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Report from
Europe
UK tropical wood imports slowdown
The rebound in UK imports of tropical wood products as
the first wave of the pandemic receded in summer last year
slowed in the last quarter of 2020 as the country, like
much of the rest of the Europe, reimposed lockdown
measures in response to the second larger wave which hit
at the start of the winter months.
In addition to a slowdown in overall UK business activity
at the end of 2020, there are also reports of severe supply
problems in the UK building sector, including for products
imported from South East Asia and China, due to limited
container space and rising freight costs.
Total value of UK imports of tropical wood and wood
furniture months increased only slightly from US$98
million in October to US$100 million in November, but
then receded again to US$95 million in November (Chart
1 above).
Total UK tropical wood and wood furniture imports in the
11 months to November 2020 were US$892 million, 23%
less than the same period in 2019.
When the recovery in the UK economy began to slow in
the last quarter of 2020, GDP in October 2020 was still
8% percentage points down compared to February 2020
just prior to the pandemic (Chart 2).
The IMF now estimates that UK GDP contracted 10% for
the year in 2020, the biggest fall of any G7 country, and
forecasts that GDP will expand by 4.5% this year, down
1.4% points from the IMF¡¯s previous 5.9% growth
forecast published in October.
According to IMF, the recent acceleration of the UK¡¯s
vaccination programme is not expected to give an extra
boost to UK growth until 2022 when the forecast growth
rate has been upgraded by 1.8 percentage points to 5%.
This aligns closely with the latest forecast by UK
Treasury¡¯s independent spending watchdog, the Office for
Budget Responsibility (OBR), which also indicates that
the UK economy will not return to its pre-crisis level until
the end of 2022, at the earliest.
Strong demand but freight problems lead to shortages
A positive factor for the UK timber trade in 2020 was that
the initial downturn in construction sector activity, which
is a key driver of timber demand, during the first ¡°great
lockdown¡± was short and followed by a stronger rebound
than other areas of the economy.
This rebound was losing momentum in the last quarter of
2020, but not before overall construction activity was
nearly back to pre-pandemic levels. Repair and
maintenance activity, both for housing and non-housing,
an important driver for hardwood demand, was actually
slightly higher than before the pandemic (Chart 3).
IHS Markit Purchasing Managers Index data for UK
construction in December was also positive showing that
the rebound in UK construction activity continued during
the month. According to IHS Markit, new order levels for
UK construction increased for the seventh successive
month.
But according to IHS Markit, the combination of the
pandemic and Brexit meant that supply chains to the UK
construction sector were ¡°groaning at the seams and
delivery times increased to the most dramatic extent for
six months. Low availability for finished products and raw
materials as a result of port disruptions added to builders¡¯
woes as suppliers named their price for goods in acutely
short supply and input price inflation increased to its
highest level since April 2019¡±.
Reports from UK trade associations and business groups
highlight the development of a short supply situation for
building products in the UK driven by a combination of
strong demand and COVID and Brexit related supply
problems. According to the Builders Merchants Federation
(BMF), which represents 760 merchant and suppliers
companies in Britain, high demand, escalating prices for
shipping and delays at some British ports were all having a
¡°major impact¡± on the supply chain.
John Newcomb, chief executive of BMF, said: ¡°Merchants
have seen an exceptional demand for building materials
since the first lockdown.
In November, we saw an average growth of 9 per cent
across our membership compared to the same time last
year.
Looking at December¡¯s figures, we are predicting that
growth could be double digits, and that¡¯s unprecedented.¡±
More specifically on timber, it was noted that ¡°prices in
the UK have risen by an average of 20%¡±.
Housebuilders are racing to complete thousands of homes
ahead of deadlines for the UK government¡¯s Help to Buy
scheme and stamp duty holiday in February and March,
two measures introduced in 2020 to support the economy
during the pandemic. Some of Britain¡¯s biggest builders
including Persimmon and Taylor Wimpey have reported
record order books for the year ahead, as buyer demand
shows no sign of abating.
A spokesman for the Home Builders Federation, which
represents UK housebuilders, said: ¡°Demand remains
strong and whilst builders are committed to completing
homes and increasing supply some constraints have
emerged. Shortages of certain products are being
experienced, alongside Covid-related delays but it is
hoped these will be short term.¡±
The BMF said there has been a surge in costs of building
products shipped in containers from the Far East, which
was already a concern at the end of last year. Mr
Newcomb said: ¡°We continue to see issues with the
availability of products imported in containers, mainly
from the Far East¡±.
