Timber market faces stark choices.
Tough times, hard decisions
Published: 28 November, 2011
What are the opportunities and pitfalls? How can suppliers help the merchant? How can merchants move their stock? Merchants and suppliers give their views on what the future is going to bring.
The UK timber industry has experienced growth for the first time in three years, according to a recent report issued by the Timber Trade Federation. But, a sharp rise in running costs and subdued demand has seen many companies continue to struggle.
The TTF Statistical Review 2011 – Industry Facts and Figures reveals a degree of recovery in 2010, with the consumption of timber and panel products reaching a level of more than 14 million/m3 . The import sector grew by 8.4% in volume, to 8.37 million/m3, while UK production increased by 9.2% to 6.45 million/m3. As a result, the industry rose in value by just over 20% to £3.13bn.
At the same time, the prices of raw materials, energy and other goods and services have climbed dramatically – making it more difficult for companies to achieve adequate returns. What’s more, the 2010 recovery was very much concentrated in the first half of the year. The import sector, for example, grew by 13% year-on-year in the first six months of 2010, but only by 3% in the second six months.
John White, chief executive officer of the TTF, says: “While 2010 was, thankfully, an improvement on the two previous years, demand remains subdued in many markets. The UK timber industry is still challenged by the weak economic recovery.”
What the merchants say
“The climate continues to be turbulent and unfortunately, there is still a lot of uncertainty facing both the public and housing sectors,” says Stuart Slocombe, market director of timber at Jewson. “We need to be focused on the opportunities that do exist to ensure that we are in the best shape we can be to take advantage of them.
“Our expectation is that the market over the next six months will be broadly flat, following the normal seasonal trends – so across the board we do not expect to see a drop in demand.”
Independent merchants seem to more or less agree. Charles Sherbourne co-owner and director of Sydenhams, says that the market will remain “absolutely flat, with the possibility that it may even get worse. The last few months have been flat, and I see no reason for that to change.”
Rick Paget, head of forest products at Alsford Timber adds: “I believe that the demand over the coming six months will be pretty flat with possibly a slight decline as we see people start to worry about a potential double dip and spending cuts start to bite.”
Probably the most important thing that merchants need to know regarding their timber purchases, is consistent and stable pricing, says Mr Sherbourne “We don’t want prices to be shooting up one minute and crashing down the next. Suppliers could really support us in terms of providing stability instead of knee-jerk pricing strategies.”
Dafydd Williams, purchasing manager at Huws Gray says: “Short of obtaining a crystal ball, we expect prices to remain as they are and subsequently fall in the short-to-medium- term. This expectation will obviously impact on the company’s forward-buying policy.”
“Another consideration is supply chain,” adds Jewson’s Mr Slocombe. “Continuing to be of paramount importance will be ensuring a proper Chain of Custody audit trail, which is essential these days in terms of both corporate and social responsibility. Merchants need to collate as much information on supply chain sources as possible to enable them to identify where any risks of poor sourcing may lie, and to eliminate them systematically from the supply chain into the UK market.
“Security of supply will continue to be high on the agenda for all within the merchant sector, as well.
“Our Scandinavian producers will control supply to manage their rates into the UK, however we do not expect there to be any substantial problems with supply.”
The best ways to generate sales of timber according to Mr Paget is “to have a good stock of the fast moving product lines, purchased at the right times so that customer demands are always met on time and to also look for other markets currently not exploited.”
Mr Slocombe believes that the key lies in the sustainability agenda. “There is also increasingly stringent EU legislation on the horizon. Timber will always be a sustainable building product and a favourite for any project with an ecological focus.
“We are confident that by pushing the sustainable qualities of timber we will be able to continue to grow sales. The fact that timber is a sustainable building product still has to be balanced out by the basics: high quality of product, breadth of range, immediacy of product and price. We will also continue to differentiate ourselves by investing in timber training over the coming months to ensure customers can rely on the expertise and know-ledge from their local branch staff.”
