Over the last several years, the U.S. hardwood market has looked increasingly to export markets to pick up the slack left by declines in domestic consumption. What happens in the higher grade markets certainly impacts low grade markets, such as pallets, packaging and crossties. Gains abroad may help to keep some mills afloat that otherwise would have died, which is good news for U.S. low grade hardwood markets.
International lumber expert, Michael Snow, executive director of American Hardwood Export Council (AHEC) recently talked with Pallet Enterprise about the growing global market for American hardwoods and the future of the industry. His comments are sure to interest any pallet or lumber company looking to take advantage of international markets.
Pallet Enterprise: Where do you see the international hardwood market for American hardwoods going in the next five to ten years? Are there some bright spots in demand and are there some places where we’re having a hard time competing internationally?
Snow: I see mostly bright spots internationally. Particularly these last 2-3 years that have been so difficult in the domestic market, but if it wasn’t for some of the real growth we’ve seen in a lot of the markets oversees we’d be looking at a much smaller industry than we have right now. We’re seeing tremendous growth in places like China where we saw 2010 about 60% higher than 2009 and now we’re seeing 2011 about 60% higher than 2010.
What’s been the most exciting part is that most of that wood is now staying in China and being consumed there. I think probably a dozen years ago or so probably 90% of what we shipped into China was just made into furniture and came right back out. Now we’re seeing real consumption and real consumption growth there which is very encouraging because that’s actual new consumption of the wood not just a changing in the geographical location of manufacturing. We’re also seeing places like Vietnam with tremendous growth over the last few years. Even Europe is coming back in a fairly strong way (Italy, the UK and Germany in particular). Probably a little less promising is southern Europe.
Everybody knows what’s going on in Greece, Spain and Portugal, we’ve seen quite a drop-off there and that’s probably not going to change anytime soon. In places like the Middle East we’re seeing tremendous growth in demand. So I see many more bright spots than worry spots as far as international markets are concerned.
Pallet Enterprise: Are there any other areas which are somewhat troublesome or are they the ones that you named that were primarily just economic driven?
Snow: I think it’s economic driven where we are seeing declines in demand. In Spain the housing market there has absolutely collapsed. Four or five years ago Spain was third only to Canada and China.
Now it’s just absolutely fallen off the map. As housing construction and renovation and door manufacturing (which is huge in Spain) has quite simply plummeted. The thing that’s also kept us in a very good position competing internationally has been the weakness of the dollar over the last couple of years, particularly relative to the Euro. So we’ve been in a pretty good position as currency rates go. And that’s probably likely to continue for at least a while.
Pallet Enterprise: Where do you see the certification and sustainability issue going and how does that play into U.S. strengths? What does the U.S. hardwood industry need to do to make sure that it’s promoting not only what it does, but producing certified wood?
Snow: That’s certainly a major issue that we’re facing and we spent an awful lot of time and energy over the last few years getting the message out that certification is a useful tool and a particularly useful tool for somebody who’s specifying or procuring wood from a high risk area. We’ve been very vocal saying that in the U.S. certification is not really a necessary component because we have very strong rule of law. We have very clear land tenure in the United States. We have a lot of things working in our favor and a long history of sustainability and a doubling of our standing hardwood timber over the last 50 years, with almost none of it being certified until very recently.
That being said there are a lot of markets overseas, especially a lot of architects that want to be able to check a box indicating that a large volume of wood they use is properly certified. This is indeed still a problem for the majority of hardwood exporters. It’s not a lack of willingness from sawmills. In fact we see a majority of our members are actually chain of custody certified. The difficult part is getting access to the certified timber. Until the FSC’s of the world find a way to really bring in the small non-industrial landowner, and show him that it’s in his interest to certify, I don’t think we’re going to see large volumes of certified wood coming out of the United States in the near future.
That does create some marketing challenges for us. But it’s a question of reassuring people that with or without a label or paying somebody to tell you that it’s sustainable, we have the data to show that the resource in the United State is in fact expanding and is very sustainable. We’ve been doing everything we can to make sure we get that message out, and we get that data out into as many hands as possible.
Pallet Enterprise: Are there any certification systems that might be a little more appropriate for smaller guys? I think the American Tree Farm System has one, and the SFI that’s run by the American Forest and Paper Association may appeal more to some timber interests…Right?
Snow: I think the systems you mentioned are probably at least in the context of the U.S. equally valid to FSC. But the problem for those systems is international recognition. When it comes to talking with international architects, designers or furniture manufacturers they all know FSC. They don’t really know SFI and Tree Farm even with their mutual recognition with the PEFC system out of Europe. I think it still lags quite a bit behind in market recognition from FSC.
Besides sustainability concerns, one of the bigger issues that we’re facing overseas is the question of legality, which is sort of a different hoop to jump through. The Lacey Act in the United States created for some overseas customers that are re-exporting things back into this country the need to show due diligence. Also, we’re seeing the European Union this year put into place its own illegal timber law, sort of its own version of the Lacey Act. Japan has its version, and Australia has one coming. Suddenly, there’s responsibility placed on the hands of importers with various countries to show that the wood was legally harvested.
A couple of years ago, we sponsored a major study from a group called Seneca Creek to address the legality concern. Seneca Creek previously had conducted a study on the problem of legal logging around the globe for the American Forest and Paper Association that was adopted by the United Nations a few years ago. We had them look at the hardwood forests in the United States and sort of conduct a risk analysis. That report is on our own website at www.americanhardwoodinfo.com.
