At the recent TABMA Conference, industry experts and leaders came together to discuss issues in the Australian timber supply chain. Here’s an edited summary of what they had to say.
More than any other issue, supply has dominated industry discussions this year. Fires, Covid lockdowns and disruptions, freight problems and soaring international prices have combined to reduce supply in Australia at the same time as government stimulus has sent demand soaring within a tight timeframe.
TABMA’s recent conference gathered together a panel of experts from across the industry: Glenn Tilling, MD Tilling Group; Jeff Gibson, Northern Regional sales manager for Hyne Timber; Gary Walker, MD Belmont Timber (who supply F&T as well as building materials); Rina McLaughlin, branch manager at ADM Global, logistics experts; and Frank Barbuto, client services manager at NCI Trade Credit Solutions, an insurance broker for trade credit insurance. The panel was moderated by Philippa McDonald, who is familiar to many from her many years as a senior ABC reporter.
The panel, with questions and comments from the audience, set about trying to explain the current situation and then look for solutions and actions that could help mediate the problem in the short term and solve it in the longer term.
If you have time free to watch the full 90-minute video, I thoroughly recommend it. And if not, here are some of the highlights.
What are the issues?
Jeff Gibson started out by reminding everyone that it’s not just timber, there are significant shortages across the entire building supply chains. Looking specifically at timber, losing 40% of the NSW resource in the Black Summer fires was a big hit and Hyne continues to seek government assistance to freight log for its mills from further afield.
“There is still expected to be a drop in volume as a result of the bushfires,” Gibson says. “It’s going to be a challenge for us managing that over the next 25 to 30 years until the resource comes back on line.”.
Glenn Tilling contextualised the issues around much of the EWP shortages. “Tilling sources our products from all over the world, our main source of LVL and I-joist has been Russia since 2018-19,” he said.
“Difficulties for us have been around logistics: the mill couldn’t get access to logs and then Covid hit hard and then the US has been out-pricing the market with increases of 20-25% every month. It used to be 4-6% every six months.”
He flagged the flow-on effects with shipping issues, including port congestion and delays, plus slow AQIS inspections, which add to costs and time.
Gary Walker drilled down into the day-to day realities of shortages. “I wish it was only a timber crisis. We’re all finding problems, whether lintels or fibre cement, right across the board,” he said. “Our whole production has changed; instead of making frames and trusses to what our builders request, we’re manufacturing to where we can get our floor systems.”
Walker flagged that thefts were increasingly common, with whole floor joist systems being stolen from sites. He also highlighted that builders still weren’t fully understanding the scope of the issue, nor that the cost increases aren’t going away.
He sincerely worries that more builders will go broke: “They priced jobs last year during the slowdown, now they face huge increases that aren’t going away.”
Walker read out a note from a liquidator re a builder client, the explanation was wholly that the builder had underquoted compared to current prices.
Frank Barbuto was nodding through this comment. Although insolvencies through 2020 were nowhere near as bad as feared, the thing he’s learned since starting in the industry in 1986 is that “the risk is in the uplift,” he said. “Where businesses have nailed everything down and worked at their absolute minimum, keeping afloat, keeping alive, then all of a sudden, an opportunity for sales comes along, the economy picks up and everyone goes in, that’s when you get exactly this: you underquote, you run your business not with common sense but with desperation in many cases and that’s where insolvencies occur. We’re starting to see the difficulties, overdue accounts, people unable to pay their bills and going out from 35 days to 60-70 days.”
The shipping blues
Rina McLaughlin was next to speak and her insights into the global supply chain were particularly well received. Covid has derailed a complex chain of logistics around the world, she said: “Generally we consider that if we have one part of that chain break, it has considerable flow-on effect. Over the last 18 months it hasn’t just been one link, it’s been multiple”.
Each delay brings ongoing costs to importers and exporters alike. McLaughlin cited one Chinese port backed up with 700,000 TEUS (an industry term meaning standard container sizes) and “some ports, like California’s Long Beach, have seen a 48% increase in traffic and the infrastructure just can’t handle it. Every delay is a container that is out of rotation and not available to meet demand,” she added.
