The performance of both the fencing and pallet sectors in the UK has been tarnished by a reduction in consumer spending and industrial activity.
With conditions unlikely to improve in the immediate future, one pallet wood specialist commented this week: “It’s another year-end of battening down the hatches – if there are any more left to batten down.” From the domestic fencing sector, meanwhile, one supplier summed up 2005 thus: “We didn’t expect great things this year and we haven’t been disappointed.”
The pallet trade remains extremely competitive and conditions have certainly not brightened in recent months, with pallet call-offs said to have been generally below expectations. Noting that pallets represented “a good barometer” for how the rest of industry was performing, one contact said: “It seems that companies aren’t putting goods on pallets. One major consumer has not taken up its June consignment – and that’s an indication of what’s not happening in the market.”
Several contacts suggested their companies were still experiencing strong order levels at “the high quality end of the market”. Meanwhile, the development of new pooling operations has created some additional business for companies able to meet the requirement to supply heavy-duty, long-life pallets in large volumes. Suppliers to these pools must also be able to store substantial quantities of pallets “and so very few people in the industry are benefiting from this extra demand”, TTJ was told. It has also been suggested that some pallet manufacturers have been picking up extra sales as a result of other companies streamlining their product ranges.
A leading figure in the UK pallet industry said that profitability was being undermined by a host of cost increases, most notably on energy. Although some lower timber prices had propped up ailing margins, severe winter weather could push up costs in this quarter too, he warned.
Weakening pallet prices
Prices of pallet timber are understood to have weakened over recent weeks – by up to £10/m3 for some standard and falling sizes. Several explanations have been put forward for this downward movement: for example, the UK market was initially “under-shipped” following the massive wind-blow damage in northern Europe at the start of the year, but has since become “grossly over-supplied” with Latvian timber. “A lot of pallet manufacturers are way over-stocked – in many cases with poor-quality wood,” said one source. “But the harsh winter predicted for Latvia would change the market very quickly.”
One pallet timber specialist was predicting supply problems for the UK as early as February if demand showed any significant signs of improvement. He based his view on strong competition for logs among Latvia’s larger sawmillers, which is apparently “squeezing out” the medium/smaller mills and “could lead to supply problems down the line in the UK”.
On a more positive note, several contacts have reported obtaining premiums for pallets that comply with the ISPM 15 phytosanitary standard relating to wood packaging. Noting that his own company was receiving an additional contribution of around 50p per pallet, one source added: “Unbelievably, some people are not charging for this. They are obviously taking the view that, if they don’t charge, they might get more business.”
The complexities involved in implementing ISPM 15 have been underlined by recent developments. In TTJ’s previous pallets and fencing report, it was explained that the US would be accepting only ISPM 15-compliant material with effect from September 16. In the event, customs checks revealed a low level of compliance, thus prompting the American authorities to change their immediate plans and introduce a period of grace.
Until the end of January 2006, those sending non-compliant material to the US will be informed of this and provided with relevant compliance information. From February 1, the US authorities plan to order the re-export of all shipments where it proves unfeasible to separate compliant from non-compliant materials. And then on July 5 next year, the US plans to move to full enforcement of the ISPM 15 requirements.
Meanwhile, an element of confusion surrounds the situation in China. Several months ago, the country’s authorities confirmed that they would accept ISPM 15-compliant material without a phytosanitary certificate. However, subsequent to this announcement, a number of UK exporters have still been asked for the certificate. Cases are being taken up with the local inspectorates.
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“It’s another year-end of battening down the hatches – if there are any more left to batten down” |
Still on the subject of ISPM 15, the National Association of Pallet Distributors (NAPD) has established a network of centres to meet increased demand for heat treatment in accordance with the international standard. NAPD members already accredited within the UK wood marking programme have agreed to provide facilities for other members in their area.
Response to plastic
Meanwhile, the NAPD and TIMCON have been mounting an active response to press reports that plastic pallets are set to replace timber. A senior spokesperson for one of the organisations said such misconceptions were being challenged at both national and EU level. Compared to plastic pallets, he explained, the wooden alternative was eminently more sustainable, consumed less energy in its manufacture, and was also less expensive to produce. Furthermore, plastic pallets could not be sterilised and gave off toxic fumes in the event of a fire, he added.
A clear similarity between the pallet and fencing sectors has emerged in that, while demand for standard fencing goods is not buoyant, higher-value products are performing somewhat better. As TTJ was told this week, “some specialist, niche areas seem to have avoided the downturn”.
To wide agreement, demand for residential fencing has not picked up greatly since the summer. With consumption thus limited, “people still have plenty of stock and some mills are starting to distress sell,” said one fencing supplier. “Some are selling off stock at reduced figures – which is the last thing we want to see in the industry.” One source said that he had been hearing prices some £2-3/m3 lower than the previous norm, and also that he had received offers “from mills that I haven’t heard from in years”. One contact offered the following summary: “Christmas can’t come early enough for some of the mills.”
If, as predicted, the UK suffers a harsh winter, then the 2006 fencing season could be delayed. For the moment, major producers are still creating demand as they make stock in advance of the new season early next year. For the moment, sales of fencing and other garden products are being adversely affected by the generally poor conditions afflicting leading DIY retailers, several of whom have reported disappointing trading performances in recent months. The major multiples are putting pressure on suppliers to reduce their prices while at the same time issuing rather “flat” sales predictions for 2006.
Household spending
Interestingly, latest figures from National Statistics suggest that UK household spending growth increased to 0.5% during the July-September period from 0.1% and 0.4% in quarters one and two respectively – thanks largely to expenditure on goods rather than services. However, a number of leading City analysts now believe the Bank of England may delay any further cuts in interest rates because it fears rising energy prices will spark higher wage inflation.
Elsewhere in the UK fencing sector, post and rail business is suffering from a lack of government expenditure on roads, with several major schemes having been shelved or dropped altogether. The higher-value fencing panels and other added-value goods – such as planed batten trellis, pergolas and sheds – have maintained reasonably healthy sales in recent months.
Round fencing demand from the agricultural and landscaping sectors normally falls away in the autumn and winter, but order books have remained strong through the year. The raw material is in fairly short supply and prices have been creeping higher, partly as a reflection of increased harvesting and transport costs, as well as reduced daylight hours available for logging.
