Easter usually marks the point the fencing season is out of the starting blocks but this year the gun failed to go off.
The absence of storms over winter, which often damage fencing, and a rainy March – the wettest in England and Wales since 1981 and one of the 10th wettest in England, Wales and Northern Ireland since records began in 1836 – have dampened the need and desire to install fencing.
Added to that, it’s only 18 months or so since the fencing frenzy of Covid lockdowns, so many people have replaced fencing or upgraded their gardens fairly recently.
The weeks either side of Easter were quiet and, while the sector is expecting business will pick up, it will be a steady rather than a remarkable year.
“It will improve but I think it will be a quieter year because of the economic uncertainty,” a supplier told TTJ.
Another said his company was “not rushed off our feet” and he was now expecting a quieter spring. The fear was that now gardens are starting to bloom, people may delay work until the autumn.
A sawmiller said Q1 had exceeded expectations but he too predicted a pretty even sales line for the season ahead.
“I don’t think we’ll see a great spike in demand but I don’t think it will drop off either; it will be more a continuation of what’s not been a bad level,” he said.
A merchant told TTJ that fencing and general landscaping were his quieter product areas at present.
if demand did rise suddenly, there’s plenty of fencing and fencing timber available. Most of the big fencing players build storm calculation into their stock building so with the lack of stormy weather they went into Easter carrying more stock than usual. At the same time, some UK and Irish mills have moved their focus to fencing because of the slower construction market and in the hope that fencing would be more resilient against the cost of living crisis.
Because these mills wanted to move stock, prices became “very competitive” in January and February – to the point that one contact saw treated featheredge boards cheaper than a piece of pallet wood.
A supplier told TTJ that after sawn fencing prices fell in October and January he had anticipated raising his product prices in April but now, with the season effectively under way, this was unlikely.
Prices have now stabilised a bit and even if demand rises they are unlikely to change considerably as the supply chain will want to move stock from yards and warehouses.
The current market may seem quieter but everyone TTJ spoke to said it had to be seen in context.
One supplier said his March figures were down 29% on last year – but were the third best for the month in more than 30 years’ trading.
“Our March sales figures would have been a record a couple of years before Covid and we would have gone out for a meal to celebrate so we need to look at it as being a major reduction on last year and see this year as one without the peaks we usually see,” he said. “If we have a period of good weather we may recover some lost ground.”
The merchant pointed out the “unbelievable demand” during the Covid lockdowns was the anomaly. “The underlying demand is still there but it’s more back to normal,” he said.
A sawmiller added that although, overall, the UK timber market was described as mediocre, the number of artic loads leaving his yard every day indicated things weren’t too bad.
“There’s still a lot of wood going out,” he said. “We are pretty upbeat. We’re running at full tilt and we’re not overstocked; we are at as good a place as we can be in this market. It’s not brilliant but it’s not the gloom and doom some people are saying.”
The current, less volatile market may also be a reflection of the changing ownership structure in the timber industry. Now many companies are owned by private equity firms where accountants keep a tighter rein on where money is held.
“It’s probably the new normal,” one contact told TTJ. “Private equity businesses dominate merchant chains now. They’re not going to lash out a lot of money and put stock on the ground just in case. They operate differently and the industry has to get used to it.”
One independent supplier admitted he was carrying more stock than his accountant would probably like but as most of his customers ordered on a daily basis, rather than pre-ordering, he had to ensure he had available the timber of the right quality and treatment for those orders.
“We have to hold enough stock to keep going for six to eight weeks, plus a buffer,” he said.
To what extent the cost of living crisis will affect fencing sales this summer is unclear. Some contacts believed foreign holidays and the promise of sun and sea might lure people away from their gardens, and the impact of the major national housebuilders’ plans to reduce output this year will trickle down to fencing.
Those with generous disposable income, however, may continue to spend it. One supplier said demand was still strong for his top-end product of automated hardwood gates but a shortage of labour for installation meant they were on a five to six-month lead time.
A sawmiller said inconsistency was the only consistency in feedback from his customers.
“One major garden buildings supplier said he couldn’t shift fencing panels but he was selling value sheds at a rate of knots but some fencing panel manufacturers are saying people are no longer buying the £60-80 panels and going for £20-30 products instead,” he said.
While inflationary pressures might shape buying behaviour, they are also a burden for business. “Our costs have shifted from timber being the biggest cost to overheads such as fuel and energy,” said a supplier.
The restrictions on red diesel use introduced in April last year had doubled the cost of running diesel fork lifts, and made electric fork lifts more economical. He recently added three electric machines to his fleet of 15 and would consider more electric fork lifts as replacements were needed.