Container freight rates from Asia to the UK increased
almost fourfold between November and the end of January
to reach US$10,000 for a 40ft unit for the first time, amid
a global rebound in demand for consumer goods and
materials, ships mothballed with their containers and crew
and congestion across UK ports, where many empty
containers have been left stranded making carriers
particularly reluctant to take bookings for the UK .
The global rebound in shipping demand has been
compounded by Britain¡¯s hurry to stock up on materials
and goods before the Christmas season and the severing of
ties with the EU. This left many shipping containers
stranded by warehouses and on the quayside of ports
across the UK and Europe, after the influx of freight at the
end of last year.
Brexit deal does little to reduce UK costs of trading
with the EU
The Brexit transitional period came to an end on 31
December when the UK left the EU single market.
Contrary to expectations of a ¡®no-deal¡¯ - heightened earlier
in December owing to continuing differences on the ¡°level
playing field¡± for competition, fisheries, and dispute
resolution - an ¡°EU-UK Trade and Co-operation
Agreement¡± was eventually signed on 24 December. This
combines a Free Trade Agreement with an overarching
governance framework.
The signing of the deal means that the worst consequences
of a ¡°no-deal¡± scenario have been avoided, notably that
there will be no tariffs imposed on bilateral trade between
the EU and UK and there is an agreed governance
structure for refining the details of future trade relations in
specific sectors and for arbitration in the event of disputes.
However, it does not alter the fact that the UK has left the
single market and the days of ¡°frictionless¡± trade between
the UK and EU are over.
What this means in practice is now becoming apparent.
The deal is notably thin, not covering the 80% of the UK
economy accounted for by services and, while providing
for zero-tariff trade, it does not exempt UK companies
from the red tape associated with a customs border,
including the need to handle customs declarations for
imports and exports.
In the first few weeks of January, hundreds of trucks a day
are being fined or turned away at cross-channel ports
because they do not have the right paperwork, according
to UK border officials in their reports to UK government.
At the worst point during January, one in five lorries
bound for the EU from the UK was turned back from the
UK border.
This is having a severe knock-on effect. Many companies
on both sides of the border have stopped exporting to
avoid getting caught by new customs regulations and
because of significantly higher transaction costs. At the
end of January, the UK Road Haulage Association (RHA)
said that freight exports to the Continent are still
significantly down on expected levels nearly a month after
the end of the transition period.
The RHA also warned that European hauliers, who make
the bulk of the deliveries into the UK, were starting to
reject UK-bound shipments. In addition to the delays and
extra paperwork, these trips are now much less profitable
because of a 40% decline in UK goods being sent to the
EU since Brexit and many lorries returning empty.
According to the RHA, new requirements for COVID tests
are also very unpopular and having an effect on the
number of hauliers prepared to make the trip.
The worst predictions for chaos and massive tailbacks at
cross-channel ports, leading to shortages in UK supplies of
essential goods such as foods and pharmaceuticals, were
avoided in January as companies had stockpiled goods in
anticipation of a hard Brexit. However there is now rising
concern that the logistical problems in UK trade with the
EU will worsen as stockpiles have been depleted and
cross-Channel trade is due to pick up in February and
March.
Considering the longer-term implications, the UK tax
office (HM Revenue & Customs - HMRC), stated in
evidence presented this month to the UK parliamentary
committee on Brexit impacts, that British businesses will
spend GBP7.5 billion a year handling customs
declarations for trade with the EU ¡ª as much as they
would have done under a no-deal Brexit.
Jim Harra, chief executive of HMRC told MPs that the
number of customs forms needed to trade with the EU
under the Brexit deal ¡°is not materially different from a
no-deal situation¡±.
Mr Harra said that revenue estimates from October 2019,
which found that the cost of no-deal to UK and EU
business would be GBP15 billion a year, still held true
under the deal, with half the bill landing on each side.
HMRC¡¯s impact assessment said that British businesses
would need to handle 215 million more import and export
declarations a year.
The complexity of new ¡°rules of origin¡± has proved highly
disruptive for many UK businesses, particularly those that
use the UK as a distribution hub for the rest of the EU.
The trade agreement only allows for duty and quota free
trade between the UK and EU if exports meet stringent
content requirements. Manufacturers must use a specific
and high proportion of ingredients or parts made in the UK
or the EU, the actual percentage varying depending on the
product group.
