What goes on across the world may be of
little interest to you. But tiny bugs causing chaos half-way around the
world may require profound changes in the U.S. hardwood lumber market and
the pallet industry. Recent outbreaks of pests have been traced back to
transport packaging, which has led governments around the world to start
cracking down on solid wood packaging including pallets, dunnage and
crates.
The International Plant Protection
Organization (IPPO) has brought the world one step closer to a global
standard for solid wood packaging. The IPPO, a division with the United
Nations, recently settled on a draft standard that would require all solid
wood packaging – both hardwood and softwood – to be heat treated at the
core to 56 degrees Celsius for 30 minutes and be marked indicating the
proper treatment.
The decision has been hailed as a partial
victory for the hardwood lumber industry because the initial draft
standard called for lumber used in wood packaging, such as pallets and
crates, to be kiln dried to less than 20% moisture content. By removing
the 20% moisture content requirement, the treatment time would drop from
weeks to days for cants and days to hours for pallets. Still, the creation
of a heat treatment requirement for lumber used in international packaging
may cause market shifts and changes in cutting practices in the hardwood
lumber market and, at a minimum, minor changes in the pallet industry.
According to the National Hardwood Lumber
Association (NHLA), approximately 4.5 billion board feet of hardwood
lumber is used annually for containers and pallets, which is almost 40% of
all hardwood produced in the U.S. About 72% of all pallets are
manufactured using hardwood lumber, most of which is low-grade material.
The heat treatment requirement would create an opportunity for softwood
lumber to grab more of the pallet market because a significant amount of
softwood pallet lumber is already kiln dried and therefore meets the draft
standard. No one really seems to know how much hardwood lumber is used for
export packaging, which has made it difficult to estimate the potential
market impact of the proposed regulations.
The draft IPPO standard must still go
through a number of steps, including review by each country, before being
adopted. The goal for the approval date is spring 2002, according to Mike
Hicks, the U.S. Department of Agriculture’s trade policy coordinator for
the solid wood packaging issue. Implementation would take place after
formal adoption of the global standard.
Europe’s Emergency Measures
– Get Ready
In addition to the IPPO standard, the
European Union (EU) is imposing emergency measures on coniferous-based
solid wood packaging in order to stop the spread of the pinewood nematode.
The emergency measures in Europe do not cover hardwood lumber. Outbreaks
have become a problem in Portugal, France, Finland and Sweden, forcing
other countries in the Common Market to react. The EU has expressed
intentions to require heat treatment (56/30 standard) for all
coniferous-based solid wood packaging starting Oct. 1, 2001. He went on to
indicate that although the implementation date is Oct. 1, implementation
is expected to be gradual over a 9-12 month period. Strict enforcement is
not expected until October 2002. But this does not mean that the U.S.
industry can ignore the situation. The EU measures indicate that pressure
treating and fumigation may also be allowed in certain circumstances.
Shipments that do not comply may be refused
at the border. More than likely, loads would be transferred to an approved
shipping platform, and the non-compliant packaging would be destroyed, all
at the shipper’s expense.
According to John Mead, a European pallet
industry consultant, requirements limiting the presence of bark, the size
of bore holes and the moisture content of solid wood packaging have been
in place across the globe for many years. Many of these restrictions have
not been enforced. But the pinewood nematode outbreaks have raised
concern, mobilizing the entire region to act. Restrictions may vary from
country to country. For example, Germany has laws restricting the entry of
chemically treated pallets for some years.
Pallets must be marked to indicate proper
treatment; the National Wooden Pallet and Container Association (NWPCA) is
working with other organizations to develop a marking system that can be
used. The tight deadline has everyone involved scrambling to implement a
system. The mark will identify the country origin, the mill, and the
treatment method. Also, it will include some commonly recognized symbol
indicating that the packaging is pest free. "We are probably a year
late to be looking at this," John said at a recent NWPCA meeting.
