Market channels and segments: Sustainable Tropical ...

CBI Market channels and segments for Sustainable Tropical Timber and Timber Products ‘Your route to the EU and EFTA1 markets’ Management summary As a result of globalisation, timber trading channels for tropical timber have changed drastically. The internet is now an important channel, providing a much swifter and more open trade route. In addition, accelerated by the economic crisis as well as legality, transparency and sustainability demands, many companies are shortening their supply chains and consolidating their businesses horizontally. The number of agents active within the timber trade has therefore decreased considerably; importers and retailers have infiltrated each other’s markets and industries now also buy directly from producers. You are therefore advised to assess your supply chain to see if you can strengthen your position. Readers’ guide This market intelligence product sheet consists of two parts. Part I explains the current market channels for tropical timber and, where there is data, sustainable tropical timber; it also elaborates on the opportunities that trends and developments offer for exporters from developing countries. In Part II the consumer market segment is highlighted. This market segment currently offers good opportunities for developing country exporters. Figure 1: Sustainable tropical timber and timber product chain Developing country

European country

Agent

Industries

Wholesaler

Importer

Consumers

Large Construction & Civil engineering

Individal consumers

Residential Construction & building

Small contractors

Distributor

Exporter Processing industry

Retail (Wholesale & DIY)

Processors

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EU refers to the 27 member countries of the European Union. EFTA refers to the European Free Trade Association (the EU 27 plus Iceland, Liechtenstein and Norway and Switzerland). Source: CBI Market Information Database • URL: www.cbi.eu • Contact: [email protected] • www.cbi.eu/disclaimer

Market channels and segments: sustainable tropical timber and timber products

Part I Upstream and downstream chain dynamics This section explains the current market channels for tropical timber and, where there is data, sustainable tropical timber; it also elaborates on the opportunities that trends and developments offer for exporters from developing countries. Upstream dynamics 

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New business strategies surpass the small-scale exporters: The demand for traceability, EU requirements for legality and the search for higher profits are driving ‘total chain management’ (i.e. timber companies incorporating steps into their own business). Large exporters, for example, may establish an office inside the EU, such as a distributor or a sales representative. Large importers are also establishing concessions, warehouses and exporting companies in developing countries. This is a threat to small-scale exporters. Agents become less important trade partners: Traditionally, agents have sold straight to European wholesalers, retailers and importers. But as importers increasingly function as buyers in developing countries, the traditional agent is disappearing. This influences your role in the supply chain: exporters can make contact directly with importers in Europe and will therefore need to be more knowledgeable about European market developments and product trends. Concentration of exports of cheap low-quality products: For most small and medium scale exporters from developing countries, it is not feasible or profitable to produce low-price, lowquality products. Some particular countries (mostly in Asia) dominate the low end market as only they can deliver the goods for low prices. This is usually possible as a result of low wages and the large scale of operations. Asian companies are important suppliers of mass-produced cheap multi-layer flooring panels, for example (+9.1% imports in value to Europe since 2009). The most important supplier is China, though this country has recently lost market share to countries with even lower labour costs such as Indonesia, Vietnam, Bangladesh and Cambodia. If exporters in other countries (Latin America and Africa) focus on the export of solid tropical floors of a high quality, there is a better chance of successful competition.

Considerations for action  Small and medium sized exporters should seek contact with other companies that export large cargoes in order to benefit from synergies in terms of logistics, warehousing and portfolio compatibility.  Note that only companies with sufficient means of investment (high capital) can incorporate more steps in the chain into their own business. This requires investments regarding innovation, storage capacity and hired labour, but it may also offer higher sales and margins. 

For tips on how to choose an importer without involving an agent, see Box 1.

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The competitive advantages of exporters competing with cheap Asian products relate more to quality than price. The European Parquet Flooring Federation (FEP) advises its members to focus on the high-end of the market by stressing technical performance, aesthetic appeal, superior design and the sustainability credentials of the product. The processing industry in China (and Europe) is highly automated, so an alternative focus could be on products that require skilled, manual labour (e.g. furniture and not wood panels), rather than automated machine handling, which requires significant capital investment.

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Downstream dynamics 

Considerations for action Just-in-time trading requires new  Make sure you comply with the EU logistic patterns: Just-in-time business Timber Regulation (EUTR), REACH practices imply that importers only keep regulations and consider traceability small stocks. Maintaining only small certification (e.g. FSC, PEFC). For many inventories is an increasing trend in building products, CE-marking is

Source: CBI Market Information Database • URL: www.cbi.eu • Contact: [email protected] • www.cbi.eu/disclaimer


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Western Europe as a means to compete globally, but it is also fuelled by increased risk management. The impact for exporters is that shipment sizes are reducing in size but increasing in frequency. As a result, exporters have to trade in a more flexible way. Upcoming Eastern European production countries: Eastern European countries are increasingly offering substitutes to tropical timber by promoting locally grown and processed timber building materials. The European processing industry is moving to Eastern European countries due to open trade borders and low wages. These countries are also perceived to be easier trading partners than tropical supplying countries (in terms of distance and reliability regarding delivery times). Buyer sustainability policies – higher profile and stricter: Buyers’ policies are guided by governmental procurement policies, codes of conduct from sector organisations and the corporate responsibility standards of importers or retailers. To ensure sustainability and traceability in the supply chain, importers seek ways to shorten the chain or ask for guarantees in the form of certification. This means that exporters may be asked to demonstrate that they can supply sustainably harvested and traded timber, provide evidence of policies and practices to reduce greenhouse gas emissions and of protocols ensuring decent labour conditions for those working in their chain. ’Ready-to-install’ building materials becoming increasingly common. The use of (semi) finished timber building elements, such as DIY furniture items, mouldings, furniture and stair components, is becoming increasingly common. This method is widely used for the construction of new residential or commercial buildings. These products are also sold to consumers in DIY chains. It offers opportunities for adding value, resulting in higher margins. Bear in mind that ‘ready-to-install’ building materials have to be manufactured under strict specifications.

