Higher costs, delays challenge wood importers
By Jeff Linville -- Furniture Today, May 7, 2007
High Point — As case goods production continues to shift overseas, conditions in Asia become much more important to manufacturers.
While some challenges have gotten better over the past couple of years, others have either continued or have gotten worse. Among the leading complaints from marketing/distributing companies are uncertain shipping dates, rising shipping costs and rising raw materials costs.
Last year, the Malaysia government noted that rubberwood harvesting was proceeding faster than reforestation. That, along with a high demand for the wood, caused rubberwood prices to climb.
Higher petroleum costs also affect raw materials, noted Jamie Collins, vice president of sales and marketing for HomElegance.
One manufacturer said prices on medium-density fiberboard have jumped up from $150 per cubic meter in 2000 to $270 this year.
These higher costs are one of the biggest issues the source factories are facing today, said Greg Noe, chief operating officer for Lifestyle Enterprise.
"Most materials have risen significantly," said Richard Magnussen, president, CEO and chairman of Magnussen Home. "Due to slower retail, this increase hasn't been passed on for the most part. It's a pent-up issue."
"None of these guys make any money," said one importer of his source factories, explaining that China has a lot of capacity so there is a great deal of pressure on pricing cheaply. "An inability to raise prices is putting them in a bind," he added.
Adds Trade Masters president Ron O'Dell, "I understand the manufacturers are being squeezed, but they understand the economy (in the U.S.) is soft and that now is not an opportune time to recoup some of their lost margins. Most of the factories I deal with are doing their best to hold their prices on existing product."
On new product, he said, that's another story.
"We are always fighting to get the very best product at the very best price. But there is a point at which you can get the best price and not have the best product."
Everyone is afraid to raise their prices, but eventually they will go up, Noe said. The factories can't afford to eat those increases while a change in U.S./Chinese currency exchange rates is hurting them, too, he noted.
On top of that, shipping rates have gone up. One importer said the hike is $300 to $500 per container. This is mostly due to rising petroleum prices.
Container supply seems to be OK now, but there typically is a shortage from August to November, noted Magnussen.
A big concern is on-time shipping — having the product placed on the ship within a reasonable time frame.
"Certain factories still have long lead times," said John Labarowski, president of Hammary.
"It's happening with all companies," agreed Noe. The factories make a great product, he said, but "if anyone tells you they're getting their shipments on time, they're lying to you, or they're not getting them from Asia."
Another issue is that labor costs have gone up some, said Labarowski.
Magnussen agreed, saying a shortage of qualified craftsmen in Southern China has pushed some wages higher.
The issue in China largely results from competition from other factories and industries, including those with a presence in larger cities such as Shanghai.
"The labor pool is headed north," said Joe Elmore, Master Design's executive vice president of marketing, sales and product development. "With a smaller labor pool in southern China, it is affecting the cost of doing business in southern China."
"The opportunities for the Chinese worker to work in a cleaner and better environment than a furniture factory is presenting one set of problems to the industry," added Kevin O'Connor, president and CEO of Samson Marketing, which oversees case goods importers Legacy Classic and Universal Furniture in the United States. "There are opportunities for an educated work force to go work someplace else and get a higher wage and better working environment, with better benefits."
He noted that company parent Lacquer Craft Mfg. combats this perception issue with state-of-the-art dust collection and exhaust equipment at its Dongguan and Shanghai area factories.
"Those are better working conditions than some of the U.S. plants were forced to have through OSHA," he said. "That's probably as good as it gets for a furniture factory. Our dorms and working conditions there are quite good."
O'Connor says the better working conditions are part of China's natural evolution to a more capitalistic environment.
"As capitalism, to some degree, has taken hold in this communistic country, you can't turn back the clock in a lot of ways," he said.
Brett Hatton, CEO of case goods importer Four Hands, puts it another way.
"There is no shortage of labor in southern China," he said. "There is a shortage of factories willing to pay the (competitive) wages. A little more power has shifted to the workers. There is more demand for them."
Somewhere down the line, he said, that will ultimately factor into the pricing of product.
The growth of furniture production in Asia has benefits for the industry, but it also has created headaches, such as how to keep track of all the goods coming from overseas factories.
"In the early days, it was just Taiwan," recalled Magnussen. "Now it's a minimum of five countries."
He noted that a good deal of his own company's goods come from China, Indonesia , the Philippines and Vietnam.
Why the need for so many sources? Wouldn't it be simpler to source from one factory?
Importers give several reasons this is a bad idea. First off, some who sourced bedroom from a single plant found out how important diversification is when that plant was hit with the all-China duty rate of 198%.
Also, even when buying dining or choosing another country, it's good to play the factories against one another for the best price, said one importer. The factories don't show any loyalty to their customers, so why should importers, he asked.
Quality is also a big reason for diversity. "Not all factories are equal on all products," said Magnussen. "Selecting the right factory — having the right match — is critical."
Laborowski said Hammary has sourced mixed media and hand-painted items from the Philippines. HomElegance's Collins agreed that Cebu is still a good place to get "artisan work."
Hand-painted occasional is a specialty in several Chinese factories, said some importers.
"Different factories tend to use certain species," said Laborowski. "One factory might not use cherry."
"Vietnam has become quite a force in case goods," said Collins. The antidumping issue may have sped up this process with importers looking to avoid the duties, he said.
"The biggest change in the past year has been the advances that Vietnam has made," said Noe. The difference is not only in its infrastructure as a country, he said, but also the amount of reputable manufacturers who are moving there and building facilities.
The quality is good and so are the shipping times, he said. "China is still important, obviously, but now we have options with Vietnam."
One difference-maker in Asian goods is the improvement in finishes thanks to more on-site service from coatings providers like Akzo Nobel, Valspar, Sherwin-Williams and RPM.
"This has definitely improved the quality and consistency," said Collins. "The quality gets better every day."
"Their understanding of American design and finishes in general has improved," agreed Magnussen.
In the end, said Collins, importers have to ask themselves, "How do I compete?" If a company just focuses on price, how does it stay in business, he asked. It needs something else to attract retailers. That is the reason HomElegance and others have moved to provide Asian warehousing, mixed containers, and quick shipping through domestic stocking.
"Quality will always be everyone's No. 1 issue," said Noe. "That's an ongoing concern."
| Acknowledgements | ||
| Associate Editor Thomas Russell contributed to this article. | ||
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