Whether national or independent, all seem to agree that their customer base needs to be broad in order to respond to the changing demands of the marketplace.
“We believe in developing, supporting and retaining a balanced business mix,” says Terry Owen, managing director of Huws Gray. “Our company focus is on the likes of jobbing ‘white van’ builders, self-build, as well as the RMI and DIY markets”
“At Alsford Timber our branches will focus on RMI with the small-to- medium builders,” says Mr Paget, “while our contract sales team will target national builders, the large contractors and other merchants.
Mr Sherborne agrees: “We cover the whole range in different ways. We have large national customers for timber, but RMI and self-build are our main customers. Funding is really tough for the builder at the moment. “
Mr Slocombe, adds: “As it stands, the UK needs to achieve an 80% reduction in carbon emissions. Realistically, we are all aware that with such a challenging figure, the only way to achieve this is through the radical refurbishment and regular maintenance of the built environment, making the RMI sector increasingly important for all areas of the construction industry over the coming years.”
Development strategy across the board focuses very much on customer demand.
“We’re not looking at introducing new product ranges,” says Mr Paget, “but are ensuring that we have the right products stocked and available to meet our customers changing demands. Using local knowledge and understanding our competition, we make sure we have no gaps in these ranges.”
“We constantly review market trends and demands to ensure our product offering is reflective,” says Mr Slocombe. “As such, we have seen new timber product lines come on stream in 2011 and have been very happy with their performance. We are currently working on a number of new projects, which are designed to grow both our market share and the market for timber products in the UK.”
“At Sydenhams, we aim to add value by offering a complete solution for the customer,” says Mr Sherborne. “If he wants a joist, we’ll try and offer everything that could go with it. We have a big mill, so where necessary we can offer bespoke machining. We always ask, ‘what do you want this for?’ and try to educate the customer. It helps to get loyalty. New things are constantly being made and if we think we can sell it, we’ll take it – everyone’s trying their hardest to sell something.”
“We recognise that market research is vital in order to truly gauge the requirements of our customer base,” says Mr Slocombe. “There is a lot more that could be done in the UK to improve the market for timber products and we would look to do more in the future.
“It’s vital to stress just how important an integrated supply chain can be when it comes to improving communication and delivering better quality products. Merchants are in an ideal position to help facilitate this and at Jewson, we place immense value on our relationships throughout the supply chain. When these relationships work efficiently and effectively it can really help deliver product developments and improvements in challenging times.”
The UK is also home to timber forests, but whether merchants will stock it, remains highly debatable.
“We stay away from home grown,” says Mr Sherborne. “While imported timber is definitely more expensive, the quality is much more reliable, and we can get the better grades as standard.”
Mr Paget adds: “There is definitely a market for a quality home-grown timber, but the current market seems to be demanding an ever-increasing C24 specification that cannot be graded from home grown. Alsford Timber has for the first time this year taken some significant volumes of the home-grown and will continue to use it to help support the business as prices become keener.
“We have a fantastic relationship with our imported supplier and have always had good service and pricing from them which has allowed us to significantly increase our carcassing sales over the last two years.”
“Both have their individual benefits,” says Mr Slocombe, “and as such, we continue to review our balance between home-grown and imported timber. We have seen some movement in the market away from imported timber, as a consequence of the current market conditions and tighter budgets all round.
“This has led to home grown producers steadily improving the quality of timber products – ongoing investment by the producers will further enhance the quality and range of products they manufacture. There still is a gap in terms of the relative qualities of the two products but the reality is this gap is decreasing – which is a positive step for the UK timber industry."
What the suppliers say
“Business has remained tough for both suppliers and distributors in recent months,” says Darren Pack, head of merchant sales of Finnforest. ”The market has and will continue to prove challenging with economic forecasts being revised downwards on what seems a monthly basis, with Government spending cuts taking effect and the private sector not taking up the slack as quickly as predicted.
Dave McElroy of Norbord Europe.
“In the short-term, prices look to remain fairly stable which is good for the timber industry, keeping value in the product. Whether this stability will remain through to year-end is difficult to say.