Questions from the floor raised the issues of container backlogs and what can be done. McLaughlin says it’s a large challenge facing the industry, and one that may well necessitate reforms. “Only 39% of containers coming into Australia are going out at the same time: that’s evacuations as well as export. It’s a very low percentage and it affects rotation and getting the containers back to origin to refill and resupply. The shipping lines aren’t getting enough cargo to export, so they don’t get enough return to make it worthwhile them evacuating the empty containers.”
There was talk of lobbying government re compensating shipping companies or alternatively mandating taking containers on return journeys. McLaughlin says there are industry-wide issues we need to raise: “We generally work through a peak season every year and we know there will be a rough two to four months every year when we’re going through that. There are generally increases; in a typical year, you might be looking at an extra couple of hundred dollars per container.
“At the moment, we’ve gone up 620% on the cost of freight. That’s astronomical and it’s unsustainable for importers and exporters. The shipping lines themselves, unfortunately, run through a set of their own rules, but that doesn’t mean we can’t turn around and try to have our voice heard.”
On the ground
To round out the problem part of the panel, Walker, Tilling and Gibson shared some stories from the coalface.
Walker said that Belmont has sufficient timber and EWP from its current supplier thanks to longstanding loyalty; they’ve helped their suppliers in the past and that is paying off now. “Not everyone is in that position, some F&T plants have had to shut because they can’t get material,” he notes.
Tilling shared that two of the largest Victorian truss plants have scaled back their hours dramatically, with one even having a temporary shutdown because they couldn’t get timber.
“The other thing we’re seeing is that the larger project builders are used to having a lot of clout in the supply chain: they don’t have it anymore. Suppliers are having to break deals – fixed price arrangements, rebate arrangements, etc,” he notes, adding that while larger builders could afford to pay customers to break these contracts, smaller ones could not.
Gibson reported that with such a strong market, Hyne was finding it challenging to meet demand. “We’ve got a limited amount of volume that we can produce,” he said. “We’re obviously running overtime shifts and doing as much as we can to push as much volume out as possible.”
Echoing Walker’s comments, he said Hyne was trying to make fair allocations to their customers, based on traditional volumes.
All had experienced unprecedented requests from established customers and would-be customers, including a call for Walker to supply out of NSW to Adelaide, “because it only cost $3000 to get a truck to go to Adelaide.”
Again, the audience was strongly connected to the issues, with questions around whether people outside the supply chain understood that there were global problems playing out, not price gouging.
Tilling said the Master Builders Association had done a good job of getting the message out into the media and to their members, though there was still work to do.
“It’s the responsibility of all of us as leaders in this industry to explain and communicate effectively what’s going on and the reasons for it,” he said.
“Information is power. More importantly, accurate information is power. Misinformation is a big problem.”
Gibson flagged that the current issues were exacerbating an existing skilled labour shortage. After the fires, there was a period where Hyne thought there could be layoffs in NSW if they didn’t receive government assistance. “Unfortunately, while we were going through that process, a lot of people left the mill looking for other jobs with more security,” he said. “The situation now is that the extra mill is struggling to run full shifts based on employment. So we’re looking heavily at getting people from nearby regions like Wagga and bussing them in to keep the operation running.”
Kersten Gentle from FTMA reframed some of the problem in the light of the sudden HomeBuilder demand, saying: “Everyone says it’s a timber shortage, but it’s builders’ greed. We’ve got builders who normally do 70 homes who’ve signed up to do 200 homes. Big builders who do 2000 homes and now they want to do 2700 homes … They’re not going to go broke because we’re supplying timber to them late, they’re going to go broke because they can’t project manage the finances through all the steps.”
