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Report from
Europe
Brexit uncertainty dampens UK demand for
tropical
timber
After a reasonable start to the year, UK tropical timber
importers report a marked slowdown in business in recent
months which they attribute to market nerves surrounding
the country＊s still unresolved future relationship with the
EU.
Despite a ※do or die§ pledge by the prime minister to
ensure the UK left the EU by 31st October 2019, the end
of the most recent extension period granted by the EU27
in March, this deadline has been missed as the UK
parliament again failed to ratify the withdrawal agreement
in time.
The EU27 has now agreed to a further Brexit extension
until 31 January 2020, while the UK will hold
parliamentary elections in December in the hope that there
will be sufficient support in the country for a new
government capable of breaking the deadlock.
But there＊s no certainty that this will be achieved through
an election, or of the new government＊s likely policy in
relation to Brexit. The main parties are entirely split on
this issue, the Conservative party being in favor of pushing
on with the withdrawal process, the Labour party expected
to campaign on a platform supporting a new referendum,
and the Liberal Democrats wanting to stop the withdrawal
process in its tracks and return to the EU.
This highly uncertain political situation has contributed to
a wider economic slowdown in the UK, characterized by
declining business and consumer confidence and rising
risk aversion.
UK economic sectors contracted in the third quarter of
2019
UK economic volatility is reflected in the variation in
forecasts for GDP growth. PricewaterhouseCooper
predicts 1.4% for 2019, similar to growth in 2018, falling
to 1.3% in 2020.
However, the National Institute for Social and Economic
Research expects growth to be 1.2% this year and 1%
next, revising those figures down to 1% and 0% in the
event of a no-deal Brexit.
According to IHS Markit and the Chartered Institute of
Procurement and Supply (CIPS), all main UK economic
sectors, services, manufacturing and construction,
contracted in the third quarter of 2019, while
unemployment rose, principally due to redundancies in
retail and manufacturing.
The UK＊s trade gap did improve over the summer, but this
was attributed to companies slowing down or ending their
pre-Brexit stockpiling, which saw imports rise earlier in
the year.
With a fall of 1.2% in September, the British Retail Sales
Consortium reported that average monthly consumer sales
growth over the year was just 0.2%, the worst since 1995,
with Brexit related political and economic uncertainties
again cited as a factor.
Construction and property repair, maintenance and
improvement, the key sectors for the timber industry,
including tropical, have also both seen overall
performance declines this year.
According to the Construction Products Association＊s
(CPA) latest autumn forecasts, overall construction output
in 2019 will contract 0.1% compared to growth of 0.3% in
2018. Since the summer it has also revised down
predictions for growth for 2020 and 2021, from 1% and
1.4% to 0.5% and 0.9% respectively.
The CPA also cites the IHS Markit/CIPS UK Construction
Purchasing Managers Index (PMI) which fell in
September to 43.2 (and any figure below 50 indicates a
decline in activity). This was the fifth consecutive monthly
fall and the second sharpest since 2009.
Commercial construction was the worst performing sector,
according to the PMI 每 and the CPA predicts it will shrink
through 2021. But investment in retail construction and
shop fitting, an important market for tropical timber, has
also shown decline. This is partly attributed to the wider
fall in consumer sales, but also increased online shopping.
Public and private sector housing is predicted to contract
0.1% this year and grow 0.5% in 2020 and 0.9% in 2021.
Infrastructure growth is expected to do better, albeit falling
from 11.2% this year, to 3.7% in 2020, before recovering
to 4.1% in 2021. The repair, maintenance and
improvement market (RMI) for private sector housing is
predicted to contract 2% in 2019, then remain flat in 2020
and 2021. Public sector RMI is also forecast to stagnate
over the three years.
Economic downturn slowing tropical timber sales
Interviews with UK timber importers indicate that the
wider economic downturn is now feeding into a slowdown
in tropical timber sales.
※The usual post-holiday period market pick-up just does
not seem to have materialised,§ said one UK
importer/distributor. ※People have become very
aggressive for business and at the same time we＊re seeing
less forward ordering and increasing late payment from
customers. We＊ve had more bad debt in the last three
months than in the last three years. I know fellow
importers have cut back their buying as a result.§
He went on, ※there＊s perhaps a delayed reaction in terms
of tropical wood coming into the market due to the long
lead times 每 reducing your African supply especially is
like slowing down an oil tanker, it takes time. However,
we have heard of other importers taking the short cut and
reneging on tropical contracts.§
A continental based tropical supplier to the UK took a
similar view. ※General UK trade has become very
competitive, with some UK businesses offering African
timbers at very low prices that will be difficult to replace
going forward,§ they said.
※We＊re seeing orders becoming more just-in-time, with
customers buying little and often,§ said an importer.
※Others have just told us they＊re putting projects 每 and
orders 每 on hold.§
High levels of tropical timber stock currently on the
ground in the UK are attributed to this wider slowing of
the economy, but also importers, like their counterparts in
other industries, stockpiling in advance of the original
March Brexit date. This was to hedge against customs and
port delays anticipated immediately afterwards.
