All Good Wood Products

• Posted on January 30, 2017
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• in Wood
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The U.S. engineered hardwood and hardwood veneer industries have struggled with today’s severe economic challenges in an atmosphere made more challenging by cheaper imports, sagging economic demand in our domestic markets, companies cutting jobs, reducing production, and sadly going out of business.

In the last few years, several major U.S. hardwood plywood, engineered flooring, and veneer plants have shut their doors permanently. The permanent loss of good paying jobs, typically in rural communities, and foregone tax revenues to the local, state, and federal treasuries have resulted. Their manufacturing equipment is often sold to Chinese producers.    

Here are the shocking macroeconomic facts from 2009:

• The U.S. exported a measly $7,000 of hardwood plywood to China and imported $389,000,000 of hardwood plywood from China.
• The U.S. continued to export $64 million of hardwood plywood; virtually all of it to Canada and the Caribbean.
• Chinese hardwood plywood has a 55% market share of the U.S. market while over 50% of the   U.S. production capacity sits idle. Five major U.S. producers are out of business in the last 3 years. 
• The U.S. exported $170 million of non-value-added hardwood logs to China and only $12 million of hardwood veneer. China slices more veneer from U.S. logs now than U.S. veneer producers do.
• The U.S. imported over $5 billion of wood furniture from China, up from the previous year. The U.S. furniture industry exported $575 million to its global markets, down 22% from 2008. Wood furniture is a major market segment particularly for veneer but also hardwood plywood.
• We have a relative even balance of trade of these products with Canada and a $5 billion trade deficit imbalance with China.

Why? How can U.S. hardwood logs be shipped to China, processed there into veneer, manufactured into hardwood plywood, engineered wood flooring, or wood furniture, then be imported back into the U.S. at 30-40%  price advantage to similar U.S. manufactured engineered hardwood products?

Certainly, cheap labor and nebulous environmental and workplace safety standards in China give producers there a huge cost advantage compared to their U.S. and Canadian competitors. The long debated fixed rate rather than floating exchange rates between the Yuan and the dollar is still stalled. Some economists estimate the Yuan is undervalued by as much as 40 percent. Then there are the Chinese government subsidies and strategic VAT rebates.

While it is true that all wood products are derived from the same raw material base -the forest; it is not true that all forest products are therefore created equally.  Start with illegally sourced logs which some economists estimate give a manufacturing company using those logs an immediate 15-20% cost advantage.

Notwithstanding that the Lacey Act requires due diligence for wood products imported into the U.S., traceability of logs to the forest that sourced them is still a major issue. While chain of custody programs including third-party certification programs such as the Forest Stewardship Council and others are commonplace in the U.S. and Canada, the same cannot be said for other regions. The Environmental Investigation Agency highlights trouble spots in Asia compared to the U.S. and Canada which are very low-risk environments for these illegal activities. We have too many lawyers and sheriffs.  
The other issue is the sustainable management of the forest resource itself. Some simple facts about the U.S. and Canadian hardwood forest: there are more trees today than in 1950 and more net growth than harvesting and death from disease and insect infestation. This cannot be said for other forested regions.

Another critically important differentiating factor is third party certification of product performance. The U.S. and Canadian manufacturers have national consensus standards for hardwood plywood and engineered wood flooring that address formaldehyde emissions and delaminating which are two major concerns if you are a consumer. With producers in North America who certify to these standards, you manage your risks and satisfy your customers’ needs with certified quality products.