Barbuto acknowledged that insurers were paying attention. “Insurers in our industry are becoming increasingly more aware that when they look at a balance sheet and they look at a cash flow, they’re also looking at the capacity of the builder to do the jobs that have been projected ahead. Everyone likes to exaggerate a little about their capacity, but insurers have taken a really tough line, because experience has said to them that when they take a laxer view, they see the resulting insolvencies.”
Gentle agreed with the panel there needed to be support for fabricators who are operating in a very different pricing environment to the norm. “Maybe NCI can help to make sure the legal technicality is there for the fabricators around quotes so they’re not locked in,” she suggested. “Because as supply prices change, they need to make sure their prices are no longer for 30 days.”
The other strong question from the floor was around the risk of inferior product being imported directly by people frustrated by their usual supply chains.
Tilling contextualised his response by reminding the audience that the local market usually contains a lot of high-grade product from China. “But we are seeing merchants around the country purchasing multiple containers of LVL from China directly from new manufacturers. It needs to be third-party accredited, this isn’t.”
He described how the process of onboarding a new LVL supply plant typically takes 18-24 months and requires a lot of work for both parties to ensure a certifiable product suited to the Australian market.
“To spot-buy LVL is very dangerous,” Tilling said. “Remember, if you import it, you own the warranty. If the house falls down, you’re liable as the importer, you are the manufacturer essentially as far as Australian consumer law is concerned. And if it’s not labelled correctly, it’s not legal as far as the Building Code of Australia is concerned.”
McDonald, who had kept the discussion moving at a brisk pace, asked for solutions so the news wasn’t all bad. Those offered ranged from immediately accessible to industry-wide strategies that will require significant buy-in from major players.
Gibson began with an easy option: better management of the mix of products. “Previously, people would buy M12 because they could,” he said. “It was a better-quality product and they could use it in all sorts of applications. Now it’s about saying ‘OK, well, do you need M12 for roof battens? No, you don’t.’ Webs and nogs can use lower grade product. Use that where we can to preserve the higher grade product.”
He listed lower-grade products suitable for structural applications that could be used more widely, along with an emphasis on technologies including finger jointing, laminating and grading. “We know even before we cut the log what sort of grade and density it’s going to be, thanks to technology,” Gibson said, “so we can get far smarter with the way we produce the product.” New technology will only help to get the best use of the resource.
Walker confessed he’d started explaining the situation using the “terrible terminology” that timber has become toilet paper.
“We are buying product that we may not need right at the moment, but to protect ourselves. Belmont just recently bought 60 packs of something that will last us a few months,” he said. “Other merchants are nodding. If we can get our hands on 90×45, we’re going to buy whatever we can. If we can get fibre cement, pine… I am led to believe that there are people who are sending the same order to three EWP companies.
“So this is giving something of a false situation on what’s current. Do they need the stock now? No. This goes back to what Jeff touched on with suppliers accepting orders based on the last six-months’ supply, not inflated orders because people are concerned they’ll run out. As an industry, we’re going to have to try and control better the ordering people are doing, because otherwise it’s going to be like toilet paper. Did everybody need toilet paper? No, but they bought it just in case.”
Gibson agreed that management of expectations has a vital role to play. New technology has given sawmillers the ability to fairly accurately predict what they’ll get out of every log. “We do have breakdowns and other issues that cause us to reduce our volumes sometimes, increase at others,” he said. “So we’re working with our customers on what’s their average usage and what we think we can give them. We’re never going to give 100% commitment on that because there is that fluctuation, but we aim to hit close to that every month.
“That’s giving our customers a forward plan every month so they can then forward plan their business on what they’re going to get and what orders or jobs they can take on board. I think the biggest thing at the moment is that builders are overcommitting. They’re putting pressure on frame and truss plants, who are overcommitting, which is putting pressure back on us for supply.
“In Queensland, most F&T plants have closed their books for the year. Never in history has that happened. We’re halfway through the year, everyone’s knackered because they’re working so hard, and they’re full for the whole year, which is a concern.”