One company said this tactic was largely the preserve of
larger tropical operators. ※To increase your stock, you＊ve
got to be able to access the supply, have the money to pay
for it and somewhere to put it,§ they said. ※In hardwood,
that's a limited number of businesses.§
But analysis of the latest Eurostat Comext data does show
an overall increase in UK tropical timber and wood
products imports, including furniture, in the first half of
2019. Importers believe pre-Brexit buying, notably in
tropical plywood and furniture, is one reason for it.
UK tropical wood product imports up in the first half of
2019
Total UK tropical wood product imports in the first half of
2019 were up 13% to 312,000 tonnes. Biggest increases
were seen in mouldings and decking, 56% ahead at 6,900
tonnes, flooring, up 42% to 1,500 tonnes, sawn timber, up
20.6% to 36,000 tonnes, wood furniture up 15.4% at
108,620 tonnes and plywood 13.8% at 104,000 tonnes.
Decreases came in tropical log imports, 64% down to
1,040 tonnes and sleepers, 18.4% lower at 1,150 tonnes.
In terms of supplier country, greatest growth came in
tropical wood imports from China (mainly plywood),
ahead 79.8% at 54,970 tonnes.
Imports from the Republic of Congo were 25% up at 5,810
tonnes, Brazil 19.3% at 6,630 tonnes, India 16.5% at 7,870
tonnes and Cameroon 16.1% at 9,330 tonnes. Of the other
top three suppliers, Vietnamese imports were 8.3% ahead
at 52,530 tonnes, Malaysian 2.7% at 68,180 tonnes and
Indonesian 0.9% at 59,000 tonnes.
Considering just tropical sawn wood, the largest UK
suppliers in the first half of 2019 were Cameroon, with
sales up 23.4% at 9,080 tonnes, Malaysia, 1.9% down at
5,250 tonnes, Republic of Congo, up 22.8% at 5,690
tonnes, and the Democratic Republic of Congo, up 61.4%
at 3,230 tonnes. Imports from Brazil were up 117.1% to
2,350 tonnes. Indirect imports from the Netherlands also
increased, up 58.1% at 3,200 tonnes.
In tropical plywood, biggest suppliers to the UK during
the six month period were China, up 80.6% at 54,960
tonnes, Malaysia, down 32% to 16,810 tonnes and
Indonesia, down 14.2% to 17,810 tonnes.
UK importers generally expect that tropical imports will
plateau in the second half of 2019, or even contract due to
weakening economic conditions, increased market caution
and the high stock levels built up over the preceding six
months.
Looking to the longer term one importer suggested that,
due to the pent up demand for housing in the UK and RMI
work, ※once Brexit is resolved and the market settled,
business could recover quite quickly§. The question, said
another, is when that will be. ※A pickup is not on the cards
as far as I can see ahead,§ he said.
UK to extend timber legality requirements after Brexit
UK tropical and other timber importers were urged to
evaluate the impacts for their businesses of a no-deal
Brexit and prepare accordingly at October＊s UK
Construction Week (UKCW) exhibition.
At the UKCW, the biggest UK building industry show, the
UK Timber Trade Federation (TTF) and the country＊s EU
Timber Regulation and FLEGT Competent Authority, the
Office for Product Safety and Standards (OPSS), teamed
up to present on the implications of Brexit for importers＊
responsibilities under the EU Timber Regulation, or the
UK Timber Regulation (UKTR) as it will be known after
the country＊s EU departure.
Representing the TTF, head of sustainability Xiao Ma
said importers should prepare for a no-deal Brexit and the
UK trading under World Trade Organisation rules as there
was currently no certainty that a deal would be struck at
present, or what repercussions it might have for UK timber
importing.
While the UK is assimilating the EUTR, as the UKTR,
into post-Brexit UK law, Ms Ma said that, under its terms,
all timber imports from the EU, whether they are transiting
the latter or originate from EU countries, will have to
undergo UKTR due diligence.
Currently, she said, just 12.62% of UK timber imports are
sourced from outside the EU and subject to EUTR due
diligence.
※That means that a lot more UK timber importers after
Brexit will have to undertake due diligence, many of them
for the first time,§ said Ms Ma.
Running through the due diligence procedure, she said, it
requires full product information, including product type,
timber species, quantity, supplier name, plus information
on the country of origin and details of the supply chain.
Supporting documentation is required and a summary of
risks of illegality involved. If the risk is greater than
negligible, importers must detail mitigating action.
※The key for UK companies is to liaise with EU suppliers
as soon as possible,§ said Ms Ma. ※EU companies need to
know the information required of them and UK importers
if the supplier is willing to share it. Some EU suppliers
may regard details of their supply chains, as
commercially sensitive and confidential and be reluctant to
divulge them.§
Importers, she advised, should also ＆prioritise
engagement＊ with EUTR/UKTR issues, focusing first on
more complex supply chains.
