As we near the culmination of our third UK lockdown, it is impossible to ignore the detrimental effects the past 12-14 months has had on almost all businesses, in all sectors, and of course the personal impacts this has created too. With May 2021 now seeming like we are emerging back into some normality, it is looking to be a bumpy road ahead for the construction industry and those associated sectors.
At Worcester Timber Products we are committed to keeping our customers well informed, committed to supplying a range of products and services, ethically sourced, at affordable prices. However, this is a continuing challenge with updates from suppliers, manufacturers and the global haulage sector changing almost by the day. It is so fluid that we thought we would put together this post to explain the many factors at play that creating stock issues, extending lead times and price increases.
Shipping is at breaking point
Shipping continues to be a huge hurdle in the supply chain, with container shipping struggling to maintain service levels. In 2020 and 2021 we saw a collapse in overall consumer demand as many non-essential shops had to close stores. Many retailers and suppliers requested a delay for cargo in transit. This has now changed. As we approach peak trading, demand for containers and space on freight ships has rebounded. Along with an increase in demand for ‘lockdown’ essentials and items in demand e.g. European Fence Panels, Hardware and much more familiar day to day items; this is pushing maritime supply chains to breaking point.
Container shortages and freight issues have become the new normal for businesses worldwide, but further exacerbated by recent events in the Suez Canal. There is zero doubt that all these factors have had a big impact on the UK’s construction and timber industries. Despite massive forward planning and engagement with principal suppliers, it is continuing to be frustrating for all, with little to no control for those on the front line.
The UK has seen a serious shortage of Timber from key global sources during the global pandemic. This has and will ultimately have a knock-on effect lasting to the end of 2021. In previous years, timber supplies have been readily available, with quieter periods such as Autumn and Winter used to rebuild stocks. However, the current shortage supersedes any before seen situations. The coronavirus outbreak has affected every step of the supply chain, including transportation. Due to this shortage, many companies now find themselves in a difficult situation. Many are losing money and trading in an industry that is in unchartered territories. Some, unfortunately, face closure. Planning is vital for those wishing to get their hands on timber.
Airfreight price increases
Albeit no direct impact into the timber industry, airfreight capacity is another issue which is causing a new type of impact. As passenger flights have been halted during the pandemic, and passenger flights carry most air freight, freight forwarders across the world have pushed up the prices because of a huge increase in ocean and air freight rates. In some cases, prices have quadrupled. A container pre-March 2020 may have cost approximately £1,800 to ship from East Asia to Europe. This same container could now cost as much as £12,000, and that is assuming there is a container available to book.
Increased demand through DIY
Price increases have been further spurred on by strong demand amid a boom in home renovation and construction during lockdown, fuelled by the stay-at-home lifestyle this has encouraged homeowners to expand or update their existing surroundings. The demand has effectively paralysed manufacturers abilities to restock inventories quickly enough to fulfil demand, additionally supporting price increase. For example, the USA saw a high-speed surge in demand which could not be maintained through their already established supply chains. Housing starts in the USA have reached an annualised figure of 1.6 million and are expected to continue to increase. Demand for timber has grown accordingly pushing prices to record levels with potential for further substantial increases. This has led to key suppliers of Europe diverting their stock to the USA. In contrast China, the world’s fastest growing Economy, has slowed from 18% annual growth to 6% and falling.
The shortage of C24 timber across the UK and Ireland (which is of a much higher standard than that of C16) has resulted in many large merchants unable to risk having gaps on their shelves and are therefore prepared to pay whatever it takes to secure the required volumes. For homebuilders and contractors, this has pushed the cost of projects far higher than it was in early 2020 – softwood timber prices are now totalling around 112% higher than they were a year ago. Supplies remain tight, as demand is strong in the UK and overseas and merchants are looking to build stock. Against January last year, C16 and C24 prices gained between 60-70% but some traders are sure that a peak has yet to be reached.
The state of the Timber Industry
Timber is still being imported and produced in the UK; wholesalers with forward purchasing strategies are receiving their materials.
Due to pandemic-driven factors and high domestic and international demand, the formerly-abundant stock levels enjoyed by buyers in the UK have not been able to be re-built since the beginning of the pandemic in 2020. Supply will tighten throughout 2021 progresses; sawmills in Europe normally enter a period of shut-down for repair, maintenance and holidays in June/July/August. Demand continues to be high, particularly for structural and other softwood materials, panel products and hardwoods, across the world. This will exacerbate the situation.
