What is Normal besides Boring, Anyway? Market Trend Report
By: Alicia Powell, Sales Manager – Medford Plywood, Timber Products Company
What goes up must come down. I know Sir Isaac Newton was on to something when he penned this phrase. Without a doubt, throughout my life, it has held true. In all of my years trading commodities – both lumber and plywood – there have been times I was happy I busted out some extra pages of my purchase order book, and there have been times there was not enough whiskey to wash away the pain.
Wood markets along with every other kind of market (why can’t I find cream cheese??) these last two years have been exceedingly volatile, often finding rest after a fall at a somewhat higher number than where they had landed previously. Rightfully, buyers are concerned. “This isn’t how it’s always been!”
My Magic 8-Ball seems to be on the blink, as the only answer it is able to produce is “cannot predict now.” Without this talisman to point me in the right direction, I am forced to make assessments based on what I know about the last couple of years, the information I am getting from my suppliers and customers, and my gut. What I am garnering from these sources is – do not get complacent; things are not going back to “normal.”
The Facts
The Labor Market Remains Constricted
Despite the end to the legislation surrounding the Covid-19 pandemic, there are still more than 3 million fewer full time workers in the United States than there were in 2019 and the number of unemployed individuals looking for full-time work has dropped from 10.2 million to 7.25 million from the end of 2020 to the end of 2021. Employers, especially manufacturers and those looking for skilled labor, are facing dire circumstances as they attempt to staff their mills and many are forced to take down time due to staffing levels – increasing costs and reducing supply. The labor issues go clear back to the log.
Face and Back Veneers
Two years ago, when a hardwood plywood manufacturer purchased face and back veneers, orders predominantly came from the floor stock of their suppliers. Today, sliced veneers are being purchased in March for June production. Floor stock purchases of these veneers from suppliers is no longer an option, and in many cases, these purchase orders are being placed with a hope and prayer of the proper grade yield.
Core Availability
The last few years have been fraught with core availability issues – MDF, particleboard, veneer market volatility and grade yield – if you can name it, it has been an issue. As supply and demand ebbed and flowed, the tightness of these markets remained fairly consistent (and frustrating). As the end of the first quarter of 2022 nears, these issues have not alleviated, and every time things start to feel a little easier, someone drops a toaster in the bathwater and turns things up to 11.
Imports are Spotty and Container Rates are Increasing
A large number of imports hit our shores in January; many of these commodities were on purchase orders dating back as far as October. This is giving a false sense of security to commodity buyers of imported wood. The sanctions on Russian products will reduce hardwood plywood imports by an estimated 250Million 3/8 square feet in North America. Further, 30% of the world’s European oak veneer came from Ukraine. Just to keep things interesting, the International Certification Bodies (PEFC and then FSC) developed a new buzz phrase: “conflict wood.” Purchasers of imported commodities will be required to show that no portion of their imported products were sourced from Russia or Belarus. Given how much Birch was originating from these areas and going to parts of Asia, this has a much farther-reaching impact than originally anticipated.
In addition to the new red tape developing on imports, container rates are increasing to record highs, with some increases registering 120%, leaving break bulk and sub-optimal payment terms as the most logical option for many importers. Cash carrying costs of inventory are beginning much earlier in the purchase cycle, and with rising interest rates and inflation, there is an increased risk for buyers.
Trucking & Transportation Services
If fuel prices were an elephant in the room, it would be wearing a rainbow tutu, a feather boa, and singing out of key. The composite diesel fuel rate is $1.61 per gallon more than it was 2 years ago, $0.88 higher than the average last year, and seemingly has no ceiling. Many customers operating under a fuel surcharge table have had to add rows to the table – as they were not built to see fuel rates go this high. Add the driver shortage, which is an estimated 80,000 people, and you can expect that rates will continue to climb. In the first quarter of 2021, the composite nationwide rate per mile was $4.36, as we close the first quarter of 2022; it is $5.61 – up $1.25. Expect constant rate changes throughout this year.
Warehouse space is also hitting premium rates as warehouses near ports have filled up and lost workers. Warehouses farther inland with the ability to unload containers and transload material have gotten busier, and rates for storage and transload fees have risen as a result. Finding space in these warehouses is getting harder, and many customers are turning to dedicated space arrangements in an effort to maintain their position.
What does this mean to you?
One of the first lessons I learned in wood products manufacturing was from John Edwards, a 40-year veteran in the industry and probably one of the better (and crankier) plywood traders I have met in my career. He said, “You cannot sell from an empty wagon.”
There is no domestic hardwood plywood surge capacity. Fancies and sliced woods are going to get exceedingly more difficult to procure. Do not get complacent on your purchasing or inventory levels. If the past is truly an indicator of the future, fall on the most recent past as your totem. In short, 2022 is setting up to tell 2021 to ‘hold my beer.’
The views or opinions represented herein belong solely to the author and do not represent those of people, institutions, or organizations that the author may or may not be associated with in a professional capacity, unless explicitly stated.