“Expected demand from Japan following world events has not yet filtered through to affect the UK market but its impact will be felt, that is inevitable. Couple this with the current pressure on the availability of sheet materials and prices are forecast to move in only one direction.
“In addition to a difficult supply situation, currently in the case of certain species, margins are coming under increasing pressure,” says Brian Leathert, Timbmet’s commercial manager for Timber. “At the same time, as distribution costs continue to rise, running a cost-efficient transport service while continuing to meet customer demand is a major challenge.”
”Uncertain economic climate makes sales and therefore stocking requirements difficult to predict,” adds Dave McElroy, deputy managing director of Norbord Europe. “There are rising product costs due to wood/biomass and other raw material issues for wood products suppliers.
“Working more closely with customers to get forward views of requirements is an opportunity, so that stocks can be put in place to meet them on short notice. And, increased focus on slow versus fast-moving stock items helps ensure correct stocks are in place to meet customer needs and build-up of dead stocks is avoided.”
Geoff Taylor, Timbmet’s sales director East Region, sees both a challenge and an opportunity. “The opportunity is to identify those market sectors which are showing both stability and growth. The challenge is then to maximise sales as well as the value generated from those sales.”
According to Richard Curtis, Timbmet merchant support team, “working against smaller margins as competition continues to drive prices down poses a major challenge. At the same time, the emergence of new or unique products such as Red Grandis offers new opportunities to boost sales and profits by further expanding the timber sector.”
Tony Miles, managing director of International Timber thinks that credit is the biggest issue. “In the past, many businesses have given customers large limits that in some cases were not realistic. Since the credit crunch this is no longer the way things operate so it’s important that the limits businesses give customers are workable and realistic.
“The other challenge facing distributors is the possibility of shortages of timber. Although I don’t believe this will be a major issue, there is the possibility of pockets of shortages throughout the UK due to high demand in emerging markets such as the Middle East.”
Guy Best, director of sales at Forest Garden adds: “Weather also has a huge impact on demand for our products, as it does for the whole of the garden retail industry. With something so unpredictable, and impossible to control, it remains a constant challenge. However, we work to continu-ally develop our operational infrastructure and supply chain to ensure that our business model is as flexible as it possibly can be. In doing so we are able to quickly and efficiently deal with seasonal peaks and troughs of demand.
“Understanding new market areas is a key challenge,” says Mr Pack, “and there is a learning curve for merchants and suppliers as they listen to the needs of the commercial sector. Often it is not just the cost of products which are specified for use in private commercial developments, but there are also considerations of environmental sourcing, logistical management and also the supplier and merchant’s ability to provide a depth of range, providing choice for customers.
Mr Best adds: “With imported timber prices continuing to rise, it is essential that we continue to develop our commercial proposition. In doing so, we will work to ensure that we can offer cost effective solutions for our customers.
“A simple example of this includes delivering full loads direct into store. The result of which will be reduced handling costs and a reduction in overall haulage costs, as well as ensuring that our customers have full stock levels at critical times.”
“We must act promptly in response to customers’ enquiries,” Mr Leathert stresses, “offering any alternatives we think might better meet a specific customer’s requirement. It is also crucial that we deliver orders accurately and on time. With many merchants operating on just-in-time, or simply placing back-to-back orders, there is no room for error.”
Mr Taylor stresses the importance of “being market-focused, analysing each market sector and targeting profitable growth opportunities in localised geographical areas.”
“The size and nature of the merchant will affect the role they have and what they can offer the supply chain and, more importantly, their customers,” says Mr Miles.
“If the merchant is more of a generalist then they have a lot of product knowledge spread across a wide range of areas, while specialist timber merchant has a more in-depth understanding and knowledge of timber as this is what they deal with every day.
“Both have an important part to play in the future and one of the main aims for merchants is providing customers with added value by being able to advise on key issues and changes that will impact on the end- user. By being able to advise and guide customers, merchants offer a more complete service and I think this is vital, especially with new regulations coming into play in the next couple of years.
