Component Trends WCMA
Component Trends WCMA Members Looking For Better Times During the past several years, the U.S. and Canadian wood component industry has declined along with the overall wood products industry. The primary factors contributing to these difficult times have been the collapse of the housing industry, the ensuing credit crunch, competition from imported wood products and components, and increased competition from wood substitutes including plastic, metal, glass, ceramics, stone, etc. According to the WCMA’s latest Dimension & Component Market Study, the cabinet industry is the largest end-use market, accounting for 31% of wood component products. The building products industry had been the number one end-use market for WCMA members’ products since 1996. However, the building products industry fell to second place due to the sharp decline in the residential housing market and fall off in remodeling markets. An average of 40% of all WCMA members’ products was sold into the construction market in 2010, a decline from 43% in 2009 and 49% in 2008. Of this amount, 44% went into new housing, 34% were for remodeling projects, and 22% for commercial and other non-residential applications. This is a slight change from last year’s survey when new housing accounted for 39%, remodeling: 32%, and commercial: 29%. During 2008-2009, WCMA members shifted from residential to non-residential markets as new construction and renovation of hotels, office & public buildings, recreational, educational, and medical care facilities remained fairly steady. However, in 2010, the non-residential and commercial markets began to decline as commercial, retail, and office space vacancies increased and state and local government projects came to a halt. The housing market showed a slight recovery in 2010 as the excess inventory of homes began to decline, mortgage rates declined, and the Federal new home buyer tax credit stimulated some home buying early in the year. Unfortunately, sales of existing homes remained flat as current homeowners could not sell their homes or come close to getting their asking price. Home resales are more important to the component industry, as people often upgrade their homes when they get ready to sell, and new buyers tend to remodel when they move in. Improvement is expected in 2011 as total housing starts are expected to rise from around 600,000 in 2010 to 800,000 starts in 2011 and 1,200,000 starts in 2012, according to the National Association of Home Builders. The primary drivers for new housing demand are new household formations, replacement of older homes, and second or vacation homes. Demographics remain positive for new household formations through 2020 and older homes will continue to be replaced or remodeled. The growth of imported components and finished wood products coming into the United States and Canada from China, Southeast Asia, Eastern Europe, South America and other low-wage countries began to slow in 2007 as overall demand declined. Imported furniture declined for the first time in 2008 - 2009 since 1991. These developing countries are also feeling the pressure to raise wages and benefits and deal with environmental concerns, worker safety, healthcare, etc. that will force them to raise prices. The best outcome from the decline in U.S. demand is that developing countries are starting to produce more for their own domestic markets rather than relying exclusively on export markets. As a way to survive in these difficult times, component manufacturers are getting closer to their customers in order to anticipate their needs for certain parts, inventorying certain high-demand parts for their customers, capitalizing on their ability to produce smaller, more customized orders with quicker turn-around, finding more ways to add value to their products and services, and responding quickly to their customers’ requests. Short lead times and speed of delivery are important advantages to domestic producers as they can take advantage of their proximity to their suppliers AND customers. The movement toward customized projects continues as the custom market is less price sensitive, focused on higher-end products, and less susceptible to import competition. A good example of this is the growing market for customized furniture, cabinetry, closets, and home organization furnishings. Despite all of the poor economic news, there are several factors that will have positive impact for U.S. and Canadian component manufacturers in the next several years. This includes improved global competitiveness brought about by increased productivity in U.S. and Canadian plants due to improvements in technology, adoption of lean manufacturing techniques, and maximizing their labor productivity. Increased labor and other costs-of-doing-business in China and other developing countries, relatively high energy, transportation, and shipping costs that make transoceanic shipments more expensive have also narrowed their competitive advantage. The decline in the U.S. dollar has also made imports more expensive and, at the same time, improved the competitiveness of U.S. exports. The long-term demand for housing remains strong as demographics, increased immigration, and replacement and/or remodeling of older homes will bring the housing market back. The latest Harvard Joint Center for Housing Study projects remodeling expenditures will grow much faster and will equal new housing construction spending by 2015. WCMA members are predicting their sales will remain relatively flat during the first half of 2011 and show improvement during the second half, according to the preliminary results of the WCMA’s latest Dimension and Component Market Study. They are projecting their 2011 dimension & component sales will rise by an average of 7%, net income will grow by 5%, cost of materials will rise by 3%, labor costs will increase by 3%, and many companies expect to begin hiring again. The WCMA’s Market Study reveals component trends in end-use markets, species and grades of wood used, and type of products produced for both domestic and export markets. The WCMA will continue to focus on its marketing and promotion activities in an effort to help its members identify