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Transcript of Globalization_and_Hardwood_Marke ts_WERC_June 2 2008 Globalization and Hardwood Markets - - The...
Globalization_and_Hardwood_Markets_WERC_June 2 2008
Globalization and Hardwood Markets - - The Future Offers Opportunities and Challenges
Northeast Utilization & Marketing CouncilAnnual Meeting & Training Session
WERC – Princeton, WVBlacksburg, VA
June 2, 2008
Al Schuler - USDA Forest Service, WVUrs Buehlmann - VT( [email protected] )
We are evolving toward a single world marketFor labor, capital, goods, and services – why – communication and transportation technologies Have lowered the cost of moving information, goods,and services across distance
Significance: Distance is less of an obstacleto competing – e.g., promotes outsourcing and other competitive strategies that were not previouslyFeasible
Your dilemma – figure out a good competitive strategy– vertical integration; cluster strategy; consolidation/cost cutting; strategic alliances,and fragmented companies and value chains (outsourcing,in sourcing, etc.) – your strategy should be based onYour comparative advantage – what you do better than anyone else
One of the flatteners - Transportation Economics
In 1956, it cost $5.86/ton to load and unload a cargo ship by hand – today, using containers, it cost 16 cents/ton
Railroads can move a ton of freight 423 milesOn a single gallon of gas
Multi Modal Transportation
Some Global Trends Facing U.S. Forest Products Industry
• Competition – U.S. is losing market share in many commodity markets
• Fiber & Forestry - structural changes in world log and fiber markets: (1) Demand for U.S. fiber is changing from pulp & paper to
composite/engineered wood products & biofules?? (2) plantations are growing source of industrial roundwood(3) industry forest ownership is being transferred to TIMOS/REITS & others; (4) Russia, the world’s largest log trader, is increasing log export taxes to encourage domestic production & discourage illegal
logging. • Economic activity - Center of Economic activity shifting to Asia
(1) Healthy Forest Products Industry Requires Viable Markets (2) Healthy Forests (Sustainability) Require “Management”(3) “Management” ( road building ( for logging & fire mgt. ), silvicultural, treatments, health/disease/herbicides, and deer management is expensive - “ Stewardship comes at a price”
Bottom Line – Landowners need strong log markets asincentives to actively manage their forests – log marketsare usually driven by product markets
Key to Healthy Forest Products Industry and healthy forestsis viable markets – globalization is making itTougher to find and hold onto viable markets
SAF has identified "global competitiveness"as one of the top five threats to forest sustainability
Key Tenets or Beliefs
Some Stats on the U.S. Hardwood IndustrySolid Wood Products
2006 data* - domestic shipments
• Hardwood Lumber ( 3211131) - $5.28 Billion • H. Veneer/plywood - $3.00 Billion• H. Flooring - $2.25 Billion• Wood Kitchen cabinets & counter tops (337110) - $19.40 billion• Wood furniture ( upholstered, non upholstered, and wood office
furniture) - $20.53 billion
Hardwood Industry is Substantial!!!!
Source: *U.S. Census, ASM
I. Competition – U.S. losing Market Share inMany Forest Product Markets
0%
10%
20%
30%
40%
50%
60%
Kitchen cabinets Upholstered Wood Office
HH Furniture Molding(hwd + soft) Hardwood Flooring*These market shares are conservative because some imported components and finished furniture is included in the domestic shipments
Consumption = shipments + imports – exports. Import share = imports/consumption
Source: Census, ASM; ITA (www.ita.doc.gov)
U.S. Import Market Shares
Secondary Industry - Hardwood market trends – Why alternatives to traditional markets are critical
$0
$2
$4
$6
$8
$10
$12
Bill
ions
of d
olla
rs
Exports Imports Trade Deficit
•Wood household furniture, non-upholstered – NAICS 337122 Source: U.S. International Trade Association
Wood Household Furniture Trade Deficit2007
Imports $10.6 billion
Exports 1.0 billion
Deficit $ 9.6 billion
$0
$2
$4
$6
$8
$10
$12
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Mexico
Indonesia
Viet Nam
Canada
Malaysia
Taiwan
CHINA
Total
Wood Household Furniture Imports (Billion US$)
Sources: U.S. Commerce, Bur. Census, Intl. Trade Adm., Wash., DC
$10.6 billion
500
550
600
650
700
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Furniture & Related Wood Products
Employment Trends
Source: BLShttp://data.bls.gov/cgi-bin/srgate
Thousand
Furniture includes kitchen cabinetsand all types of furniture – NAICS 337
Wood products (hwd & sft) includes lumber,veneer, millwork, windows & doors, containers& pallets, & mobile homes - NAICS 321
U.S. Employment TrendsDecline of Manufacturing Employment
0
20
40
60
80
100
120
0%
10%
20%
30%
Manufacturing share Construction Manufacturing Services
Sector Employment ( million) MFG Share
Source: BLS - http://data.bls.gov/cgi-bin/srgate
1960 MFG share 30%
2007 MFG share 10%
New LacquerCraft Furniture Factory near Shanghai, China
12,000 employees
Every month:
Import over 1,000 containers of US lumber & veneer
Export over 4,000 containers of bedroom furniture back to U.S.
