The Northeastss Hardwood Industry Getting through the Coming Dark Time

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The Northeastss Hardwood Industry Getting
through the Coming Dark Time
Maine Hardwood Association
University of Maine, Orono ME

• Lloyd C. Irland
• The Irland Group and
• Yale School of Forestry
• Environmental Studies

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Outline

• Global Perspective
• Product Groups
• Lumber - Hardwood
• Plywood/Veneer
• End products
• The Coming Dark Time
• Getting Through the Dark Time

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World Megaports 2003
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Before DeclanGraduates from High SchoolChinas
GDP will exceed USA -- Economist Intel. Unit.
Declan McCaslin, age 3
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Hjelset present, BWPA/ Hawkins Wright Conf.
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K. E. Hjelset 2006 present, BWPA Hawkins Wright
Symposium
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HW Lumber

• US Production fell after 1999
• Markets Are Shifting
• Pallets under pressure imports/Mfg decline
• Furniture HW lumber usage fell by half since
  1997!
• Composites and secondary species

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Source W. Luppold, USFS
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Plywood/Veneer
N. Maine
Cambodia
Global witness photo
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Plywood Prices, real, Indonesia, source ITTO
Asia Flu
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Ply/Veneer
ITTO 2004
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EXPORTS CUSTOMER LIST CHANGING

• HW LOGS
• Total exports up 20 00- 05
• Canada share 68 off slightly
• China up 800 since 00
• Hong Kong up 2X
• Thailand up 3X
• Japan, Germany, down
• Relationships hard to build, yet must adapt

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Changing Export Markets HW Lumber

• Total, essentially unchanged 00-05
• China up 407 now 1/6 of total
• HK, Taiwan down
• Canada share unchanged
• Vietnam now buying almost as much as Germany did
  in 00

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HW Flooring

• Canada share 73 little changed
• Mexico down
• China growing FAST from nil in 2001
• UK is up
• Australia up 5X
• Ireland up 5X
• All these changes easy to see in hindsight!

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Plantations

• Tropical and subtropical
• 500 million acres
• Possibly 50 industrial
• Maine is 20 MM acres
• Could gtgt natural forest output in 20-25 yrs.
• Longterm challenge solid products from tropical
  plantations
• Its here WeyCo eucalyptus flooring
• Pallet parts coming in now.

Uruguay . Source IADB
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Stealing the Tropical Forest

• Illegal logging huge source of supply
• Significant effect on world prices (AFPA)
• Half of worlds forest is in nations with
• rampant corruption acc. to TI
• This is self-limiting!
• But When?

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Source Matt Bumgardner, USFS
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Malaysia chair prices
Asia Flu
ITTO, 2004 Bold is Real price 1990 USD.
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Impacts of Furniture Imports

• Affecting our other customers Mexico
• Hammering our dimension/parts sector
• Affecting panels as well MDF, Particleboard
• Mills are not losing the order, were losing the
  customer
• Already resulting in offshoring of equipment
  industry

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Sarawak
Malaysia
ITTO Ann. Rev Assessment 2004
PERKASA Sep Oct 05. p. 16
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The Coming Dark Time

• Offshore plantation wood
• Incr. use for solid products
• Low offshore labor costs
• Mature US end product markets
• Poor US manufacturing business/political climate
  (entitlement mentality)
• Volume production of plain vanilla commodities
  heading offshore

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Opportunities

• Small market segments protected from offshore
  competitors
• Opportunities more of marketing
  entrepreneurship than product lines
• A business for people who love to dig out markets
  and sell.
• Must be labor efficient

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The Trouble with the Wood Business

• The machines never wear out
• Continual updating a necessity
• Old Plant layout/materials handling big labor
  users
• False economy I always buy at the auctions
• There is gear for small shops

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Themes Solid wood

• Standardized processes
• No need to be in shade
• of the trees
• Traditionally
• Labor intensive
• Plastics and nonwoods
• a significant threat in some lines
• Today Big Boxes high volume buyers scouring
  world for a dowel 2 cents cheaper.

Grecon Inc.
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Concerns

• These machines enable us to adapt to declining
  quality resource
• But this is not Cost-free more energy,
  handling, lower yields
• Undermines incentive to produce quality in the
  woods
• Machines alone a short-term fix
• Cant offset a 20-1 labor cost differential

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Strategies

• Become a distributor for imports
• Use their low cost materials to advantage
• Focus like a laser beam on JIT
• View business as a service
• Mass customization
• Consumer items Remodel brand image
• Green Certification

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Strategies, cont

• Tough, Detailed cost management
• Some of your products are probably losing you
  money
• And you dont realize it!
• Upgrade customer list
• Always hunting new accounts Countries
• Pruning out low-margin, troublesome accounts
• Visit the customers location!

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Cant Manage on slogans

• Bigger is not better
• Well lose a bit on each one, and make it up on
  volume
• Volume focus vs job shop focus
• w/o sales discipline. Tight costing,
• The job shop is dead
• Key there is No one thing. Must do several at
  once

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Outbound Containers

• Hundreds of thousands of empties heading West
  across Pacific
• Find something to put into them!
• Build new relationships/alliances
• Hard for small firms
• But the giants arent good at it

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What Products?

• My view wrong question
• Companies that succeed will
• Innovate in the plant
• Introduce new/better products
• Manage Marketing/distribution/logistics with
  greater skill
• Adapt quickly
• I believe this can be done in most of the product
  areas