Activity in both the pallet and fencing sectors has been decidedly patchy over the past couple of months. Manufacturers report only limited scope for price increases and, at the same time, ever-mounting pressure on raw material, transport and energy costs.

According to one leading pallet producer, some of his plants were working “flat out” while others were substantially less busy. Overall, business was slightly quieter than at the same stage last year – a situation he attributed in part to reduced export activity among some leading customers and a slower pace to the building trade. But he added: “We are getting into our busy time in November so we are going hell for leather to put stock on the ground because we know that things can change very quickly.”

Even though demand from UK manufacturers appears generally no better than average, supply issues have added a note of disturbance to the pallet market. A key issue facing the sector has been the rising cost of pallet timber from the Baltic states where “log prices have shot up out of all proportion”, according to a regional specialist. “They are starting to grade their logs more systematically which has meant less supply coming through.” The cost of pallet wood to the sawmills is said to have more than doubled over the past six months, while carcassing timber is around two-and-a-half times more expensive, he added.

Prices paid in the UK for Baltic-origin pallet wood are claimed to have risen by some 10% over the past few weeks, and a further increase of “at least 5 or 6%” is mooted for the near future. This is a reflection not only of higher timber values but also of the increased cost of exporting the material from the Baltics. The firmness of the world shipping market has made freight more difficult to obtain while the rise in international oil prices has led to the imposition of bunker surcharges. Furthermore, internal transport within the Baltic states has become much more expensive; according to one expert, fuel costs have risen by the equivalent of 7p per litre since EU accession earlier this year.

Filling the gap

A significant proportion of the larger UK buyers appear prepared to pay these higher prices for Baltic pallet timber. It was also suggested this week that mills have been receiving regular visits from exporters keen to buy up their production. Home-grown timber suppliers are understood to be busy “filling the gap” left by reduced Baltic supply, and there is also evidence of increased imports from other areas of the world. One UK-based operator said he had brought in twice his normal volume of South American pallet wood over the last quarter.

According to a leading supplier of home-grown timber, current market conditions had provided an opportunity to nudge prices a few pounds higher and further increases could be expected before the end of the year. He added: “Pallet demand is only jogging along and manufacturers are reluctant to lay down stocks. This is to our advantage because they want quick supply without having to bring it across water.”

TIMCON, the Timber Packaging and Pallet Confederation, has underlined the continuing cost pressures borne by the pallet and packaging sector. In a recent statement, it pointed to “escalating timber and nail costs since 2003” and to “firm indications” that this trend “will continue throughout the remainder of 2004 and into 2005”. Under these circumstances, the organisation argued, “it will prove impossible for suppliers to maintain current price levels if they are to maintain continuity of supply”.

A leading pallet producer said he was “encouraged” that all manufacturers in his sector were pushing for price increases, since these were vital to cover rising costs and to maintain forward momentum within the business. “We have talked to our customers about price increases and have managed to push some through because they are aware that we are faced with higher costs of timber, steel, fuel and labour,” he said.


&#8220We are getting into our busy time in November so we are going hell for leather to put stock on the ground because we know that things can change very quickly”

Regular updates from TIMCON reflect a multiplicity of approaches and timetables relating to phytosanitary standard ISPM 15. The EU has set a target date of March next year for the new requirements to come into force while the US announced last month that landing requirements for all wood packaging material, including dunnage, would be implemented on September 16 next year; all material will have to be either heat treated or fumigated with methyl bromide, and marked in accordance with ISPM 15 on at least one vertical surface.

Also within the last few weeks, Nigeria’s Plant Quarantine Service has confirmed that the country does not require a phytosanitary certificate if the mark on the body of the packaging material indicates that it has been treated as stated in ISPM 15. Recent developments have also emphasised how ISPM 15 can be subject to variation from country to country. For example, Australia has opted to call for fumigation by methyl bromide for 24 hours rather than for the 16 hours currently cited in ISPM 15.

Turning to the UK fencing sector, opinions surrounding current market conditions are strikingly diverse. Several companies contacted this week reported that sales had maintained their momentum far longer than expected this year, others suggested business levels had improved markedly over recent weeks, while the rest bemoaned the continuation of a lacklustre market.

A leading supplier to the multiple garden centre and building merchant sectors reported an “across the board” improvement in fencing sales during a late summer/early autumn period when companies were normally looking to scale down their sales expectations. However, he stressed that 2004 had been a generally disappointing year – a fact he attributed mainly to inconsistent weather. Another producer agreed that sales over recent weeks had been sufficiently strong to bring the company back on budget after a “dismal” Easter and summer.

A prominent supplier of timber to fencing manufacturers said he was “amazed” at how well demand momentum had been maintained across all sectors. “The fourth quarter is stacking up remarkably well and there are no signs of stepping back from the price increases of the first and second quarters.” He estimated that prices were around 8% higher than at the start of the year, although he was quick to point out that these reflected increased timber preservation costs and would also have to contribute towards an anticipated 8-12% increase in the company’s electricity bill.

Sales performance

Contrast these views with the perspective of a fencing supplier to the domestic and contractor sectors, who deeply lamented a fall-off in sales since September. “A lot of customers seem to be holding on to their existing stocks,” he said. “If ever we needed a gust of wind, we need it now.” It had been possible to win some small price increases during the course of the year, he added, but these had been swallowed up by higher raw material, shipping and fuel costs.

A number of other sources contacted this week reported a generally quiet time for the fencing sector and were generally downbeat about sales performance in 2004 as a whole.

On the news front, Forest Garden has announced that it plans to introduce FSC accreditation across its range of products by November next year in response to demand from customers, principally in the multiple sector. “We will also use it as a marketing tool in the independent sector,” a senior spokesperson said. Forest Garden was also looking to “take the market forward” by sharpening its focus on innovative, added-value products, he added.

Meanwhile, contention continues to surround the Highways Agency‘s Sector Schemes covering fencing and treatment, with industry experts alleging that non-compliant materials and sub-contractors were still being used. Industry represent-atives are applying pressure on the Agency to acknowledge the need to improve its enforcement measures.

“The industry should not be the police force,” TTJ was told.