new markets and customers for the various wood component products they produce. We will be attending several new woodworking trade shows to increase our exposure to different markets for our members. WCMA promotes itself as a “one-stop shopping” source for all component needs. For component buyers, the WCMA can identify component suppliers who can produce the exact components they need. They can also use the interactive Source Guide on our website at www.woodcomponents.org. The WCMA’s Wood Technology Expo is designed to update its members on the latest technology from its Technology Partners who are providers of woodworking machinery, equipment, supplies and business solutions. In addition, roundtable discussions on a variety of important topics to wood component producers allow its Members and Technology Partners to share solutions to manufacturing challenges. The WCMA plant tours are still our most popular event with our members, as they are able to visit other manufacturing operations and see different manufacturing processes and successful applications of new techby STEVE LAWSER, CAE Executive Director Wood Component Manufacturers Assoc. Marietta, Ga. Please turn to page 57 18 Hardwoods Have Workability
HARDWOOD FEDERATION The Year That Was As we begin a new year and look at a very new Congress, I thought it would be worth spending a few moments reflecting on some of our accomplishments during 2010. They were all the result of great teamwork from our united industry, and many were the culmination of years of work. We can be proud of our accomplishments and know that our hard work in 2010 have us better positioned for 2011. U.S. Senate Joins the House of Representatives in Supporting the Hardwood Industry One of the reasons we were saddened to see Senator Blanche Lincoln (D-AR) lose her reelection bid in November is that few Senators have worked harder on behalf of our industry. In February 2010, Senator Lincoln introduced and fought for Senate Resolution 411 which was approved by the Senate in August. The resolution is a companion to House Resolution 81 that passed in 2009. The resolutions recognize the “importance and sustainability of the United States Hardwoods industry, and urges that…products derived from United States Hardwoods be given full consideration in any program directed at constructing environmentally preferable commercial, public, or private buildings.” These two resolutions are important for our industry as they let the world know that United States Congress agrees with us that our industry is environmentally responsible, and that our products are green. Whether used by HF members as a selling point with customers, or by HF in discussions with the Obama Administration as they develop green building procurement guidelines, or with the operators of green certification schemes, the resolutions were hard-fought, welldeserved, and will prove extremely useful into the future. Building Towards Inclusive Green Building Policies “Green building” remains a hot topic in Washington and around the nation. HF uses the House and Senate resolutions (above) to ensure Hardwoods are included in proposed green building regulations. At HF’s urging, Congressman Brad Ellsworth (D-IN) reminded the Obama Administration of these resolutions and the beliefs behind them as the Administration began developing new green procurement policies this summer. Additionally, HF worked with allies in Congress to amend the House and Senate versions of HomeStar legislation, designed to encourage energy efficient upgrades in the private home market. The HF sponsored amendment by Senator Wyden (D-OR) to include wood products in the list of acceptable green building materials has been proposed in the Senate, where the legislation is stalled. Keeping an Eye on the EPA EPA made several proposals in 2010 that if unchallenged could cost by DEB HAWKINSON Executive Director Hardwood Federation Washington, D.C. our industry billions of dollars and cost the economy thousands of jobs. HF joined forces to stand up to EPA in two notable instances this year. First, biomass came under attack from EPA in their proposed Tailoring Rule. The rule treats emissions from burning biomass the same as emissions from burning fossil fuels. HF joined a coalition of 163 associations defending the use of biomass, and worked with allies in Congress to generate letters to EPA Administrator Lisa Jackson questioning the agency’s decision and asking for a review of biomass policy. The letter from the House has 63 signatures; the Senate version had 37 signers. Second, EPA’s Boiler Maximum Achievable Control Technology (MACT) regulation is seen as yet another attack on biomass. It classifies boilers that burn biomass no differently from those that burn fossil fuels. If the rule goes into effect as proposed, hundreds of industry boilers would be immediately classified as out of compliance. Upgrades and lost revenue could cost the industry -7 billion over the next 2-4 years. HF has been involved in a combined effort with likeminded organizations that has thus far led to 114 House Members and 65 Senators sending their own letters to Jackson. Fighting Trade Barriers With our economy still in a tailspin in 2010, export markets remained an important lifeline for our industry. HF worked diligently to reduce barriers to trade, testifying before the International Trade Commission for their investigation into the challenges and opportunities for small business exports, and various Congressional committees. Key among our priorities are a reduction in proposed export service fees, the global acceptance of NHLA Dry Kiln certificates, and the effective enforcement of the Lacey Act Amendments that aim to curtail illegal logging. These are just a few of our priorities and successes from 2010. I thank all of you who worked with us and I hope we can count on your continued support in 2011. Our challenges remain many, but united we are strong, respected, and will be successful. For more information on any of these issues, for a list of our 2011 priorities, or to find out how you can help your industry, contact the Hardwood Federation at (202) 462-2705 or online at www.hardwoodfederation.com. • JANUARY/2011 19