Both new and repaired pallets are covered by the emergency measures. Any
repairs to pallets must be done with lumber treated according to the
standard. Pallets originating in Canada, China, Japan and the U.S., –
countries where the pinewood nematode has been a problem – are covered
under the emergency measures.
The spread of pests poses a great threat to
plant health worldwide according to experts. For example, the Dutch elm
disease spread to the United Kingdom in 1972, and it wiped out the entire
elm tree population in a 12 year period.
Impact on the Pallet Industry
What does all of this mean for the typical
wood pallet company? Look for the development of two different
classifications of pallets – one for domestic use and one for
international shipments. The international pallet will be made of heat
treated lumber and properly marked according to specifications outlined by
the new rule. Expect these pallets to fetch a premium on the market.
"Interaction with customers will
change because pallet suppliers will need to know what customers plan to
do with pallets," said Bob Peters of the NWPCA. Typically, most
pallet suppliers do not keep tabs on customer use. But the new standard
would require occasional audits for sawmills and paperwork for pallets.
The standard will be overseen by the American Lumber Standards Committee.
Lumber Market Impact
The lumber market may experience a paradigm
shift because much of the softwood lumber is already being treated
according to the standard while most hardwood lumber is not. The initial
draft standard requiring low moisture content would have given softwood
lumber even more of an advantage because it is easier to dry. "The
difference in heat treatment between hardwood and softwood lumber is small
if you are only talking about heat treatment and not drying," said
Dr. Fred Lamb of Virginia Tech’s Department of Wood Science and Forest
Products. Therefore, the market transition from hardwood to softwood may
not be as great as initially predicted if hardwood producers can respond
with treated product. Some alternative materials, such as corrugated,
plastic and engineered wood products, may also increase market share. But
it is still too early to tell how drastic any market changes will be.
Many countries, including the U.S., lack
the kiln capacity to handle the coming demand for treated pallet lumber.
Look for growth in the kiln market to continue. "Kiln capacity is
relatively tight in the hardwood region," said John Fisher, general
manager of Tri-State Lumber. "In the short run, there would be a
significant supply shortage if the proposed regulations go through."
As hardwood mills scramble to add kiln
capacity, how will the market change? Of course, prices will likely rise.
As mills seek to recoup the investment of a new kiln or other treatment
facility, will they change their cutting practices? Will mills want to
dedicate 20% of a new kiln’s time to pallet material or will they look
for ways to find higher grade material out of what they are already
cutting? They will probably not dry cants in the block form because it
takes more time. This might give birth to a secondary market or a shift in
the cut stock market, either by employing cutting practices used on the
West Coast or changing the entire process east of the Rockies. If a
significant portion of the export pallet market shifts to softwood lumber,
what will happen to many small hardwood mills? Although there is not a
huge amount of profit in low-grade material, it can be hard to justify
killing the cow just for filet mignon when there is no market for the
rest. There are no apparent markets for the windfall of low-grade hardwood
lumber if export pallets jump ship. Softwood lumber prices have been in
the tank; the standard might help breathe a bit of life into it. But there
are just too many uncertainties right now to really tell what will shake
out.
Certification may create a problem for some
producers, especially hardwood mills. Currently, the grading/certification
processes for softwoods and hardwoods are vastly different. The softwood
lumber market uses a number of agencies around the country to inspect
mills for the quality of their manufacturing operations. The softwood
industry has significantly more inspectors in the field than the hardwood
industry. NHLA, a national hardwood industry association, employs 20
inspectors, who mainly ensure certified lumber graders are adhering to the
standard. All certified lumber graders must pass a detailed course offered
by NHLA. In the hardwood market, lumber is graded for the quality of the
wood not the manufacturing process as is the case for softwoods. The pest
issue will add inspection fees, inspections, and additional record keeping
activities that will add more to the cost of hardwood than softwood pallet
lumber.
Science of the Matter
The draft regulations do not actually
require the wood to be dried but to be heat treated to the 56/30 standard.
The wood could be heat treated with either a dry kiln or a steam chamber.