Bhaven Bhatt, enforcement team leader at the OPSS,
stressed that the meaning of the term ＆operator＊ for UK
importers will also change on Brexit. Previously the
＆operator＊ was the importer who ＆first placed＊ timber on
the EU market. Under the UKTR that will be ＆first placed
on the UK market＊.
Similarly the definition of a ＆trader＊ will change from a
company that buys or sells a product already placed on the
EU market to one who buys and sells goods already placed
on the UK market.
Under those terms, operators will have to undertake due
diligence on their suppliers, and traders to identify
operators or traders who have supplied them, and, where
applicable, the traders to whom they sell.
Likewise, EU companies which buy timber products from
the UK will be classed as ＆operators＊ and have to
undertake due diligence on their suppliers under the
EUTR.
In terms of its implementation of the UKTR, the OPSS
says it will operate as it did with the EUTR on the basis of
illegality risk assessment of product, source of supply and
supply chain. The difference will be that this risk
assessment will now be extended to EU countries and
suppliers.
OPSS Environmental Enforcement & Compliance Team
Manager Deanne Hughes said that initially post Brexit,
some allowance would be made for companies
undertaking due diligence for the first time to enable them
to bed systems in. It will also provide guidance on UKTR
observance.
※Of course we will enforce the regulation, but we will also
focus in the early days on supporting companies＊
compliance with its requirements,§ she said. ※However,
we will expect others who import from outside the EU and
are already experienced in due diligence, to immediately
apply the same processes to the same standard to imports
from the EU.§
The OPSS said it is also focused on continuing
improvement of its administration of the EUTR/UKTR.
※We are sharing information with other stakeholders,
developing relationships with NGOs and other bodies and
advancing scientific testing of timber,§ said Bhaven Bhatt.
※We＊re currently working with London＊s Kew Gardens,
the Department for Environment (DEFRA) and other
stakeholders to create a collection of timber samples that
include GPS tracking to increase capacity for origin
testing.§
The OPSS also reports its third successful prosecution of a
company for breaching the EUTR. The business is a
Birmingham-based furniture importer, although further
details were not available at the time of publication.
Earlier this year, the UK also pledged continued
commitment to developing its relationship with and
imports from Indonesia under the Forest Law
Enforcement, Governance and Trade initiative (post-
Brexit, as part of a bilateral economic, environmental and
development cooperation).
The official statement from talks was that the two would
work together to ＆maintain FLEGT timber trade once the
UK leaves the EU＊.
This agreement builds on a ＆statutory instrument＊
introduced by the UK Government last year, making
＆minor and technical amendments to the existing [EU
FLEGT] legislation to ensure it is operable after exit from
the EU＊. These changes included amending references to
the EU, EU institutions and EU administrative processes
to UK equivalents and updating legal references to refer to
relevant UK legislation.
※The intention is to have a UK Timber Regulation
(UKTR) and UK Forest Law Enforcement Governance
and Trade regulation (UK FLEGT) that tackle illegal
logging and ensure the demand for, and supply of, legally
harvested timber for the UK market,§ stated the
government memorandum on the instrument. This also
involves a UK/Indonesia FLEGT Partnership Agreement
replicating the EU FLEGT VPA.
However, the OPSS points out that there will be a
difference in UK administration of FLEGT post-Brexit.
※While FLEGT-licensed goods imported direct from
Indonesia will be able to be imported without further due
diligence [under the UKTR], if they enter the UK via EU
and EEA countries, the UK importer will be responsible
for carrying out due diligence,§ it stated.
Some feel the increased administrative burden resulting
from UK companies having to put all timber imports from
the EU through UKTR due diligence, including FLEGTlicensed
goods transiting the EU, could lead to a
narrowing of the importer pool.
※We saw this when the EUTR was introduced, with
smaller operators in particular opting to become ＆traders＊
to avoid doing due diligence and minimise their risk.
Instead, they sourced from larger UK importers with more
resources and know-how in this area,§ said one company.
※We may see another wave of this after Brexit.§
At the same time, others saw EU and UK Timber
Regulations ultimately operating smoothly alongside one
another and also the UK continuing to work with the EU
on the development of EU/UK FLEGT initiatives.
※First most timber, including tropical, coming from the
EU is likely to be considered low risk under a UK timber
regulation because EU importers will have put it through
their own due diligence,§ said an importer-distributor.
※Also the UK was a major advocate of both EUTR and
FLEGT and it won＊t want do put at risk what＊s been
achieved with either in terms of combating illegal timber
trade. There may be initial teething problems immediately
after Brexit, but both sides will want to see continued
close collaboration in this area. That should include, for
instance, ongoing liaison and intelligence sharing between
competent authorities in the UK and the EU. After all, we
ultimately share the same ambition, to keep illegal timber
out of our markets.§
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