Universal issues continue to thwart timber businesses

Must Read

Coupled with the ongoing shortage of shipping containers, a hike in raw material prices and the pandemic continue to cause issues for exporters of timber products, exacerbating the desire for timely solutions and a more sustainable supply chain.

Universal issues continue to thwart timber businesses
Over the past two decades, the export value of Vietnam’s wood industry has increased 60 times, from $219 million in 2000 to over $12.3 billion in 2020. Up to now, the export market has reached 140 countries and territories around the world.Source: Vietnam Timber and Forest Products Association

The timber market witnessed a faster-than-expected recovery in the last months of the year, with exports reaching $14.3 billion, up 14.3 per cent compared to 2020, according to estimates of the Ministry of Industry and Trade. However, the Omicron variant still causes problems for the global supply chain, pushing the Vietnamese timber industry into renewed challenges that need to be addressed for the coming year.

The central province of Binh Dinh’s furniture exports increased by over 20 per cent compared to 2020, including the projected figures for this month. However, this figure is based on the expectation that there are enough containers for export.

Le Minh Thien, director of Hoang Hung Co., Ltd., said, “The situation remains onerous, prices are high, and the shortage of containers is getting worse and worse.”

The rental price of export containers to the US market has further increased sharply since November, with the cost for a single container amounting to $20,000, while the value of a container of timber products barely reaches $15,000. “If the value of goods remains lower than a container’s rental price, we have no chance delivering on time and will be outrun by the competition,” Thien said. “Some buyers have extended the expected delivery time, but this is also pushing up inventories with orders waiting to be exported,” he added.

Data from the Binh Dinh Timber and Forest Products Association showed that inventories in the fourth quarter increased by 150 per cent compared to the same period in 2020 and are twice as high as in 2019. The output, however, is expected to also be higher this year.

Risk-averse businesses

Commonly, timber-processing businesses would now be importing raw materials for the next season, but Vo Quang Ha, director of Tavico JSC in the southern province of Dong Nai, noticed that many businesses are “worried about selling their products” before April. “Many simply didn’t buy the materials needed for next season,” said Ha.

Upstream raw material prices tend to increase and, combined with high container prices, further push the prices of imported raw materials to a higher level. “Rounded timber increased by $20 per cubic metre, and sawn timber also increased by $40-50 per cubic metre compared to last year, but the selling prices increased not much,” said Ha.

Larger suppliers in Vietnam, such as Tavico, reduced their imports of materials by about 50 per cent. Other traders also temporarily stopped importing timber as they are afraid that high product prices will render it impossible to sell their goods for profit. In addition, the cost of warehousing at ports has increased, prompting suppliers further to temporarily stop importing raw materials. For instance, storage costs at Quy Nhon port have increased more than 10 times compared to last year.

The US non-profit organisation Forest Trends’ data showed that materials imported into Vietnam decreased in the first 15 days of September, with the import value standing at only $105 million, down 13 per cent compared to the first 15 days of August. Vietnam usually is one of the major timber processing centres in Asia and imports up to 6 million cu.m of raw timber per year on average.

Forest Trends forecasts that the price of raw materials will continue to increase in the next year, when the supply of temperate timber from Europe and the US continues to decrease, partly due to the pandemic, partly due to sources used for domestic consumption in these markets. These factors are poised to drive up the prices from these sources.

Acting more sustainably

The gap between supply and demand for raw timber is growing, and global supply is growing slower than production and demand for furniture. Tran Thien, director of Thanh Hoa Co., Ltd., said that importing logs with large ships could solve the material shortages for domestic production and stabilise prices. The ports in Quy Nhon and Quang Ngai would both be suitable to import timber logs with large wooden ships. “We have had many negotiations with foreign partners but have not been able to reach any agreements,” Thien said.

Vietnam is the world’s fifth-largest exporter of timber and forest products but has yet to establish a dedicated port for imports of raw timber. According to Thien, Binh Thuan and the Mekong Delta are both suitable for such ports, but local authorities and state management agencies have so far not been interested. In addition to technical requirements, such a project would need large investments and an area capable of holding up to 700,000cu.m of timber.

High freight rates and the shortages of empty containers will likely continue to trouble the market in 2022. Todd Wanek, managing director of Ashley Furniture Industries Inc., at the Home Furnishings Association webinar during the summer, forecast that the rental price of empty containers will not decrease until 2023. Ashley Furniture is one of the largest furniture manufacturing and distribution companies in the world and has four factories in Vietnam, which are also suffering from rising container costs.

“Transportation costs increased beyond the tolerance of many buyers,” Thien commented. “Buyers tend to build a new price level for next year, they do not want to pay more for inputs while increasing the selling price has a certain limit.”

Currently, most Vietnamese businesses are delivering goods at FOB prices, which means the buyer must bear the shipping costs completely.

To share some of the burdens with buyers, the five largest export enterprises in Binh Dinh have cooperated to charter ships and transport goods to Saigon port, instead of transporting them individually. Buyers must then receive containers from Cai Mep and Cat Lai ports to Quy Nhon for packing due to infrastructure limitations, as larger ships cannot enter the Quy Nhon port. The shipping cost in this section alone has increased to about $1,000 per container.

These challenges may be the reason why the Ministry of Agriculture and Rural Development set the export target of timber products in 2022 at $16.5 billion. Do Xuan Lap, chairman of the Association of Vietnam Timber and Forest Products, argued that $17 billion would be “in line with the market trend as domestic capacity and output markets both enable better development for 2022.”

Source: VIR

- Advertisement -spot_img

LEAVE A REPLY

Please enter your comment!
Please enter your name here

- Advertisement -spot_img

Latest News

Sumitomo Group and BRG Vietnam discussed with Blue Diamond about residential building managment

On August 31, representatives of Sumitomo Corporation Japan, BRG Group Vietnam, CYFEER Company met with the Vice General Director...
- Advertisement -spot_img

More Articles Like This

- Advertisement -spot_img