According to Dr. Lamb, heat treatment in a steam chamber would likely be
faster and more cost effective because the heat is much hotter than a
traditional dry kiln and there is no drying of the wood. However, steam
chambers, which are used for applications such as bringing out the dark
color in walnut lumber, are not very common in the U.S. Most kilns used in
North America are steam-based and are capable of meeting the heat
treatment standard.
By only requiring heat treatment instead of
actually drying the wood, the standard does not call for the physical
properties of the wood to be drastically changed. One of the major
objections to the original draft language was that drying would cause
quality concerns for assembling wood packaging. The ends of kiln dried
hardwood boards may split, and it can be difficult to drive a nail into
kiln dried hardwood lumber. But even with heat treatment, the process may
affect wood properties. Paul Houghland of the NHLA said that there needs
to be more research to explore the change in wood properties caused by
heat treatment to know the exact impact that regulations would have on
pallet lumber quality. Initially, drying was the favored approach because
it would stop re-infestation. Heating wood kills pests in the lumber but
does not prevent re-infestation.
Implementation of An
International Standard
Lumber manufacturers and pallet suppliers
are trying to gear up for any changes. However, it will take the market
time to add treatment capacity and react. "We have been dealing with
the Chinese restrictions for more than a year, and there are still people
who are doing it wrong. Implementation will take some time," said
Peters of the NWPCA.
Global standardization will eliminate
headaches for shippers. Regulations are not consistent around the world,
and pallet users are having to manage pallets by destination, which is a
problem. Multi-national companies must weigh the cost of using various
pallet specifications on a country-by-country basis versus having one
standard. The pest protection standards create an opportunity for
companies to evaluate packaging on a global scale.
Not every country will be able to comply
with the regulations due to the lack of kiln capacity. Third-world
countries may be allowed to fumigate shipments, according to the draft
IPPO standard. There is a mechanism in the draft standard for importing
and exporting countries to allow other approved treatment methods beyond
heat treatment. However, experts stress that fumigation will become the
exception, not the rule.
Politics and History of
the Pest Issue
The insect infestation issue has been
brewing for several years. The primary culprits are the pinewood nematode
and the Asian long-horned beetle. Several European countries, especially
Sweden, targeted the issue after outbreaks of the pinewood nematode were
detected in pallets shipped from North America. The U.S. joined the party
after an outbreak of the Asian long-horned beetle led to the destruction
of scores of hardwood trees in New York and Chicago neighborhoods. The
U.S. government established regulations restricting shipments from Asia in
an effort to stop spread of the Asian long-horned beetle. Shortly
thereafter, China responded with restrictions on imports using
coniferous-based solid wood packaging from the U.S. and other countries,
citing the need to stop the spread of the pinewood nematode. A barrage of
countries establishing restrictions to stop one pest or another has
created a confusing maze of nearly 220 different international standards.
All of this has led to the effort currently under way by the United
Nations. A global standard for treating solid wood packaging seems
inevitable.
The U.S. remains in a fairly unique
position. Forests in Europe and many of the other industrialized areas of
the world are dominated by softwood species, not hardwoods. The dominance
of hardwood lumber in the U.S. pallet industry will cause challenges as
the standards take effect. Pallet companies should work to get ahead of
their customers by learning about the standards. Look to source material
from accredited suppliers and be prepared for possible wild lumber market
swings. Lumber providers should start to learn about the issue, review
current customer demands including how much of the pallet lumber is used
for export packaging, and evaluate treatment options, include using dry
kilns to meet the coming regulations. The issue will likely become a
concern starting in the spring of next year and become an even more
important issue as the standards take effect across the world in the next
two years. Assign somebody in your company to become the point man on the
pest management issue. If your company supplies pallets or lumber for
export shipments, you will be impacted by these pest standards.
Restrictions on solid wood packaging will require
additional treatment and paperwork for pallet lumber used
for export pallets.
Outbreaks of the Asian long-horned beatle destroyed trees in New York
City and Chicago neighborhoods.
(Photo Courtesy: USDA)
