The Talk in the Hardwood Yard

I’ve spoken with many, many owners as well as sales and production managers in our hardwood manufacturing industry within the last three weeks that have given me small pieces into the mosaic which is our current hardwood market. Here are a few of my findings. I hope you find them useful.

Lumber prices have been on the rise for the last 60 days, particularly on the green side. Wholesaler brokers are now having a harder time getting between deals as the manufacturers and wholesalers of kiln dried products have come to the realization that they can temporarily pay a bit more for green and eek out a profit. The ability to increase prices has been largely a supply driven move as logging conditions in the south remain prohibitively wet. The sawmills that have been able to couple productivity cost efficiencies with green product price improvements have seen the first good months they’ve had in close to two years. Unfortunately, there does not seem to be any noticeable demand upticks domestically, and fear that the Chinese will slow the export market will continue as the year progresses.

The decision by the Chinese central bank to require higher amounts of cash in reserves (just as ours has done since the financial crisis began) will undoubtedly lead to less lending and will cause a short term slow down in China’s usage of our raw materials. Don’t get me wrong, there is still a great future in exporting considering our depleted manufacturing base. Just don’t be looking for the Chinese to be picking up any additional slack for their own consumption. Watch for the double dip!

Competition remains strong for kiln dried orders. Distributors continue to work with depleted inventories and are finding the communication chain from customer to sales agent to manufacturing is causing missed shipments, confusion, frustration and overall lower levels of customer satisfaction. Again, this is a symptom of a skinny-ed down workforce and a thin inventory. Smaller kiln dried user/manufacturers are focusing on price from the suppliers that they already have controlled for quality. There is considerable pushback from vendors who truly know how their product is different from a standard commodity grade and can justify their price through other value related means. As I have mentioned in previous blogs it continues to be a game based on relationships; don’t wreck the ones you’ve got! It’s a small world and is getting smaller every day.

Within the last month I performed a market survey for a client of mine. During my target interviews I found a real openness among the respondents to a new supplier entering their particular marketplace. The moral of the story here: don’t fool yourself into thinking your customer isn’t looking for other vendors. Just as you are considering finding new and additional vendors, so too is your customer. This continues to be the time to ensure you know what your customer needs, what he wants and determine where your product can fit.

Survivability is rearing its ugly head again. We haven’t seen the end of bankruptcies or receiverships affecting our capacity from this downturn. Major (BIG) players who are slow in business and slower in payment may still create a domino effect on sawmills, loggers, etc who have shipped with an open line of credit. The downturn in the market created a loss related to inventory values over the last 2 years. The more inventory you had the more your wealth was depleted. The problem going forward is the rate of excess capacity at your facility magnified by your debt ratios. Drive around, look at log yards, look at air drying yards, look in the warehouse, look at the order backlog. These plants will continue to have to pay the bank on their facility. If the plants are only operating at 50-60% capacity and more inventory is not possible because the banks have already limited lines of credit it only stand to reason that we should not expect quick turnarounds by our highly leveraged friends in the business. Either you don’t pay the owner, or you don’t pay the bank; both are bad.

If you have nothing to hide, open communication will only help you. I was encouraged by the open and frank advertising that was done by Cal Door this month. Basically, they said “hey this place is paid for, we will survive, and we want your business, and we won’t undersold.” Just smart for them right now. It will however, put pressure on their competition to leave some fixed costs out of their pricing equation. (Oh, cool, Pricing strategies, that sounds like a new blog topic for next month.)

Lastly, my Vikes. I was disappointed to see the Vikings crumble under their own weight this weekend against the Saints in the NFC Championship game. The fumbles, the fumbles, the fumbles, 12 men in the huddle after a time out. COME ON TEAM. But, this reminds me, remain focused on the fundamentals in your business. Failure to do so could keep you out of the big game.

Good luck, go get ‘em.

Greg Blomberg is the Principal Advisor of GreaterValue Hardwood Consultants found at moulderblank.com and milldoctor.com. He can be reached at gblomberg@moulderblank.com.