Forest Products Nicho Looks Ripo For Expansion

In its latest report — Forest Products Shipping: Looking to the Upturn? — London's Drewry Shipping Consultants forecast that the forest products trade will rise, in terms of tonnage, nearly 12 percent by the year 2004 from current levels of around 170 to 175 million tons/year.

As significant to the shipping communities as are the hard numbers, so too are the changes in the type of products to be shipped and service expected.

Trade growth, according to Drewry, will not be distributed evenly: The focus will be on "downstream" products such as sawnwoods and boards/panels rather than logs and pulp and paper products rather than pulp wood. This will be crucial for both ship operators and ports as they will see more business falling into the dual arenas of minimum/nil damage "cargo care" and just-in-time (JIT) delivery. Holding A Steady Course While not a major focus of the shipping market in general, the carriage of forest products has enjoyed steady growth over the last decade.

Tonnage transported in the mid- 1980s equaled 125 to 130 million tons/year; this compares with 150 to 155 million tons/year at the start of the 1990s. In its latest report, Drewry estimated that by 2004 total seaborne trade could be touching approximately 190 million tons.

Even if trade volumes stall in the short term, key underlying fundamentals that underpin forest products demand — population growth, improving living standards (increasing demands generated by existing populations) and increasing levels of literacy — are wholly growth oriented.

The forest products trades make use of virtually every type of dry cargoship, with success determined by the blend of logistics, competitive advantage, quality of service and freight rates. This creates various shipping "battlegrounds" where competition comes to a head. Such an arena is the North American export sector. Late 1997/early 1998 have seen a good deal of tension arise as various contract renewal sessions have come around. Drewry noted that this tension is not wholly about freight rates (though this is important) as the business has other logistical elements. Generally speaking, the breakbulk sector regards the container market as a threat. With crisis in Asia impacting on the demand, not just for forest products, it may be that the container sector will again be looking at the forest trades.

In the early 1990s, western Canadian shippers — at least in the sawnwood sector— had the fallback of a strong presence in the European market. This has largely disappeared — the EU's prolonged prevarication over kiln drying was a factor but high prices in Asia were even more so — and is unlikely to be won back given that aggressive new players from the Baltic States have emerged.

The changing market structure in northwestern Europe has impacted on ports, given that large volumes of wood-based products (primarily sawnwoods and panel products) now move as relatively small individual lots, and consequently, utilize relatively small ships, rather than the Handysize types that formerly served the trans-Atlantic sector. Pricewise, much of the traffic may be marginal business— that is, buyers will be willing to switch sources (and the port used) for very small price benefits.

Focus O n Ports The changing requirements of the often complex forest products logistics chain, typified by the changing European pattern, have major implications for the requirements, developments and competitive position of forest products ports — this topic being a major feature of Drewry's latest report.

At the loading end, the port handling market is extremely fragmented and, indeed, specialized loading ports themselves exhibit marked differences in sophistication ranging from the leading edge of technology to the very basic. In contrast, the discharge side has tended to see more development over the longer period.

Crucially, Drewry noted, "there is an increasing trend, particularly in Northern Europe, for discharge ports to act as a storage and distribution hub, rather than a pure transit facility." Drewry added that this has fundamental implications for shipping as it enables a port to create critical mass making it a "must call" facility for shipping lines and drawing in landslide traffic to further boost the distribution hub role.

Such developments also emphasize the control over the trade held by the shippers and distributors, a factor which enables them, and not the shipping line, to dictate port call preferences. As a result, businesses might well switch shipping operators rather than switch ports.

Looking at the forest products industries themselves, Drewry noted a remarkable change over the past two decades.

The forest products companies of the 1970s generally had a complete mix of operations —mfrom forestry to mill process and through to shipping and paper or timber merchants.

The forest products company of the late 1990s has been shaped and forced by shareholder pressures to sell-off non-core or under-performing units, to seek partners or accept bankruptcy, to bring manufacturing operations closer to the market and to make products that the consumers want.

Within the modern industry structure, there has been rapid growth by merger and acquisition. A number of these acquisitions have involved purchases of overseas companies encouraging the globalization of business.