This means that manufacturers exporting to the EU from
the UK, and vice versa, must now be able to prove where
all the parts came from. Manufacturers faced with similar
free trade deals will often choose to accept the cost of the
tariff to avoid the cost of all the paperwork.
UK trade relations after Brexit
Having achieved Brexit, the question now arises, what
exactly does the UK government want to do with it? Given
the additional costs and obstacles to trade with the
country¡¯s nearest neighbours and largest overseas
customers, which are self-evident, the UK now needs to
find some benefits.
For the past 45 years, Britain¡¯s economic model has been
clear: to make itself the most attractive destination for
investment by firms looking for a hub for their European
operations. As businesses are discovering, that model can
no longer be sustained now that Britain is outside the EU¡¯s
single market and customs union. The UK government has
yet to clearly articulate what model it believes should take
its place to kickstart the business investment essential to
any sustained recovery.
One objective is apparent: to encourage greater direct UK
trade with a wide range of countries outside the EU. A
key idea behind Brexit was to give the UK greater
freedom to negotiate trade agreements with partners
outside the EU that more directly benefit UK interests.
Certainly, the UK has been busy securing trade
agreements since the Brexit decision. In the last 2 years,
the UK has agreed trade deals covering 65 countries
outside the EU. However, nearly all these just roll-over
existing EU agreements and largely replicate the terms of
trade that the UK previously enjoyed as part of the EU.
An agreement signed with Japan in October was the first
to differ from an existing EU deal, going further in areas
such as e-commerce and financial services, but according
to Dr Minako Morita-Jaeger, International Trade Policy
Consultant and Fellow at the University of Sussex: ¡°while
the Agreement has a certain political significance, its
economic impact is likely to be very small. This is because
it contains very limited improvements relative to the EUJapan
Economic Partnership Agreement (EPA).¡±
The same is true of the UK-Vietnam Free Trade
Agreement (UKVFTA), signed on 29th December, which
also inherits most of the contents of the EU-Vietnam FTA
(EVFTA), with only minor differences in relation to the
UK¡¯s commitments to tariff exemption for a limited range
of Vietnamese agricultural products and differing
commitments from Vietnam to opening the service market
for British businesses.
Potentially more significant, and directly relevant for
tropical wood suppliers, was the announcement in January
by Liz Truss, the UK Trade Secretary, that the UK will
shortly submit a formal request to join the Comprehensive
and Progressive Agreement for Trans-Pacific Partnership
(CPTPP), the free trade area comprising Australia, Brunei,
Canada, Chile, Japan, Malaysia, Mexico, New Zealand,
Peru, Singapore, and Vietnam.
The UK government has taken other steps to integrate with
Asia¡¯s regional blocs following its successful bid to
become a Dialogue Partner of the Association of Southeast
Asian Nations (ASEAN). As a Dialogue Partner, the UK
gains high-level access to ASEAN, alongside enhanced
practical cooperation on various policy issues with the
regional bloc. It also enables the UK to join other
important dialogue partners, including the US, China, and
India.
On the other hand, the UK government¡¯s hopes of striking
an early trade deal with the US ¡ª seen as one of the
biggest prizes of Brexit ¡ª have faded after new warnings
that such a deal would not be a priority for President
Biden¡¯s new administration. While the UK government
claims that much of the work needed to secure a trade deal
with the US has been done already, it has also admitted
that an agreement is unlikely in 2021.
The most difficult areas of a UK-US deal ¡ª including
agriculture and pharmaceuticals ¡ª are still unresolved and
in any case the US is now more likely to prioritise a
possible EU trade deal. The UK¡¯s hope of facilitating
greater trade with the US may now lie in the Biden
administration¡¯s decisions on CPTPP participation.
How can UK businesses become more internationally
competitive?
In addition to trade agreements, the UK government is
consulting business leaders to provide ideas for so-called
¡°regulatory divergence¡±; ways and means by which UK
businesses may be made more internationally competitive
by moving away from the EU¡¯s regulatory regime. But
here again there are no easy options or quick wins.
According to The Times, ¡°the government¡¯s problem is
that businesses aren¡¯t clamouring for Britain to diverge
from EU rules. Rather the opposite¡.no one is demanding
a watering down of employment and environmental
regulations¡±.
On the contrary, they are keen to abide by rules which are
already well embedded into their business operations that
are demanded of their large customers in the EU, and any
move to deregulate now carries the risk that the EU will
retaliate by putting up additional barriers to trade. The
Times concludes ¡°the clamour in many sectors right now
is not for divergence but convergence¡±.
