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Report from
Europe
Rollercoaster ride for UK tropical wood imports
UK GDP increased 7.5% in 2021, the fastest annual
growth rate in the UK since the Second World War
and making the UK one of the world's fastest
growing economies last year. But this "rise" must be
considered in the light of the UK being amongst
countries worst affected by the COVID-19 pandemic
which led to a 9.4% fall in GDP in 2020 at a time
when there was already uncertainty due to the
country¡¯s departure from the EU.
UK imports of tropical wood and wood furniture
products have mirrored the rollercoaster ride in the
wider economy. Total UK tropical wood and wood
furniture imports in 2021 were US$1.31 billion, 27%
more than the previous year. This followed a 21%
decline in 2020 when supply and demand were
severely affected in the early phase of the pandemic.
In practice, the value of UK imports of tropical
products last year was only a marginal gain compared
to US$1.30 billion in 2019 before the pandemic and
is no significant increase on the long-term average in
the last ten years (Chart 1).
While UK imports of tropical wood and wood
furniture increased last year, tropical products have
suffered a significant loss of market share during the
pandemic (Chart 2). The total value of UK imports of
wood and wood furniture products from all countries
increased from US$8.94 billion in 2020 to US$12.65
billion last year, a gain of 42% after a 5% fall the
previous year.
The share of tropical products in total imports was
only around 10% last year, well below the long term
average of between 13% and 14% share.
In contrast to tropical products the share of UK
import value of non-tropical products from China
remained level at 23.5% in 2021 as the value
increased by 43% to US$2.99 billion during the year.
The share of UK imports of non-tropical products
from other lower and middle income (LMI) countries
increased from 5% to 6% as the value increased by
57% to US$720 billion in 2021. This was largely due
to a near doubling in UK imports from Russia and
Turkey during the year.
However, in terms of absolute value, the largest gains
in UK imports during 2021 were made by EU27
countries.
The total value of UK imports of wood and wood
furniture from the EU27 increased 46% to US$6.73
billion in 2021. This followed only a 1% decline the
previous year despite the onset of the pandemic.
The share of EU countries in UK imports increased
progressively from 49.5% in 2019 to 52% in 2020
and 53% in 2021. Expectations that the UK's
departure from the EU might lead to a decrease in the
share of imports of wood and wood furniture from
the EU and a switch to other regions have yet to be
realised.
Recent trends in UK wood and wood furniture
imports were strongly influenced by the combined
effects of the pandemic and Brexit (Chart 3).
In the two and a half years following the UK's
decision to trigger Article 50 of the EU Treaty on 29
March 2017 which began the formal process for
withdrawal from the EU, a process eventually
completed January 2020, UK imports of wood and
wood furniture from the rest of EU were more
volatile than usual. However, there was no significant
change in share of overall UK imports sourced from
the EU and other regions of supply during this
period.
The pattern changed dramatically from February
2020 just after the UK's departure from the EU and
with the onset of the pandemic. This led to a sharp,
but very brief, downturn in UK imports of wood and
wood furniture from all regions, including the EU,
during the first period of lockdown in April and May
2020.
But UK demand for wood products increased rapidly
thereafter as consumers spent less money on
transport, holidays and eating out, and invested large
sums in home and garden improvement. Spending
was further boosted by low interest rates and a huge
injection of government support to tide the economy
over the pandemic.
The sharp recovery in demand in the UK in the
second half of 2020 and in 2021 coincided with a
severe shortage of container space and other
logistical problems in other parts of the world leading
to a big rise in UK wood products imports from the
EU.
At the same time, the full effects of the new customs
controls on imports from the EU following the UK's
departure from the EU were yet to be felt last year.
Unlike the EU, which immediately imposed full
inspections on imports from the UK in January 2021,
when the Brexit transition period came to an end, the
UK introduced a phased approach.
A grace period was granted to UK importers to give
them more time to adapt to the new rules and ways of
working.
The UK¡¯s originally intended that requirements for
phytosanitary certification of UK imports from the
EU would be introduced from April 2021 while
requirements for full customs declarations on
entering the UK market, rather than submitting forms
at a later date, would be introduced from July 2021.
