EXPORTING JOBS OR LUMBER
What will be the affect of increasing furniture imports?
Weekly Hardwoocl Review, May 14, 1999
The recently completed International Home Furnishings Market was called one of the best in recent years in terms of orders, the reception of new introductions and the outlook for purchases by retailers in the coming year. But the fact that furniture imports are continuing to capture a rising share of US markets has not been well publicized. This shift to offshore manufacturing could have a significant impact on how and where hardwood producers market and ship lumber.
For some shippers the rising tide of imports means potential sales of hardwood lumber may increase to those countries producing the furniture that we are buying. Furniture/Today is a recognized authority on the furniture industry, and in their reporting upon the recent market they published the following comments. "History also may regard April's show as a watershed moment in importing, a time when the fears and concerns of many retailers were put aside in order to embrace the values being served up by trading companies and domestic producers alike."
A few months ago we read in one publication that we are transitioning from manufacturing based industries in the US to sales and marketing based industries. In the case of the furniture industry this trend may signal that the manufacturing of furniture will be transferred to low cost producing countries with the design and marketing done here in North America.
From all reports, those companies that are strictly import sellers and those domestic manufacturers that bring a portion of their offerings from overseas, did very well at the market. A few years ago many manufacturers refrained from imports, fearing problems with shipments, quality and other issues. Now the furniture industry, with a few exceptions, is hell-bent on buying overseas. China, because of its low costs and modern manufacturing plants, has become the choice of many, Indonesia, the Philippines and Taiwan are still big sellers, but even they are losing business to the Chinese.
In 1998 China sold more furniture to the US than any other country. Chinese furniture exports totaled $1.84 billion dollars, surpassing Canada, the long-time leading shipper of furniture to the US. In 1998 China shipped 42% more furniture than in 1997, which was up 47% over the 1996 figures. Overall, the value of furniture imports rose 18% in 1998 over the prior year to $8.33 billion dollars. In 1998, shipments of wood furniture from China had gains in almost every category. Bedroom furniture increased by 21%, bedding was up 129%, dining room sets rose by 47% and chairs increased 14%. In a recent speech one furniture executive stated that he expected that there would be no wooden chairs made in the US in 10 years!
In comparison, US exports of furniture to China were hardly noticeable in 1998. As seems normal nowadays, the US ran a trade deficit in furniture, exporting only $1.7 billion or about $1 for every $5 imported. For the furniture plant worker who depends on his job for a living this has to be a concern. Of course he or she can be retrained, but how many have the skills or ability to move and find another job? While the strong US economy conceals many of the problems of rising imports, if it ever slows, what will the US do when unemployment reaches 6%, 7% or 10%? Will we look at free trade in the some light as we do today with low unemployment and inflation?
The rising tide of furniture imports shows little signs of slowing. In one article in Furniture/Today, a retailer from Los Angeles was interviewed. This retailer said, "We have been importing the majority of our dining room for the last two years. By the fall selling season we think most of our bedroom will be imported also." Imports today represented about 25% of his bedroom lineup. By the end of the year he said he wants that figure up to 75%, leaving only a quarter of that category for domestic products.
As we noted, there are exceptions to the import mania. Ethan Allen, Stanley and Richardson Brothers all remain committed to manufacturing in the United States. But, these companies are few and the majority seem committed to following the herd to the For East, Mexico or South America.
Where do free trade and free enterprise mesh with the need to deliver jobs to workers? There are no easy answers to that question. However, as a nation we need to do more to make sure that "free" trade is also "fair" trade as we are excluded from shipping furniture and other manufactured products by protectionist tariffs to many countries. If, as the textile and footwear industry have done, the furniture industry exports jobs to low labor countries, what will be the end result for the hardwood industry? How will it impact furniture plants, dimension manufacturers and the primary hardwood lumber producers?
The big question concerning imports continues to be will these countries be long-term reliable suppliers? Freight will be a problem unless these countries can increase their purchases from the US, as empty containers will continue to pile up in Long Beach, Jacksonville, Norfolk and Baltimore. Containers for shipment from China to the US will be at a premium and freight companies will raise their rates. On May 1, 1999 freight increases of $900 to$ 1,000 per 40' container from the Far East were imposed.
In order to help get containers to where they are needed, we now are seeing record low
freight rates for lumber shipments to the Far East. But if there continues to be such a
scramble for empty containers, how long will it be before lumber shippers are asked to
ship half-full containers just so the manufacturer has a box in which to return finished
furniture? The onslaught of imported furniture is driven by lower costs. However, the real
impetus behind this trend began with the devaluation of many Far Eastern currencies in
1997, which left their manufacturing costs even lower than before relative to the US.
This decline in cost structure is impacting not only the hardwood industry, but also the pulp and paper industry. A.D. "Pet"' Corell, President and CEO of Georgia-Pacific noted in a recent speech that the devaluation of the Indonesian currency has made the cost of manufacturing market pulp about $130 per ton in Indonesia verses $400 for US production. Already US manufacturers are closing mills or wood yard operations. Proctor and Gamble closed their wood yard operation for their Mahoopany, PA mill, opting to instead purchase Eucalyptus pump from Brazil. More will follow the some path.
For exporters it appears that the market is very bright if we assume that foreign plants manufacturing furniture for our markets will use temperate North American hardwoods. Unfortunately, that is not always true, as many countries produce lumber from species that can be finished to look like North American species. To some extent when lumber enters the world markets it loses some of its identity. One example is the ongoing competition from European Beech with traditional Hard Maple markets. The other problem is that overseas buyers look for value in their lumber purchases. This often means the buyers look for cheap wood, rather than the temperate hardwoods from North America, which are often more expensive.
The US is handicapped in trade as we have numerous regulations impacting how we operate. In Fiscal Year 1998, some fifty-three Federal departments and agencies and nearly 130,000 employees will spend over $17 billion writing and enforcing federal regulations. Professor Thomas Hopkins at the Rochester Institute of Technology estimates that the hidden taxes of regulation cost American business $700 billion per year or about $7,000 per house-hold. In coming months the Environmental Protection Agency is going to issue new rules on particulate matter and ozone which will impose real costs on the furniture industry. Regulations will serve to drive business out of the US to countries where regulations are not so restrictive.
The final result of the impact of expanding furniture imports will not be known for a number of years. However, in just a few years 50% of the wood furniture sold in the US will be imported from other countries. For those supplying the furniture industry, this likely means major changes in how lumber is marketed and ultimately shipped. For those manufacturing furniture, this probably means more of an emphasis on design, marketing and cost management by leveraging lower cost opportunities overseas against current production capabilities. One thing is for certain, to compete effectively, manufacturers and those supplying their needs must think globally as the market-place is continually evolving.