Universal & Legacy Classic brands sold directly to retailers
Also produce for U.S. furniture companies in Dongguan plant
U.S. Hardwood Flooring ImportsHousing’s Impact is Huge
$0
$100
$200
$300
$400
$500
World Imports Imports from China
Customs value (million $)
Source: USDA, FAS
2007
Imports $143 million
Exports 92 million
Deficit $ 51 million
U.S. Housing Decline
U.S. Hardwood Molding Imports
$0
$100
$200
$300
$400
$500
2000 2001 2002 2003 2004 2005 2006 2007
Imports North America Imports East asia
Exports Total Imports
Million $
Source: USDA FAS
Imports $395 million
Exports 24 million
Deficit $371 million
U.S. Hardwood Lumber Consumption Trends See feature article FPJ May 2008
0
1
2
3
4
5
1963 1967 1972 1977 1982 1987 1992 1997 2002
Furniture Construction & Remodeling*
Industrial Exports
BBF
Source: Bill Luppold, USDA FS
* flooring, millwork, trusses, cabinets, & fabricated wood members
Residential markets are now 2.5 times the sizeof furniture markets
U.S. Graded Hardwood Lumber Consumption Trends (BBF)
0
0.5
1
1.5
2
2.5
Furniture Flooring Millwork K Cabinets Exports K Cabinets Flooring Exports Millwork Furniture
1962 2005
Source: Bill Luppold, USDA
Total : 4.60 BBF Total: 6.6 BBF
Total consumption up 2 BBF between 1962 and 2005 - - 44%But dramatic changes in where the lumber is consumed
Changes in U.S. Graded Hardwood Lumber Consumption Trends over the past four decades ( 1962 – 2005 )
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
Furniture Flooring Millwork KitchenCabinets
Export
BBF
Forest Products* Trade
$0
$50
$100
$150
$200
$250
0%
2%
4%
6%
8%
10%
12%
14%
16%
World tradeU.S. share
World Export Trade (Billion US$)
* Round wood, fuel wood, sawn wood, wood based panels, pulp and paperboard
Source: FAOSTAT (http://faostat.fao.org/DesktopDefault.aspx?PageID=381&lang=en
U.S. Share
World trade increasing while U.S. share drops
-$18
-$16
-$14
-$12
-$10
-$8
-$6
-$4
-$2
$0 19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
U.S. Forest Products Trade Imbalance
Imports $31.5 billion
Exports 18.5 billion
Deficit $13.0 billion
Billion $
2006
U.S. Imports of Timber Products* as a percent of Consumption and Exports as a percent of Production
0%
5%
10%
15%
20%
25%
30%
35%
1965 1971 1977 1983 1986 1992 1998 2004
Imports Exports
Source; USDA, Interim Update of 2000 RPAAssessment, FS – 874, April 2007
U.S. is losing the trade battle
*Primary products – lumber, roundwood,But excluding furniture
The U.S. Trade Dilemma…
We are exporting raw materials and importing finished goods…The U.S. is a major exporter of hardwood lumber and logs…And we are the major importer of finished hardwoodproducts like furniture, flooring, molding & millwork …
This needs to change if the U.S. secondary hardwood processing industry is to survive – think about it - what happens to the primary industry if the secondary industry keeps shrinking???? Exports can’t take up all of the slack because the U.S. has lots of competition in international log and lumber markets
II. Fiber & Forestry Issues
• Demand for fiber is changing – from pulp & paper to engineered wood products
• Plantation acreage increasing - Lots of wood becoming available world wide - With more EWPs, fiber requirements are less quality based and more quantity based
• Bioenergy – opportunity for low grade hardwood fiber??• Timberland ownership changes – impact on future log supply
and sustainable forestry????• Russian log export duty to increase dramatically by 2009
U.S. Industrial Hardwood Roundwood* Usage
0
0.5
1
1.5
2
2.5
3
3.5
1990 1995 2000 2004
Hardwood Pulp Industry Hardwood Lumber OSB
Billion cubic feet
Sources: Forest Resources Assoc., APA, USDA Forest Service
* Pulp industry totals exclude residue chips, but include whole tree chips
Future - Biomass power& Biofuels????