Management of expectations was also a theme for Tilling. “Established merchants could sell five or 10 times more than what they can get in. But in a lot of these cases they’re getting 140% to 200% more than what they were getting last year, because the wholesalers are gravitating back to their best customers.”
He warned that there had been some bad behaviour in yards with builders driving in and emptying racks and noted Tillings Timbers is only dealing with its existing customers at the moment.
“We’ve stopped quoting ad hoc jobs,” Tilling said. “We’re not quoting for someone who isn’t a traditional SmartFrame user at all. That’s unheard of for us. We’re a sales company. We love selling to everybody.”
He also flagged the essential need for two-way communication up and down the food chain: “We need to let people know what’s going on even if it’s bad news. And that communication has to be accurate all the way through from the wholesaler to the merchant to the builder. Don’t play the blame game and blame the wholesaler, it doesn’t help. Accurate and realistic information will set the builders’ expectations and that’s crucial for us to get through this period. Especially as it’s going to get worse before it gets better with European prices skyrocketing and no containers to get product from Europe to Australia.”
Locally grown product came in for extensive discussion. Private ownership of forests has caused stresses. Although long-term contracts are fully met, additional resource needs to be tendered for and local companies have found it hard to compete with the export market, especially when, for example, an American forestry company is being offered high prices from the US.
Gibson accepted that everyone was after their best return but would like to see more local resource for the domestic rather than export market. That said, he emphasised that the industry needs to reinvest.
“You just can’t buy a sawmill overnight and turn it on, it takes many months of planning and many years of building and a lot of money,” he said.
Tilling agreed: “We brought onboard a new mill in 2019-2020, and that was a very difficult thing to do remotely with Covid – a lot of Zoom calls with Russians who don’t speak English, but we got it done.
“When CHH pulled out of the Australian market in 2020, 50,000m3 went out overnight. With the restrictions globally, it’s been difficult to get that volume up, but as an industry, we’ve done a pretty good job. We’ve sold more wood products in 2021 than in 2020 by about 17%, that’s a positive story.”
The local manufacturers accept there will always be imports, but see more scope for producing more value-added product here.
“A lot of the product Glenn is talking about could be produced in Australia if we had the right facilities and infrastructure,” Gibson added.
He listed Hyne’s recent investments, including new kilns at the Tuan factory so the site will go to a 24-hour roster and gradually start to increase its volume. He also called for more government support and funding to develop a bigger industry in Australia and underpin the domestic demand. There are big infrastructure projects that require backing, along with a need for improvements in technology, education, forestry and sawmills.
Strategies and lobbying
Barbuto pushed the focus back into the office. “As a company, you’ve got to look at your sales and your accounts and you’ve got to have a strategy around risk selection and monitoring, the two key areas that most businesses fail with,” he said.
“Risk selection is about knowing who you’re bringing on as a customer, knowing as much as you can about them, understanding their history and people, and then making a decision about the validity of that person having the privilege of holding a credit account with your business.
“If you’re monitoring your customers and saying to yourself ‘well, he paid the last one on time, so he’s OK’, you’re missing the point. Because if you go back prior to Covid, ATO orders for winding up were being issued out of the blue for companies that didn’t have a blemish on their record. That’s because privately they owed GST and failed to meet commitments, and you don’t muck around with the ATO. Having that monitor where you get regular reports is critical. There are plenty of products around, but you need to have a strategy of what you want and then find the product that suits that strategy.”
Barbuto noted insolvency laws can leave merchants exposed, and that it was vital for businesses to protect themselves by staying up to date with information and legislation. “If you haven’t updated your credit application form terms and conditions in the last two years, I can tell you 100% it’s out of date,” he said. “Privacy’s changed, PPSR wording’s changed, as has the ability to take security out on your customers in the event of difficulty and have that protected. All that wording is now coming in as people are looking at more protection.”
McLaughlin foregrounded the importance of government on some of the issues around freight. “We’re looking at Customs, we’re looking at AQIS, we’re looking at regulations for the shipping lines,” she said.
