APP Timber Web Log 

“A recent study by PROFOREST (on behalf of the European Timber Trade Federation) confirms that PEFC’s system will support to demonstrate full compliance with applicable legislation as required by the EUTR by March 2013” according to Mr. Ben Gunneberg, PEFC Secretary General. One would expect that the EUTR will acknowledge the above and allow any PEFC products to comply automatically and, in that matter of fact, also FSC certified products by regretfully that is not the case.

The EUTR is a part of European Legislation but none of the EU members will be involved in auditing of any existing (voluntary) 3rd party certification systems. The EU Timber Regulation says that these systems “can be used as a tool in the risk assessment and risk mitigation process” however these systems “are not an evidence of legality and do not absolve operators from the obligation to collect all the information and assess all risk mitigation factors as required by the EUTR”. So only FLEGT licensed timber (originating from a country that signed the VPA with the EU) will be accepted as proof of legality.

Seems to me the EU is trying to re-invent the wheel by creating a completely new system (FLEGT) and disregarding well established programs such as PEFC and FSC. I fully support the new legislation to stop the trade of illegal timber but at the same wonder why the EU cannot make use of the existing (well proven) programs.

A recent report by PwC (PricewaterhouseCoopers) on the “Emerging Trends in Real Estate Asia Pacific 2013” shows that Jakarta is on top of the list (11th in 2012) and cities like Bangkok (6th) and Kuala Lumpur (5th) have rising from respectively 14th and 17th position in 2012. The report says that Jakarta is favourite due to “its strong gross domestic product, controllable interest and inflation rates”. One of the reasons Kuala Lumpur is doing well is due to “the rising consumer demand which is expected to draw a significant number of retail chains in the near term, helping to boost rents across the retail sector”. And for Thailand it is mainly due to the continuous growth in the tourism and hospitality sectors. It is also worth noting that Singapore is still at a respectable 3rd position (being 1st in 2012).
A few years ago we (APP Timber) decided to develop our domestic sales promoting imported timber solutions for the local building industry, mainly using treated softwoods. We encountered lots of resistance from architects, developers and contractors but lately have seen a more positive attitude towards the use of imported timber in the domestic private and commercial building sectors. Seems the above growth in SE Asian cities will increase the demand for imported timber products after all.

The MD of a Malaysian furniture company (I will not mention the name) mentioned last week that “local furniture exporters are expected to face a temporary setback in the demand from the USA”. He claimed that “the drop in sales was largely due to Hurricane Sandy which devastated New York City”. He did mention he anticipated business to improve in six months to a year. I fully agree that this disaster does affect business but I not think that this affect any medium to large sized SE Asian manufacturers since they normally sell to US distributors not just selling in New York but across the whole country. As such it does not come as a surprise to me that the above company posted a net loss this year and maybe had to come up with some story to justify this loss.
Asian companies tend to rely too much on distribution chains selling their products rather than spending money on proper market research and finding a more balanced network to sell their products.

Is this the same HSBC who forced SE Asian timber related companies to be FSC certified as a guarantee not to be involved in illegal timber business? Seems to me that “the pot is calling the kettle black”! Personally I believe that HSBC’s initiative supporting to reduce illegal logging is commendable however they crossed the line by not just endorsing but ENFORCING ONLY FSC certification rather than leaving it up to their customers to choose from a wider range of well-respected certification schemes such as PEFC for example. One thing is for sure; our company prefers not to deal with banks such as HSBC being actively involved in illegal business but how can we know this? Would it not be good if there was a FSC certification for banks too? I do hope that FSC withdraws their support for HSBC (if any).

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Last week I received a link to a recent article on the EIA’s website. Some of you might not know the EIA (Environmental Investigation Agency) but they are like the “FBI of the timber business” who investigate various illegal practises not just involving the illegal timber trade but also any other kind of environmental crime. EIA’s past reports related to Indonesia (for example the illegal trade of merbau) has helped Indonesia a lot in cleaning up their forestry practises but, if this new report is correct, there are still a lot of work to be done. You can read more at the below link and judge for yourself.

I have just returned from Jakarta and was shocked to hear from various customers that it seems unavoidable that the minimum wage in Jakarta will increase from IDR1.5million to IDR2.1million (USD230) per month or a whopping 44%. The strange fact (yet typical for Indonesia) is that this is not a government imposed “across the country” increase but each province or even regency can determine the level of increase. Such policy seems to be directly related to politics whereby local officials use this to buy votes. Beside this, I have really no idea how our industry can afford such increase at a time where business has already been reduced to cut-throat levels. One thing is very clear in Indonesia; the government is very weak in protecting business owners and only seems to favor a small group of organizers who continuously terrorize industrial areas forcing workers to join the demonstrations. This was very obvious early last week in Medan where factories were forced to allow workers to join and some of the (ethnic Chinese) owners left for “urgent business” to Singapore as they were unsure if such demonstrations would become violent like back in 1998.