Source: FAO – State of Word’s Forests - 2007
Plantations contribution to global industrial* woodProduction Is approaching 50% according to FAO
* Excludes firewood
Source: Klabin
Fiber grows faster outside North America
U.S. Timberland Ownership by Integrated* Companies
Company 2000 2002 2004 2006 2007p
LP 945 945
Boise Cascade 2,340 2,340 2,240
Bowater 1,800 490 370 250
MeadWestvaco 3,400 3,140 2,150 1,118 <1000??
Temple-Inland 2,200 2,200 2,050 1,990 0
IP 12,025 9,185 6,800 600 200
Potlatch 1,545 1,150 1,455 1,460 1,500
Rayonier 2,100 2,050 2,030 2,180 2,400
Weyerhaeuser 5,700 7,300 6,400 5,640 5,640
GP’sTimber Co.* 4,000
Total 36,055 28,800 23,495 13,238 ~10,000* I included GP’s Timber Co. as an integrated Co. ( A. Schuler – USDA)
Source: RISI
(000 acres)
Structural change in international log markets
(1) Russia is world’s largest exporter ( volume basis) of both hardwood and softwood logs (2) Softwood tax increases from 6.5% today to 80% by Jan 2009 (3) Hardwood sawlogs (Oak, Beech, Ash) tax increases from 20% today to 40% by Jan 2009
0%
10%
20%
30%
40%
China India Finland Sweden0%
5%
10%
15%
20%
25%
30%
Russia U.S. Malaysia France
Temperate Hardwood LogsWorld Share (Value) of top importersand exporters - - $4.54 Billion - 2006
Importers Exporters
Source: Global Trade Atlas
U.S. Hardwood Log Exports
$0
$200
$400
$600
$800
$1,000
2002 2003 2004 2005 2006 2007
World China Canada European Union
Million $
Export trends for 2007
World + 30%Europe + 72%China + 35%
U.S. Hardwood Lumber Exports
$0.0
$0.4
$0.8
$1.2
$1.6
$2.0
2002 2003 2004 2005 2006 2007
World Canada European Union China
Billion $
World exports drop 12% in 2007
U.S. Hardwood Lumber and Log Exports to China : a Comparison
$0
$50
$100
$150
$200
$250
$300
2002 2003 2004 2005 2006 2007
Logs Lumber
Million $
Source: FAS
Log exports increase 35% in 2007 Lumber exports decrease 19% in 2007
Recent China World Import TrendsHardwood Log Imports up 32%
Lumber Imports Flat
$0
$500
$1,000
$1,500
$2,000
$2,500
2006 2007
Logs Lumber
Source; GTA
$1.64 billion
$1.03 billion
$1.03 billion
$2.17 billion
III. Economic Activity Shifting to Asia – creates export opportunitiesfor U.S. Hardwood industry
(if we’re competitive)
How will Changing Global Economy Impact Wood Products Industry?
0%
10%
20%
30%
40%
2004 2025 2050
U.S. EU Japan China India
Percentage of World GDP
Source: Business Week August 22, 2005
China and India’s economy could rival U.S.in less than 20 years??
