elsewhere
For MBM, it means looking elsewhere for raw material. With the US market currently so weak, it has given Canadian producers the ability to move timber to the UK for a similar, if not better, price than they were getting in the US.
“Other companies that might have aligned themselves to the Baltic states may be finding it tougher, but we feel supply this year is not going to be a problem,” said the spokesperson.
Another UK company looking to Canada as a supplier is Evans Bellhouse. “With the Baltics, we’ve only just realised how dependent they have been on Russia,” Keith Purcell told TTJ. “The taxation situation has meant that Baltics suppliers are saying they can’t pay the hikes unless their end customers do – and yet, when we offer to pay it, we still don’t seem to get the material.
“Even if the Baltics suppliers are starting to pay these increases, firstly, the Russian internal market is booming [Moscow is seeing huge amounts of construction work], and secondly, they’ve decided that people should pay more for their raw materials.”
Mr Purcell believes the UK has historically been the “poor man” of western Europe when it comes to paying decent prices and, with so many emerging markets in the Middle East and North Africa willing to pay for material, it’s a big hurdle for UK importers and merchants.
“I can’t see any improvement in the Baltics market in the foreseeable future,” he said. “Because of the supply problem, it’s completely upsetting the rotation of ships: ships are in the wrong place at the wrong time, and the volumes simply aren’t there.”
Shipping firm Scotline Ltd, which brings sawn timber from Latvia into Inverness and Rochester, has also found that volumes have decreased. But, more importantly, the number of exporters from Latvia has also fallen.
“A number of smaller producers seem to have disappeared and it’s becoming a much more established market with the bigger sawmills taking a larger share,” said Scotline’s managing director Peter Millatt. “We understand a lot of the sawmills do have problems getting raw material and are still importing quite a lot from Russia.”
Strong areas
But it’s not all bad news. According to Kevin Hayes, of Nelss (UK) Ltd, the Baltic market is strong in some areas, especially for garden and fencing products, and certain items are like “gold dust”, with prices reflecting their limited availability.
“Demand for carcassing timber is steady, with prices firm, based on high raw material costs, although UK demand is slower as a result of high UK stock levels,” he said, although he added that customers were worried about the possibilities of further rising costs.
And, while Mr Hayes admitted that long-term volumes from the Baltics have been dropping, the value of Baltic imports is still rising, reflecting higher market prices based on the rules of supply/demand and because of increased added-value output.
“Baltic sawmillers are enhancing products as the traditional UK milling/treating functions are passed back to the suppliers,” he said. “In 2006, for example, Latvia shipped 1.2 million m3 to the UK compared with 1.8 million m3 in the heyday of 2002-2003, but the value in 2006 is roughly identical to those past years.”
It’s a strategy that could see Baltic suppliers continue to remain a major exporter to the UK. “Those mills that still plan to export will continue to invest,” said MBM’s spokesperson. “There are obviously more planed goods coming out of the Baltics and because of the shortage of logs, any mill that does have supplies is going to want to get as much value as possible. It’s about adding value to get a better price for their supplies.”