However, these deadlines were progressively pushed
back during 2021. In the end, full customs
declarations and controls on UK imports from the EU
were only introduced on 1 January 2022, while
requirements for phytosanitary certification and
physical sanitary checks on controlled products are
now only due to be introduced on 1 July 2022.
It seems likely that the huge surge in UK imports of
wood products from the EU in the first three quarters
of 2021 was partly driven by the desire of UK
importers to build stock in advance of introduction of
full customs checks.
The pace of UK imports from the EU fell
dramatically in the last quarter of last year, with
importers carrying higher stocks into the (typically
slower) winter season and with some signs of
slowing construction sector activity.
Uncertain prospects in UK as economic and
logistics problems mount
Now there is a considerable uncertainty as to how
UK imports will develop during 2022, both in terms
of absolute numbers and in the balance between
imports from the EU and the rest of the world.
The headline figures look quite promising. The latest
OECD outlook indicated that the UK economy will
continue to recover in 2022 with overall growth
moderating to 4.7% during the year. Construction
activity in the UK has been robust and seems quite
resilient, despite material shortages and rising energy
costs.
The IHS Markit/CIPS UK Construction Purchasing
Managers index registered 56.3 in January, up from
54.3 in December, the strongest rate of output
expansion since July 2021.
At the same time, concerns about the effects of the
COVID omicron variant have waned in the UK as
cases and deaths have fallen sharply in recent weeks
and the UK government has indicated that all COVID
restrictions should be lifted before the end of
February.
On the downside, consumer price inflation in the UK
is currently around 5.4%, with energy prices rising
very rapidly. A recent article in the Financial Times
(FT) notes that UK growth rate has also been
artificially boosted by £25bn of corporate tax
incentives and that real business investment remains
weak.
In the third quarter of 2021, investment was still 4%
below pre-pandemic levels, lower than any other
economy in the G7. And UK exports have not joined
in the global boom. According to the FT, "all this
suggests that businesses are looking relatively
unfavourably on the UK, even before corporation tax
rates rise from 19 per cent to 25 per cent in 2023".
As to where the UK will turn to for wood products
during 2022, that will heavily depend on supply side
issues, including access to log supplies, availability
and prices for containers, shifting exchange rates,
level of demand in other markets, as well as policy
measures.
It seems unlikely that UK imports from the EU in
2022 will be anywhere close to the level of 2021 as
customs controls are finally introduced and
merchants are carrying heavier stocks than the same
time last year.
On the other hand, problems of shipping and
transport logistics have become particularly
prominent in the UK market in recent months and
these may yet tie importers even more closely to their
traditional European suppliers of wood products,
irrespective of Brexit.
A recent study conducted by global logistics platform
Container xChange and applied research organisation
Fraunhofer-CML revealed that the UK currently has
the world¡¯s longest turnaround times for processing
shipping containers.
Due to the combined effects of Brexit and COVID, it
is taking an average of 51 days for cargo boxes
carrying goods from China and Southeast Asia to be
processed in UK ports due to port congestion,
shortage of warehousing space and lack of truckers
and other qualified staff. This compares to around 25
days in Germany (the next worst performing
European country) and as little six days in China.
The problems of shipping into the UK have led to
more calls for distributors and manufacturers to shift
away from their existing "just-in-time" business
model to a "just-in-case" model of bringing more
manufacturing closer to home and increasing
inventories once again.
In practice, this implies a continuing high level of
dependence on the large suppliers in continental
Europe for which turnaround times, while much
longer than before the UK left the EU single market,
still compare favourably to imports from other parts
of the world.
There are a few positive signs that global supply
chains may start to unclog before the end of this year.
For example, the FT was told by shipping giant AP
Moller-Maersk that it expects global supply chain
struggles to slowly get back toward normal in the
latter part of 2022. And while global container prices
have been very volatile around Chinese New Year,
they have eased a little from the heights reached in
the third quarter last year.
But overall, on-going supply side problems, which
are particularly pronounced for shipments into the
UK, suggest that there is unlikely to be a more
significant upturn in UK imports of wood and wood
furniture products from tropical countries during
2022.
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