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Log export crisis: Forestry industry future uncertain as global prices plummet

A dramatic drop in global log prices has impacted on operations in this region and some forestry crews face a lean Christmas until prices lift again and full production hopefully resumes.

Eastland Wood Council (EWC) chief executive Philip Hope said global economic factors could have major repercussions for the forestry industry while a prominent contractor said the industry was facing “a very bleak year-end”.

“Right now the forestry industry is dealing with the impacts of a log export crisis that has seen prices plummet,” Mr Hope said.

“The cost of shipping wood to China has almost trebled since January — the result of Covid, increased fuel prices and so on.

“The slowdown in the China economy extends to the construction industry.

“As we speak, 10 percent of the global shipping fleet is sitting in the water off China waiting to discharge and incurring demurrage costs daily,” Mr Hope said.

(Demurrage is a charge payable to the owner of a chartered ship on failure to load or discharge the ship within the time agreed.)

“Many ports have been shut down due to Covid and the holiday season has added further to delays.

“These factors have resulted in significant increases to inventory costs and a drop in demand for wood.”

Mr Hope said pundits expected the market to recover in the first quarter of 2022. “However, this is little comfort to the forestry industry, which includes everyone in the supply chain. Everyone is facing a very tough time.”

EWC has been in regular contact with member forestry companies and reached out to many contractors and industry stakeholders across Tairāwhiti to help them understand the challenges they face so EWC can help with solutions.

“While member forestry companies are doing all they can to retain contractors, at the present time it is uneconomic to harvest, especially the smaller woodlots.

“We are aware some contractors have received notice to finish harvesting operations, others have been placed on reduced harvest volumes and others have been given notice of an extended break over Christmas.”

In one example, a forestry contracting company with six crews in Tairāwhiti has gone above and beyond what most would do in such difficult times.

“Two crews will stop on December 3, two others have been given notice to stop on December 3, but potentially could go until December 17, and two crews remain, but on 80 percent of their usual production — a month's shutdown for them from December 17 until January 17.”

The business manager for one of the region's biggest forestry contractors told Mr Hope they were facing port storage issues even before the price drop.

“We were still facing issues at Eastland Port with a lack of storage again,” the manager said.

“You'll find lot of crews have huge amounts of stock sitting on skids, and this is money sitting there that the contractor needs.

“After the August lockdown the port cleared the storage and we had a clear run for a few weeks. Then the log grade restrictions started again and lack of shipping hasn't helped either.

“Now, combined with the price drop, we are facing a very bleak year-end. We are worried for our staff.”

Mr Hope said EWC members, forestry contractors and industry stakeholders had faced many challenges, especially over the past six months.

“The resilience of the forestry industry in Tairawhiti relies on the supply chain continuing to move.”

The contracting manager said they were trying everything possible to keep every single person employed and to ride out this slump.

“But we need help from Eastland Wood Council, local and national government and industry leaders to help ease financial pressure.

“Ultimately, forestry contractors don't want to lose staff so if we could have financial help to pay wages while on standdown for instance, then that would be a huge help.”

Mr Hope said the current pressure points for many in the industry included freeing up cashflow to be able to continue paying wages, meeting creditor payments and retaining those key relationships; having to explain to bankers and finance companies the situation; seeking support with fill-gap measures; and the uncertainty the workforce of more than 1000 faced to provide for their whānau.

“The safety and wellbeing of our workforce and their families is our priority.

“For this reason, EWC has made an approach to MP Kiri Allan and Tairāwhiti's regional leaders to inform them of this crisis and the need for a support package.”

Mr Hope said a rough estimate of the number of contractors being impacted on to varying degrees could be around 70 across Tairāwhiti.

“Those contractors employ a large number of workers and have machinery, too, whether it be haulers, diggers, trucks and so on.

“If we can get a support package for our industry, it would certainly help prevent people from going to the wall,” he said.

“Collaboration across the supply chain, together with regional leadership, will help us rebuild resilience and enable the industry collective to respond.”

Forestry Industry Contractors Association chief executive Prue Younger said the trends of export log prices had always been cyclical “but this next hump is one out of the norm”.

“We have never been here before where the China market, sea freight and international pressures of Covid are coming to roost.”

Forestry Roading -
TOUGH TIMES: Trebled costs for log exports to China, a slowdown in the Chinese economy, many Chinese ports shut due to Covid and unloading delays have created a 'crisis' situation for the forestry industry in this region, with lean times predicted for many contractors and workers until the early New Year. File picture

  1. Owen Springford, Southland says:

    In my observation, the fortunes of forest products lead in and lead out of recession.

    The reason: forest products are embedded deep, and to the greater part, unnoticed, in all aspects of the economy.

  2. Mary-Ann de Kort says:

    Sadly many were seduced by the ease of having one market and making more money. We’re even building an expanded Port for goodness sake.
    I’ve long thought we need to resurrect our own timber industry so we’re not so reliant on overseas markets.
    That way we’re also less likely to suffer the follow on effects of timber and building material shortages either.
    I thought a war would cause these ill efforts but it’s a global pandemic instead.

  3. Mike Scaife, Wellington says:

    Meanwhile, NZ mills cannot get enough raw timber for the LOCAL industry as it’s all being exported to China. There is something seriously wrong with the timber industry here in NZ …

  4. Hessel Van Wieren, Christchurch says:

    It is all bizarre. IKEA in Europe can manufacture good products anywhere in world, probably in Asia and then ship products to NZ.
    We and Chile have the best climate for exotic pine forests and an historically experienced forest research industry, yet we are not able to use this advantage to build a finished product industry and be a price maker.
    Then to add insult to injury, we allow the sell-off of large tracts of forests to overseas companies, thereby depriving our tax base and profits leaving our shores.
    This along with a flawed carbon trading market adds to gross distortions in the economy.

  5. Neil Davis says:

    If they saw this coming, which they did, then why on earth are they unloading two massive cranes at the Gisborne wharf?

  6. Malcolm, Auckland says:

    If the price of wood drops overseas why can’t they supply wood to NZ markets as there is supposed to be a timber shortage in NZ??????

  7. Vic, Canada says:

    Wow! The forestry industry in NZ seems just as dysfunctional as ours in British Columbia.