Increasingly these days, merchants are looking to hold minimal stock,” Mr Leathert observes, “ordering from their suppliers on a just-in-time basis. There is no appetite for speculative buying. We have responded by introducing an online ordering service, iPack, for bulk and mini-packs which is providing immediate ‘top-up’.
Mr Taylor says: “Merchants are looking for the right price/first time, as well as delivery in full and on time. As a result, we have aligned our market strategy to meet these changing demands within the marketplace.”
According to Mr Curtis, “merchants are getting bigger, and with that comes stronger buying power. There are also more guarantees of getting paid when so many companies are experiencing money difficulties. The competition are keener to win their business and reduce margins.”
“Legislation is and will continue to play a larger role in daily business,” says Mr Pack. “Recent times have seen environmental certification dominate the headlines. This will remain, but merchants also need to be aware of legislation both current and impending and what their roles and responsibilities are in terms of its implementation.”
“After a long period of ‘noise’, but with limited business, we are finally seeing signs of increasing demand for FSC products,” says Mr Leathert. “In addition, where certified products are being requested, anything other than FSC is generally considered very much second division.”
“Environmental protection remains a big issue and will likely get bigger within the timber marketplace,” agrees Mr Curtis. “Also significant are the quick-sale, merchant-related products now available which require minimal staff training.”
Says Mr Miles: “All merchants should be aware of the introduction of the EU’s FLEGT (Forest Law Enforcement Governance & Trade) legislation in March 2013, along with the Illegal Timber Regulation. Both of these will shape the industry in the future and it’s important that merchants are up to speed with them and what they need to do to ensure they are working in a way that aligns them to these new regulations.
“FLEGT will make it a criminal offence to place illegal timber on the EU market. This is a good starting point which will help protect and promote the reputation of timber as a sustainable material but it’s important that all elements of the supply chain are aware of what is expected of them.
“Suppliers have to play a crucial role to play in adding value to the merchant’s business," says Mr Pack. "A supplier that operates at a local level with key account managers geared to follow the market will be able to collaborate with merchant branch managers and staff to support a sales and marketing campaign towards any emerging market areas.
“Supporting this, literature and online marketing ensures that interest in new products can be generated. A website that provides a portal of information for potential customers can work really hard – providing e-brochures for download, technical data and even virtual tours of product. Once a customer has established their interest, an online stockist list enables them to search for the nearest merchant branch in order to pay a visit.
“Having driven footfall into the branch the supplier’s support should not end here. Point-of-sale material that further drives interest and inspire questions for sales staff. Staff who are well trained on the product features, benefits and even technical and environ-mental details will be able to advise customers and add value to the purchasing experience. A supplier who can provide free training will ensure that merchant sales staff are confident in the products they are selling, too.
“Drawing from the supplier’s expertise in its own market sector is an important tactic for the merchant. By working together suppliers and merchants can maximise interest in new products, drive footfall into the branch and create the opportunity for more sales as a result.”
Says Mr Miles: “The best thing suppliers can do is show due diligence within all their processes and make sure they provide the right paperwork to merchants. If all parts of the supply chain do their part and request copies of the timber’s Chain of Custody and origin then the process is simple and protects timber for future generations.”
“Suppliers are in a position where they can offer retailers a wide range of tools to help educate and inspire their customers, says Mr Best. “At Forest Garden we offer our customers a wide range of displays, point-of-sale and informative ‘how to’ resources for use both in-store and online. In doing so, the consumer is able to easily identify the products, source linked-sales opportunities and obtain useful information on how to maximise their garden space with each product, while enabling the retailer the time and facility to help better educate consumers.
Mr Leathert adds: “Suppliers can keep merchants abreast of product availability and any anticipated forward price movements.”
And last, but by no means least, Mr Curtis concludes: “Suppliers can provide help in solving issues, offering alternative options, and generally working more closely with the merchant’s staff.”
This article first appeared in the Timber Trading supplement of the September 2011 edition of Builders' Merchants News.