“There is a regulator in the US called the FMC that can impact the shipping lines’ rates. There has been a lot of discussion about bringing that into the Australian market to be able to keep things to a stable level for importers so you’re not experiencing all these fluctuations. It’s not going up and down anymore, it’s continuously rising, and that’s not only with your freight rates, it’s also with charges … From 2017 to now, charges have risen tenfold and that has a big impact on everyone’s business.”
There was strong agreement, with delays with AQIS and at ports a source of stress for all the importers and everyone else getting machinery or product in from overseas.
There were other hopes for government: “If we could get some government support to flatten that demand, so some buildings we build in two or three years rather than in six months, it would help us all and save 90% of the problems we’re talking about today, said Gibson.”
Walker agreed, worrying that the current spike would be followed by lulls as stimulus ended “Maybe in two years’ time we’ll be asking how we promote timber more to the building industry. That’s my concern, that this will turn over a period of time. How do we cope at the moment? We need to … become wiser in how we utilise the limited resource we have.”
There was no debate from Tilling. “I think lower grade usage of timber is really important,” he said. “With LVL, we can be using our lower grades in formwork, in chords, even as studs. That sort of innovation is fantastic for our industry, and long may it continue!”
Of course, the harmony wasn’t complete, with Walker wondering why more 70×35 timber wasn’t available – which might appear to be a more economical cut – and Gibson replying his sawmill manager would hit him if he tried to convince her to up the output of that hard-to-cut size.
Audience members were involved in this part of the discussion as well, with Gentle asking how many people in this room had actually rung their local MP and reminding them of the power of many calls and letters.
She sounded a warning on prices falling too much: “We haven’t had any new plantations in the ground in 15 years, so we don’t want to drive prices back down because that’s why there’s been no investment in timber plantations in 15 years.”
Judy Tilling reminded everyone, “We’re in the middle of an extreme short-term shortage of building material, but we’re also in the middle of a long-term shortage of building material for the world.”
She highlighted India and China as major emerging markets for EWP post-Covid and added that Japan, which is a traditional timber building country, would also be back when its economy recovered.
“The demand for timber products is not going to be filled overnight, very much so for engineered wood products. There are only so many EWP plants in the world and they take a lot of starting up,” she said “The demand from emerging nations – not that China is really emerging – is there and when Covid is over, they’re still going to need wood and it’s still going to be in short supply. I can’t see a real drop in demand. I can see a drop in price, but not demand.”
ATIF’s John Halkett noted that his organisation had both sent information out to members to help them explain to their customers what is happening, and also been strongly lobbying Canberra. “The ministers’ advice was ‘you tell us what you think we can do!’” he said.
ATIF is now writing a paper following two round table discussions with officials from the Dept of Foreign Affairs and Trade and more and hopes to hold a round table with industry parties where “we will look very carefully at how to increase the supply, particularly of structural softwood and EWP into the Australian market.”
McDonald called for last questions or words, and an audience member who didn’t give his name commented, “I hope that once we get through this, the merchants don’t get fooled into driving the price down. Please hold your ground and continue to add value rather than just follow the price rabbit down the hole.” It was a popular sentiment.
The final word came from TABMA’s CEO, David Little. He said, “The steel industry and many other industries are pretty good in that they operate through a single voice. We’ve been pretty fragmented for quite a long time in this industry.
“It’s really nice to look around and see the chiefs of a number of timber industries around here. We’re getting much better at operating as a team; I think we’ve got more to go but it’s really good to see you here and we will be making submissions to government on these issues as a group.”
For the full TABMA panel discussion, click here.
Image: From left, Frank Barbuto, client services manager at NCI Trade Credit Solutions; Rina McLaughlin, branch manager at ADM Global; Gary Walker, MD of Belmont Timber; Glenn Tilling, MD Tilling Group; Jeff Gibson, Northern Regional sales manager for Hyne Timber and Philippa McDonald, ex-ABC senior reporter known to many for her Black Summer fire coverage. Photo courtesy TABMA.