GDP at Market Exchange Rates and PPP Billion US$
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
2000 2001 2002 2003 2004 2005 2006
China India USA
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
China India USA
Source: IMF
PPP* Market Exchange Rate
PPP – exchange rates adjusted to equalize cost of goods in different countries
Per Capita Wood Consumption
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
China World OECD USA
Source: China Timber Import Export Co/Hardwoodmarkets.com 2003Source: China Timber Import Export Co/Hardwoodmarkets.com 2003
cubic meters per capitacubic meters per capita
Lots of potential to export more wood products to ChinaAffluent population today ~13 million ~$40,000 income (PPP)By 2011, lower middle class ~ 290 million people with income ~ $16,000By 2025, upper middle class ~ 520 million people ~ $25,000
China and US Consumption of Wood Products – What will China’s Share be in the Future and where will it come
from?
0%
5%
10%
15%
20%
25%
30%
35%
China U.S.
Roundwood Sawnwood Wood based panels
Pulp Paper & Paperboard
World Consumption Share
Source: FAO
China’s Hunger for Raw Materials
0%
10%
20%
30%
40%
50%
60%
China’s Share of global consumption (2006)
Source: FAOSTAT
China’s business model – import raw materials and re-export finished goods
IV. Opportunity – Domestic Construction Markets
Residential Construction Markets ( new and remodeling) areCritical for the Softwood Industry - - primarily structuralApplications as 75% of softwood lumber and OSB/plywoodconsumed there
Construction markets ( new and remodeling markets in bothresidential and commercial buildings)are becoming increasingly important to the hardwood industry – examples include decorative/interior (non structural)applications such as flooring, cabinetry, interior trim,moldings, millwork, staircases, and closets
Residential Construction – not much improvement until 2010?
0
0.5
1
1.5
2
Mil
lio
n U
nit
s
Multi family
Forecast – NAHB May 2008
60% drop2005 - 2008
Problems: New Homes - High Inventories, tighter lending standards, Higher mortgage rates, and weak job growth
Existing homes – Same as above plus falling prices and rising foreclosures
Solution - Better demand / supply balance - - address foreclosure problem, & better demand from lower prices
Market size - New Construction vs RemodelingRemodeling becoming increasingly important & is
the key market for hardwood components
191220
280
338
402
230
300
424 418
453
$100
$200
$300
$400
$500
1995 2000 2005 2010 2015
Remodeling New constrcution
45%
42%
40%
45%
47%
36%
38%
40%
42%
44%
46%
48%
1995 2000 2005 2010 2015
Billions 2005 dollars
Source: Harvard JCHS 2007
Remodeling share of residential investment
Hardwood Lumber Consumption Trends
0
1
2
3
4
5
1963 1967 1972 1977 1982 1987 1992 1997 2002
Furniture Construction & Remodeling*
Industrial Exports
BBF
Source: Bill Luppold, USDA FS
* flooring, millwork, trusses, cabinets, & fabricated wood members
Residential markets are now 2.5 times the sizeof furniture markets
Changing Hardwood Component Markets
1984 2008
Furniture 65% 22%Cabinetry 16% 27%
Building Products* 10% 42%Decorative/Specialty 4% 7%Industrial Products 5% 3%
Source: 2008 WCMA Market Study
* residential and commercial, both new construction and remodeling
Components in building materialsinterior trim, moldings, stair parts, flooring blanks
Source: WCMA
Components in cabinetrycabinet doors, and parts
Source: WCMA
Components inin furniture parts
Source: WCMA
V . Opportunity – adding value, customization, market focus
• U.S. is a “high wage” country and Globalization is making it increasingly difficult to make money selling only product –
have to add value via customization, services, installation – goal is happy (and profitable) customers
• Many wood product industries are “production oriented” – we produce what is right for the plant – domestic auto industry is perfect example of what can go wrong when you forget the customer
•Future for hardwood industry is adding value/customization? – Porter’s Centers of Excellence – e.g., Amish Furniture Industry
Strategies for Success in High-Wage Economies ( there is no “silver bullet”)
Produce innovative, customized products Focus on product design, finishing, marketing & distribution
– “the entire supply chain” Automate production to reduce labor Focus on cost reduction Adopt new technologies & lean manufacturing techniques Invest more in education and R&D – continuous learning and
innovation Attract & hold onto skilled workers Keep your customers and your suppliers happy!!!!!!!!!!!!!!! Add value (products and/or services) by exploiting your
comparative advantage ( what you can do better than anyone else)
Strategic alliances – ex. - Weyco and Chevron with biofuels
Service sector provides bulk of employment in high wage countries – can’t make money selling only product – selling
service means installation & more!!