Now OPEC’s decision to cut oil production by 1.6 million barrels a day is likely to raise the price of oil and therefore the cost of most products and services.
“If inflation lowers it doesn’t necessarily mean prices lower and OPEC reducing production could mean all costs go up and we’re back in a vicious circle,” said a supplier.
RISING COSTS AND FALLING DEMAND TAKE TOLL ON PALLET SECTOR
While economic pressures are impacting pallet demand, TIMCON is launching campaigns to highlight the industry’s positives, says president John Dye
During the past year, most business sectors around the world have faced intense cost pressures. Triggered by the pandemic – and not made any easier by Brexit, and Russia’s invasion of Ukraine (the feeling is that the sector has not felt the full effect of this war and will not fully recover until the economies and demand in Europe start improving) – these have included a rapid increase in the price of energy, with the World Bank last year warning of rises of up to 50% in commodities such as diesel, oil and coal, and other raw materials.
The effect was compounded by the enduring imbalance, unreliability, and soaring price of shipping, and generally unstable and unpredictable trading conditions. Businesses have been advised to work closely with their supply chains and customers to mitigate the risks of this unusually challenging period.
Raw materials for wooden packaging and pallets have naturally been affected. Timber prices fell slightly at the beginning of last year before rising again mid-year. From then, they began to fall, a trend that continued in Q1 2023. However, while forecasts suggest costs will continue to ease this year and next, they are expected to stay higher than average for the foreseeable future. This will, of course, impact on our operations and those of our suppliers.
Our colleagues in Europe have reported similar trends. Towards the end of 2022, FEFPEB issued a warning that, while the price of inputs such as wood and steel have fallen, continuing high prices for energy and fuel were keeping freight rates high. The association said the Transport Intelligence, Upply (the digital platform for transport professionals) and IRU European Road Freight Rates Benchmark Report for Q3 2022 put average European road freight contract prices at an all-time high (129.7 index points), a rise of 5.4 points on Q2 and 19.6 points on the same period in 2021. The report also shows that where the cost of diesel previously accounted for one-third of total operating transport costs, it can now be around 50%.
This has inflated the price of processes such as heat treatment and kiln drying. Other inputs, such as labour, have also continued to rise, and now make up a higher proportion of the price of pallets and packaging. This has added further inflationary pressure on the manufacturing and repair sectors.
The wooden pallet market slowed from October 2022, and as high energy costs and the cost of living impacted on household spending, reducing demand for goods, the usual pre-Christmas uplift in pallet demand did not happen.
The market is currently depressed, with every timber industry sector affected by the economic pressure. With around 40% of the annual production of new pallets used somewhere in the construction sector, the downturn here has obviously impacted on our business. Users say they are running between 20-40% behind their forecasts.
The independent Afry index has shown a decrease of around 15% in the price of timber during the past 12 months but it has had no real effect because of the slower demand for finished goods.
TIMCON continues to monitor developments and to work closely with our customers to minimise the impact of these pressures.
Meanwhile, as more workers have left the market because of illness or to pursue new careers, clear communications are essential for sectors such as ours to tackle the difficulties in recruiting and retaining good quality staff.
TIMCON has begun lobbying the government to ensure that any new legislation to help bring foreign workers to the UK – for construction work, for example – includes provision for wooden pallet and packaging workers. The message is clear: if there are not enough pallets and packaging being produced, it could significantly impact on expectations for increasing UK housebuilding.
We also are working on a communications initiative that will highlight pallets and packaging specifically, and woodbased industries in general, as dynamic, exciting places to work. This campaign will communicate our environmental credentials to the supply chains and wider public, including the reusability of wood products, the role of wood products in the circular economy, and the overall sustainability of our business.
After years of lobbying, the industry was delighted when Defra announced it would explore options for setting reuse obligations on wooden pallets, rather than recycling targets (and setting recycling targets for all other wood packaging), with a reuse scheme. This will ensure pallets are kept in service as long as possible, avoid higher recycling targets disincentivising reuse loop systems for pallets, and help meet government sustainability goals.
Many consumers still don’t understand how wood-based businesses work. Every part of a harvested tree is used, trees are replaced with new plantings and, with the example of pallets and packaging, they are usually repaired and reused many times before being recycled.
The wooden pallet and packaging sector is one of the world’s most sustainable industries, and one that keeps international supply chains moving. It is a business full of great people, featuring opportunities to travel and work with colleagues around the globe.
We are encouraging our colleagues from other forest-based businesses to help us promote these messages, which are vital for us, but also vital for the development of an economy that has the environment at its heart. As one politician told TIMCON last year: “If we don’t deliver on forestry, we won’t deliver on our climate objectives”.