What’s been very interesting is now even FSC has been referencing that report when doing control wood audits in the United States. So, we’ve been able to point to this report as a way to give importers due diligence on a silver platter. It shows, of course, that there is some illegal harvesting that takes place just as theft happens in every industry in every country of the world, it’s certainly not systemic and it’s an extremely small percentage of any possible wood coming out of the United States. I think the U.S. exporters have gotten a lot of mileage out of that report. It’s enabled them to get wood into places like the European Union and Japan without having to actually go through the process of certification.
Pallet Enterprise: You mentioned the Lacy Act and other measures coming on line, are these starting to have an impact on the illegal timber around the globe?
Snow: I think it’s probably made it a little bit more difficult to trade an illegal timber. But I am pretty skeptical that it’s having any real impact on the ground because so much of the illegal logging takes place in areas where it is not being exported.
I saw a study a few years ago that the percentage of felled trees in the world that actually crosses a national border is something like one tenth of one percent. So trying to regulate trade in wood as a way to change what’s happening on the ground I think is a fallacy.
I think it might make you feel better, but when we look at where deforestation is going on and where the major problems of illegal harvesting occur it’s the Amazon being turned into grazing land for cattle, palm oil plantations going up in Southeast Asia, and now bamboo plantations actually replacing national forests in Southeast Asia.
Pallet Enterprise: Oh, I thought bamboo was good for the environment! (HaHa!)
Snow: Bamboo gets the automatic free-pass because it grows quickly. People want simplicity and unfortunately the green building system LED here in the United States reflects that. It’s not based on science. It’s prescriptive, we’re seeing too often single attributes basically defining products. People think, ‘You know bamboo is rapidly renewable so it’s automatically good. Steel and plastic are recyclable. So it’s good.’ But we need to look at the overall.
I don’t know if you’ve seen anything that we’re doing. We are undertaking the biggest lifecycle assessment for wood products done anywhere in the world. We have the data now for hardwood lumber from the forest to the sawmill from the sawmill to the port and from the port delivered from the United States to several ports overseas. We have all of the preliminary data done, and it’s just been submitted to a peer-review panel that’s being chaired by the King’s College in London. We want to have everything third-party, peer reviewed before we release it. So we’re going to have the initial data on the lumber done and peer reviewed we hope by early to mid September. We’ve already begun the data processing for sliced veneer and our next step is going to be a couple of representative products, such as solid hardwood flooring or window framing.
Our plan is to produce what are called Environmental Product Declarations (EPDs). There’s a new ISO standard that’s coming down the pike on what are called EPDs. We really think this is going to be fantastic news for wood producers in general. The way to look at EPDs is essentially to think of the food labels at the supermarket. Everything is layed out to show portion size, calories, etc. All companies use the same format and provide information to be analyzed. If you pick up two different candy bars, you can actually compare the two of them.
EPDs for building materials and consumer products will be very similar. They are going to take into account embodied energy, the extraction process, basically the entire life cycle inventory information on different products. EPDs are already being used for building products in Europe and will be required in that region by 2016. The U.S. market is actually a little bit behind the ball on this. We want to have ISO-prepared EPDs for American hardwoods and American hardwood products by late 2012. We really feel that this is going to put a lot of pressure on LED and the Steel Frame Institute and the others that are making some egregious environmental claims compared to wood.
We’re putting it out there, we’re setting the bar. You come back and show us your embodied energy, the extraction, the water use, the pollution created in the manufacturing process – wood scores well when analyzed from this holistic perspective. We think it’s fantastic news for both U.S. exporters and domestic producers of wood and wood products.
Pallet Enterprise: What impact do you see the growth internationally of hardwood markets having on the domestic hardwood industry? What ripple effects could the international hardwood market have on the low-grade market in this country?
Snow: I think international demand is the key to maintaining and driving production back up to levels where it was ten years ago. Right now about 40% of the graded lumber is exported. Ten or fifteen years ago that number was close to 15%. We think that that percentage is going to be well over 50% within the next five years.
When you look at the international markets that’s where you are seeing growth in the number of potential wood consumers. In places like China there are literally hundreds of millions of people coming out of poverty into middle class lifestyles. Places like India or Brazil, I think a lot of the increased consumption is going to be happening overseas.
American hardwoods are very well placed to meet that need. I thought it was very interesting to see this year’s U.N. Timber Committee Market Report. Their main finding on the United States is that we may actually be under utilizing our forest resources.
Pallet Enterprise: What is one major misconception about the global marketplace for wood and wood products?
Snow: I think we tend to look too often at globalization just from the manufacturing end where globalization is a huge threat to U.S. manufacturing. We forget that there’s a lot of global consumption now where foreign markets show promise for increased demand for U.S. products. I think the companies that look at that from an opportunity perspective rather than a defensive threat perspective are going to be in a much better position to take advantage of these trends.
And the other big message that we must get out is that we’ve finally turned a corner on the whole environmental issue. I think the more that the spotlight is shined on environmental issues, the better it will be for U.S. hardwoods. It should have always been better news for us but somehow we ended up playing defense. I think we’re finally in a position where we’re ready to go on the offense. And that’s going to be a major driver for demand both domestically and internationally in the years to come.