0%
20%
40%
60%
80%
100%
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
Agriculture Manufacturing Services GDP per Cap
Share of employment by sector (2003)
Source: McKinsey & Co, Emerging Global Labor Market, 2005
$GDP per capita
High end U.S. made furniture sold to Affluent customers in China, India, UAR, &Russia is a growing opportunity – “they want to showcaseTheir new status” – Jerry Epperson, furniture analyst
International sales at Henredon, an AmericanCompany, are now over 8%, up from 5%two years ago
10% of Century Furniture sales, based in Hickory, NC,are now international
Dealing with the Impacts of Global Competition on the Appalachian
Hardwood Industry
A survey(2006) of Appalachian sawmilling industryby the Appalachian Hardwood Manufacture's Associationand USDA Forest Service
Conclusion: Pay more attention to the customer!!!
Actions taken ( to date) to deal with globalization – “be more responsive to customer
needs”
0% 20% 40% 60% 80% 100%
"customer relationships"
find new markets
investing in new eqpt
sorting by length/width
sorting by color
developed new grading criteria
don't do anything
Proportion of Respondents
“Future successful companies will provide value (as seen by customer) in the form of quality product & services focusing on customer needs” - - flexibility is a Key strategy !!!
Future Capital Improvements – where will you spend significant $ in next 3 years
focus on efficiency/cost issues and customer needs
0 10 20 30 40 50 60
lumber sorting
sawing
lumber scanning
scanning/measuringlogs
Percentage of respondents
50% of respondents plan to spendOver $1 million on capital improvementsOver the next 3 years
Ohio’s Amish Furniture Cluster*A Hardwood Success Story
Matt BumgardnerU.S. Forest Service
*See Michael Porter’s homepage (http://www.isc.hbs.edu/ )
Fashion for Computers to Add ValueApple added Fashion long before Dell & HP – see results
belowHigher Margins = more profits
Can Wood Products Industry do Same????
Fashion for Computers to ADD Value – How Can You ( wood products) add Value?
Touch Screen Model for the Kitchen
Leather covered Case Targeted for Women
Designed for Young men – makes an engineSound when you boot up
Hospital Furniture designed to make patientsAnd caregivers more relaxed and comfortable
Bariatric seating is for obese people
Waiting room furniture designed For different patient (and visitor) needs
Friendly Furniture
Furniture hides medical utilities ( equipment,electrical outlets) – “friendly furniture”
Toyota Prius sales pass Ford Explorer in USDetroit Free Press - Jan 2008
Americans bought more Toyota Prius hybrid in 2007 than Ford Explorer sports utility
vehicles, the top-selling SUV for more than a decade.
The Importance of Sound Strategic Planning
Toyota saw higher gasoline prices – Ford & GM had accessTo the same information, but drew the wrong conclusions
What trend, already out there, will impact wood useOver the next decade??? – Green Building - - Certification - - Climate change? – Wood based Biofuels? – How can your business benefit??
Concluding thoughts
• Globalization factors forcing U.S. to “rethink competitive strategies” – “move up food chain” - add value throughout the supply chain – personalized products at commodity prices; after sales services; installation; find new markets; think outside the box!!
• Center of Economic activity moving to Asia – China can be an opportunity if you are competitive
• Skilled workforce becoming critical to remain competitive, but chronic labor shortages presents challenges
• Get closer to key customers – focus on customer needs and not simply “selling what you produce” – be innovative!
• Produce what the customer ( domestic and export) will pay for!!!!!!!!!!• Competitive strategies – no silver bullet – different strokes for different folks
(1) vertical integration; (2) fragmented companies and value chains ; (3) consolidation/cost cutting for the commodity crowd ( 4) strategic alliances – Weyco & Chevron for biofuelsYour strategy should be based on what you can do better than anyone else!!!!!