It is still early days and perhaps in time new opportunities
will emerge from Brexit for businesses in the UK as they
adjust to the new trading regime and are, in effect, forced
to increase their global competitiveness as they no longer
have friction-free access to the large EU market.
However, at present, it is hard to see how the new
opportunities will be sufficient to offset the significant
new obstacles imposed on trade with the UK¡¯s nearest
neighbours and largest export markets. In practice, the
pressure from UK businesses is likely to be on retaining
high levels of access to the EU market, even at the price of
foregoing divergence with EU rules.
Implications of Brexit on demand for tropical wood in
the UK
The long term effects of Brexit on UK imports of tropical
wood products are still far from certain. At present, even
the short term effects are obscured by the unprecedented
disruption to supply chains, shipping operations and
markets during the COVID pandemic.
However, it seems likely that, despite the agreement of a
trade and co-operation agreement with the EU, the relative
competitiveness of EU-based suppliers of wood and wood
furniture products that previously benefitted from
completely frictionless trade will be reduced in the UK
market. Tropical suppliers will be competing on a more
level playing field in this market.
Furthermore, the early signs of serious disruption in the
trade between UK distributors and large hardwood traders
in continental Europe, notably in Belgium and the
Netherlands, has some potential to encourage (once again
more direct imports of tropical woods into the UK.
On the other hand, the ability of UK importers themselves
to distribute tropical wood products across the EU is now
much diminished. Furthermore, the potential gains due to
tropical suppliers increased competitiveness in the UK
may well be insufficient to offset the longer term drag on
economic growth now that the UK has left the single
market.
The UK government's own 2018 analysis of the impacts of
various different UK-EU trading relations following
Brexit suggests that in the scenario closest to the actual
outcome - a free trade agreement with tariffs on goods and
non-tariff barriers equal to those in an average trade deal
with the EU - the UK economy will be between 4.9% and
6.7% smaller fifteen years from now compared to
continued EU membership.
Other implications of Brexit for tropical wood supplies in
the UK were discussed in the December market report
(ITTO TTMR Volume 24 Number 23, 1-31 December
2020 pages 27-30). The conclusions drawn there with
respect to introduction of the UK¡¯s new ¡°Global Tariff¡±
regime, the due diligence requirements of UKTR
compared to EUTR, construction product standards, and
phytosanitary requirements, are unaltered by the details of
the EU-UK deal signed on 24 December.
UK tropical wood furniture imports down 23% to
November last year
Overall UK imports of tropical wood furniture products in
the eleven months to end November last year were
USD506 million, 23% less than the same period in 2019.
Imports gained momentum during October, rising to
USD57.7 million compared to USD55.3 million in
September, but then slowed a little to USD56.3 million in
November.
Comparing the first eleven months of 2020 with the same
period last year, UK imports of wood furniture declined
sharply from all the leading tropical supply countries
(Chart 4).
Imports from Vietnam were down 30% to USD242
million, imports from Malaysia fell 21% to USD111
million, imports from Indonesia declined 25% to USD46
million, imports from India fell 26% to USD37 million
and imports from Thailand were down 22% to USD16
million. In contrast, there was a 50% rise in imports from
Singapore, to USD41 million.
The current quantity and direction of international trade in
furniture is heavily influenced by freight issues. In an
article in the Guardian newspaper on 27 January, Vincent
Clerc, chief commercial officer for Maersk, the world¡¯s
biggest shipping company, is quoted as saying there are
¡°simply not enough containers in the world to cope with
the current demand¡±.
He said that recent lockdowns in the UK and across
Europe may even spur further online purchases of
consumer goods including furniture for ¡°at least for some
weeks ¡ It is really crazy how much we are moving at the
moment, huge amounts,¡± he said.
The Guardian refers to one factor that might be driving
recent growth in UK furniture imports from Singapore,
noting that ¡°Giant container carriers left off the coast of
Singapore during the most stringent coronavirus measures
last spring have already re-entered the shipping market to
help ship containers to Europe¡±.
Pace of UK tropical wood products imports slows in
November
UK imports of all tropical wood products in Chapter 44 of
the Harmonised System (HS) of product codes in the
month of October were USD42.3 million, the same level
as in September, but declined to USD38.6 million in
November.
Comparing the first eleven months of 2020 with the same
period in 2019, total UK import value of tropical wood
products was, at USD386 million, 23% less than the same
period in 2019.
