An industry uprooted
The forest products industry has been left with a severe overcapacity problem in its traditional bases of production
Published: January 31, 2012
Drewry Maritime Research's latest report on Forest Products Shipping provides an overview of a sector which has for more than a decade suffered shrinking demand in the pulp and paper sector and a housing market collapse in the developed world. The forest products industry has been left with a severe overcapacity problem in its traditional bases of production, most notably in Europe and North America where closures and consolidation have become commonplace.
One of the most significant developments in recent years has been the mass emigration of key players’ capacities to the Southern Hemisphere, particularly to South America, where conditions are conducive to production and pricing and where long-term prospects are brighter. Nearly all the global giants have established themselves there, often at the cost of heavy job losses at home. The pro-business attitudes of governments in these emerging countries, their competitiveness in wages and their bounteous yields have all contributed to the attractiveness of this region as a new manufacturing base.
Meanwhile, in Asia the recession has been seen as little more than an inconvenience. After a few brief pauses, the industry’s expansion continues and China is rapidly coming to dominate the market. The country is now the biggest importer of wood and wood-based raw material. Through its back door, Russia is supplying much of China’s need for wood, and this trend looks set to continue. China’s construction industry is booming and its economic growth is continuing.
Demand for forest products in North America, Europe and Japan has taken a severe battering. The demand for printing and writing papers has been weakening since the mid-1990s with the onset of electronic media. Apart from overcapacity, the collapsing demand for paper has left these paper-producing regions struggling to deal with problems caused by low prices and weak earnings. The recession was particularly harmful to the demand for basic materials, such as paper for print advertising, which is evaporating. It is unlikely that the demand for these products will ever recover its previous strength.
The quick response of the shipping sector to the rapidly changing forest products industry was inevitable. Many shipping companies had forged links with forest companies that were difficult to unravel. Producers will always prefer to focus more on the strategic set-up of the more in-house global logistics network. With the softening of freight rates and reduced demand, many shipping companies have struggled to remain afloat, and have sought protection from their governments, citing the need to protect jobs. Others have applied to their creditors for debt restructuring.
Much of the outlook for the Forest Product’s industry depends on the general economic revival. In the case of China and much of Southeast Asia, it has already returned to sustainable growth. But the recovery in the developed world is still fragile and will take a long time. In any case, in the post-recession world the forest industry will look very different.
The environment will become an even bigger issue in the next decade as the world as a whole is striving towards a greener economy. Tougher standards will continue to be introduced and implemented in the industry, with major producers such as Brazil attempting to take pole position in the global environmental campaign.
"Forest Products Shipping" is published by Drewry Maritime Resaarch.
For more information on this publication, please visit the Drewry website at www.drewry.co.uk.