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EU Timber Regulation

November 30th, 2012 | (0 Comments)

A recent article in the online version of the Dutch magazine “Houtwereld” (World of Wood) mentioned that some Finnish timber suppliers are worried that there will be reduced timber consumption in Europe due to the soon to be implemented EUTR. They argued that the EUTR regulations might encourage, especially smaller timber consumers, to look at other non-wood materials to replace timber.

Personally, I do not share this view and we certainly do not encounter any similar sentiment in Asia. What we do see is the strong increased demand for imported (and local) certified timber to comply with the EUTR, which is very much in line with the original purpose of the EUTR to stop the sales of illegally harvested timber into the European markets.  Unfortunately the EUTR is still unable to endorse any well-known independent 3rd party certification programs such as FSC, PEFC, OLB, SFI and TFT (just to name a few). Such endorsement (without favouring any specific program) would certainly help to avoid all current confusion about which timber is legal and which is not.

Last week there were several workers’ demonstrations across Indonesia (Bogor, Semarang and Surabaya) related to wages. In Bogor workers are demanding that the minimum monthly wage is increased from the current IDR1.2million (USD124) to IDR3.2million (USD330) which is a 266% increase! It is likely that the Indonesia government will approve a drastic increase in the next few months.

The Thai government has passed last year a resolution that the minimum daily wage is to be increased to THB300 which, based on 24 working days, results in THB7,200 (USD234) per month.  It has been implemented in some provinces but not yet across the whole of Thailand which is due to be implemented per January 1, 2013. The current minimum daily wage is in most provinces THB220 so this means an increase of 36%.

Our timber manufacturing industry is already in big trouble due to other rising costs, shortage of workers (in China, Malaysia and Thailand) and, recently, much lower export demands so I really wonder how any Asian manufacturer is going to survive these increased labor costs . The profit margins are simply too low (if any at all) and the export demand is not going to pick up soon so exporters will be unable to raise prices.

I guess everybody is waiting till a big part of our industry disappears and there will be a better balance between supply and demand.

An empty MTC stand

Whilst writing this blog my colleagues are at our stand at the “Global” Woodmart exhibition here in Kuala Lumpur and you might be wondering why I am not at the stand attending? The simple reason is; there are not customers visiting!

The MTC has done their utmost to promote this event in Malaysian and globally but the simple fact is that they failed to bring in any decent number of visitors. And what is worse is that the majority of members of local trade organizations like TEAM (Timber Exporters’ Associating in Malaysia), MWIA (Malaysian Wood Industries Association), MWMC (Malaysian Wood Moulding Council) etc.  TEAM does have a small stand but out the 400 members only a few have taking space at the MTC GWM. One would think that all TEAM members would value the efforts by MTC to make this exhibition a success.

The MTC failed to convince fellow Malaysians to even visit this exhibition and there were hardly any visitors from Asean. The majority of visitors were participating suppliers (not easy to sell our timber to them….) and overseas buyers who are already buying products in Asia.

I do appreciate all the hard work done by the MTC but it is obvious that they are not the right party to organize exhibitions. My advice to the MTC was and remains; invite the organizers of The Carrefour du Bois in France to come to Asia and hold a similar show in Malaysia. I can guarantee you that if that happens we will have real GLOBAL Woodmart.

Last week I attended the NHLA Convention in Chicago, USA and one session was related to discuss the current NHLA grading rules. The question was raised if any part of the current rules should be updated. First of all I compliment the NHLA of pursuing such matter but at the same time was very disappointed that from the 800 convention attendees only 25 were present and, worse, none of the executive members of the NHLA in charge of the rules’ chances were present. Secondly I do think that part of the grading rules should be amended; these days almost all mills will grade FAS only on the best face so the lumber is actually “FAS/1F and better” also known as “Face and Better” (in short FAB). Yet many exporters still write “FAS” on their export documents which is in contradiction to the NHLA rules. If one sells “FAS” it has to be FAS and all lumber has to be graded on the worst face so all boards will be truly FAS on both(!) faces. We often purchase FAS lumber but know it is not correct and our sales contracts to our customers will show FAS/1F but I would prefer to call it “FAB” which is the best term. Regretfully none of the American NHLA members made any comments on my proposal except for one British member who fully supported my comments. So it is very unlikely any such change will happen.