Import value of joinery products was down 10% at
USD143 million, tropical plywood was down 32% at
USD118 million, tropical sawnwood fell 23% to USD69
million, and mouldings/decking declined 36% to USD16
million (Chart 5 above).
After making gains in 2019, UK imports of tropical
joinery products from Indonesia, mainly consisting of
doors, fell 15% to USD81 million in the first eleven
months of last year (Chart 6). UK imports of wooden
doors from Indonesia made up ground between September
and November after very low imports between June and
August.
After a strong start to the year, UK imports of joinery
products from Malaysia and Vietnam (mainly laminated
products for kitchen and window applications) stalled
almost completely in May before recovering slowly in the
summer months and gaining momentum between
September and November.
Total joinery imports in the first eleven months of 2020
from Malaysia were USD38.0 million, a slight gain from
USD37.9 million in the same period in 2019. Imports from
Vietnam were USD9.2 million in the first 11 months of
last year, 5% less than the same period in 2019.
UK trade in joinery products manufactured from tropical
hardwoods in neighbouring Ireland fell dramatically in
2020, down 18% to USD5.4 million in the first eleven
months. Imports from Brazil were USD2.3 million, down
27% in the same period.
In the first 11 months of 2020, the UK imported 241,000
cu.m of tropical hardwood plywood, 27% less than the
same period in 2019.
Of this volume, around 44% (106,100 cu.m) comprised
tropical hardwood faced plywood from China, 40% less
than the same period in 2019 (Chart 7).
UK imports of plywood from China ground to halt in the
first quarter of last when China went into lockdown. There
were hardly any deliveries from February through to early
April and UK importers were forced to live off
inventories. However imports picked up during the
summer months, rising into the autumn with the arrival of
significant volumes under delayed contracts.
Likely due to supply problems in China, UK imports of
plywood from Malaysia, which were in long term decline
before last year, recovered some ground during the
pandemic period. Despite significant slowing in May,
imports from Malaysia were still up 25% at 59,600 cu.m
for the first eleven months of 2020.
In contrast to Malaysian plywood, UK imports of
Indonesian plywood fell 41% to 31,900 cu.m in the first
eleven months of 2020. In addition to supply problems
during the pandemic, Indonesian plywood continues to
face intense competitive pressure from birch plywood
from Russia, Latvia and Finland.
In recent years, the UK has also been importing a growing
volume of tropical hardwood plywood manufactured in
Latvia. UK imports of this commodity from Latvia were
11,500 cu.m in the first 11 months of last year, 25% more
than the same period in 2019. In contrast, UK imports of
tropical hardwood plywood manufactured in Spain fell
40% to 5,400 cu.m in the first 11 months of 2020.
UK tropical sawn hardwood imports increased in the
second half of 2020
The total quantity of UK imports of tropical sawnwood
was 75,300 cu.m in the first 11 months of 2020, 20% less
than the same period in 2019. While the UK trade in sawn
tropical sawnwood fell sharply in May and June last year,
there was some recovery between July and November.
By the end of November last year, UK imports were up on
the same period in 2019 from Cameroon (+13% to 24,000
cu.m), Brazil (+14% to 5,000 cu.m) and Guyana (+110%
to 4300 cu.m).
However imports from all other supply countries were still
trailing, with declining imports from Malaysia (-24% to
11,700 cu.m), Republic of Congo (-68% to 5,200 cu.m),
Côte d'Ivoire (-28% to 3,200 cu.m), Ghana (-41% to 1,300
cu.m) and DRC (-82% to 1,100 cu.m) (Chart 8).
The UK imported 15,600 cu.m of tropical sawnwood
indirectly from EU countries in the first eleven months of
2020, 17% less than in the same period in 2019. Imports
fell 10% from the Netherlands to 8,800 cu.m and 50%
from Ireland to 400 cu.m.
However, imports increased 14% from Germany to 1,700
cu.m and 9% from Belgium to 1,600 cu.m. Imports from
Italy were stable at 1,500 cu.m.
The UK imported 6,700 tonnes of tropical
mouldings/decking in the first 11 months of 2020, 40%
less than the same period in 2019. Imports were down
47% from Indonesia at 3,100 tonnes, 36% from Malaysia
at 1,900 cu.m and 50% from Brazil at 900 cu.m.
There was significant growth from Ghana and Vietnam,
but from a small base, respectively rising 30% to 300 cu.m
and 400% to 300 cu.m. (Chart 9).
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