Across the globe, lockdowns and the consequent move to home-based working have altered market dynamics; unprecedented international demand continues for house-building, DIY projects, garden improvements, home extensions, home offices and other refurbishments.
House-building in the UK was initially shut down by the pandemic in 2020 and is now moving swiftly to catch up, further pressuring supplies. Government emphasis on revival in construction as a lead into expanding the economy is also influencing the demand curve. Exceptionally high global demand for timber, as its carbon storage potential in construction is grasped and embraced across construction, combined with supply pipeline restrictions, and motivation pricing upwards; demand is outstripping current production capacity
Other countries internationally are prepared to pay higher prices than traditionally agreed by UK timber purchases, heightening the perception of value. UK-Grown timber supplies are insufficient to replace the level of imported timber demanded by UK construction and refurbishment. Brexit-related factors are also affecting the ability of importers to import. Around 80% of softwood used in Britain’s buildings, fit-out and refurbishment sectors comes in from countries in the EU and further afield on the continent. This rises to around 90% in new-build housing.
What is on the horizon for 2021?
By the last quarter of 2020, imports of timber were already reaching record levels and there was no unsold stock in the UK. Imports continued at record levels through Q1, 2021, with all stock pre-sold on customer allocations.
Timber suppliers are doing their best to service customers but the level of demand is currently higher than can be swiftly gratified by existing production facilities and available input suppliers across the UK and Europe. This applies to both timber and panel products. The Builders Merchant’s Building Index (BMBI) showed sales of timber and joinery products up over 18% in January 2021 compared to January 2020, indicating the continuing strength of domestic refurbishment and building demand.
Housebuilders continue to ramp up work on site. The value of construction projects (under £100m) starting on site in the three months to April 2021 was 30% higher than the same period last year, according to industry analysts Glenigan. The Federation of Master Builders’ Q1 State of the Trade Report shows the fastest rise in enquiries for 10 years; repair, maintenance and refurbishment work is seeing the strongest revival/ These factors in turn impact demand and thus supply.
Some timber-producing countries traditionally supplying the UK have instituted log export bans, which puts additional pressure on supplies. The Republic of Ireland, the nearest supplier to Britain, is having is own internal difficulties over log harvesting, impacting the UK construction supply chain. Higher log prices are already being paid by sawmills at home and abroad; higher costs are then passed through national and international supply chains.
Brexit-related issues, including logistics, will continue to play a part in supply problems while difficulties with due diligence paperwork and new plant health requirements, plus the situation with movements to and from Northern Island continue unabated. All these factors contribute to making it more difficult to import timber products in order to fulfil demand. The Timber Trade Federation’s UK Softwood Conference in March revealed that softwood demand is forecast to increase worldwide at least until 2025, and will likely continue upwards for some years to come. The situation for buyers, both on upward price trajectories and on tight supplies, is thus unlikely to change at anytime in near future.
So what does this mean?
As we are yet to see a slow-down in price increases from manufacturers and wholesalers, resulting from the global pandemic and additional disruptions within global supply chain, it is with great frustration that many suppliers and merchants are being forced to increase some of their pricing. The decision will not be taken lightly, but it is a direct result of the increasing scarcity and cost of raw materials. Whilst Worcester Timber Products have been able to absorb much of this and only passed on essential cost increases to date, the company is continuing to pay a premium price to secure stock and ensure prompt delivery.
Both timber and steel are proving incredibly difficult to obtain, particularly at a fair price, and concrete is near impossible to secure for many operators. Like others, we seek to fly the flag for Britain and secure British Products wherever possible. To aid communication we have invested significantly in behind-the-scenes systems and a new e-commerce platform. This now enables us to have a real-time visibility on a large range of stock items and manages expectations by detailing stock levels and expected lead times for ‘back order’ items. In addition, an integrated delivery system will now communicate real-time with customers on their delivery. We continue to work very closely with our principal suppliers and conducting due diligence with new suppliers to ensure a stock levels are returned to normality as soon as possible.
As a family business, our application of consistently high standards is the foundation of everything we do but like nearly all retailers and merchants, much of the challenges are beyond our control. Rest assured Worcester Timber Products are doing absolutely everything with our power to keep supply readily available, to keep prices as consistent and as competitive as possible.