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required. Information on buyer requirements can be found in the Market Access Database on the CBI website. If you are supplying an endangered timber species be aware that a CITES (international convention on trade in endangered species) permit also means that the timber is considered to be legally harvested. This applies to species listed in Annex A, B or C of EU Regulation (EC) 338/97. Be aware that the due diligence system for importers has implications for exporters. To learn more, read the Proforest briefing note. Suppliers of sustainable products should focus on EU member states with green timber procurement policies including the UK, Germany, the Netherlands, Belgium and France. Geography and the quality of infrastructure are of great importance when it comes to timeliness. Check your logistical route to your port of export and see if there are any risks that can be eliminated or cost efficiencies made. You could consider moving your stocks closer to the shipping point. The same goes for ‘red tape’ at customs. Just-in-time trading means goods cannot be kept waiting at the border because the right documents have not been provided. Make sure that the paper trail is in order. The average margin of processors and traders is between 5 and 20% (depending on the level of added value). Are you able to sell more sophisticated products and increase margins? Retailers increasingly sell ready-made products (such as doors, windows and frames, doors, click-system flooring, and ready to assemble or pre-assembled furniture). This offers an opportunity for you as an exporter. Added value products involve higher margins but also involve increased risks. The move to fully factory finished windows for example, increases the demand for compliance with specific size specifications relevant for different countries. See the CBI product factsheets for different countries and products for details.

Box 1. Evaluating your importer As an exporter, you need to know more and more about the European market to adapt to the changes in the marketing channel. Here are a few tips on how to judge a potential buyer or trader. When searching for a potential overseas distributor or agent, obtain: 1. Basic Information  Name, address, location, telephone/fax numbers, email addresses and contact person  Annual sales in volume or value, number of sales outlets, number of salespersons and support staff  Organisational structure  Years spent in international business  Experience in your country and product category  Experience with sustainability  Personnel training 2. Sales staff information  Do they hire their own sales staff? How many are on the payroll?



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What are their sales techniques and methods of conducting sales? How many customers do they currently serve? What is the status of their relationship with their current customers? If possible, assess this relationship by contacting customers directly.  Are they able to inventory and warehouse your goods? At what additional cost? 3. Product awareness information  What related, but non-competitive products do they sell? Do they trade any competitive products?  Why do they think your product will be successful in the market?  What do they assess as your product's strengths and weaknesses?  What modifications do they recommend? Can they assist you in making the recommended modifications? Based on: The Southern United States Trade Association (SUSTA), the basics of exporting.

Part II: The consumer market segment for timber products In previous studies, CBI focused mostly on the building materials industry, destined for construction purposes. The EU construction market, however, has stagnated after a severe decline since the economic crisis (building and infrastructure work consignments fell by 16% between January 2008 and November 2011 across the EU-27 according to the European Commission) and this market only slowly began to grow again at the end of 2013. This particular section therefore focuses on timber products destined for the consumer market. Segments The sustainable tropical timber products Considerations for action sector for consumers can be divided into  Competitive pricing is key in this market. three market segments: small contractors for Compare your prices with competitors on small-scale building activities, processors websites like Fordaq, Global Wood and (furniture, timber construction finished and Alibaba: semi-finished items), and retailers that o http://www.fordaq.com/ deliver directly to domestic consumers and o http://www.alibaba.com small businesses. In most cases, an importer o http://www.globalwood.org specialises in one of the above categories. In  Explore whether you can deliver finished the next sections we forecast future trends products. Send samples to acquaint your and developments and explain regional small-contractor clients with finished differences in the consumer market segment. products from your country or region. Small contractors serving the consumer market 

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Products involved Small contractors are hired to construct, repair, alter, remodel, add to, demolish, subtract from, or improve buildings or structures, including related improvements to real estate and gardens. They buy their tropical timber building materials from timber wholesalers but also via the DIY-market. Small contractors usually buy most of the building materials for carpentry or construction before they are ready to use it. Consequently, they are responsible for most of the market for mouldings and 20% of the market for solid tropical hardwood floors and account for 5% of garden furniture. Size of the industry The EU has a large and diverse wood processing and furniture industry; the sector comprised around 300,000 enterprises in 2009. Most are small with an average of 10 persons. The latest count of small contractors in the EU is from 2007. In 2007, only 2,500 of the 3 million registered ‘onsite construction enterprises’ in the EU27 had more than 250 persons employed and 92% of the three million enterprises had fewer than 10 persons employed. The current size of

Considerations for action  Note that there are regional differences: many furniture manufacturers are located in Belgium and Italy; in Italy and Germany there are many kitchen producers. Kitchen producers often need hardwood kitchen doors. Germany, France and the Netherlands are the main importers of hardwood mouldings, and France is the main tropical hardwood veneer importer.  Try to export finished products as much as possible as margins are higher. Make sure that you have agreed on size and design specifications.  Innovations in processes and products (such as new technologies, materials, smart and eco-efficient solutions for building and construction materials), particularly those conceived together with buyers, can provide competitive advantages for exporters.



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the industry will be much smaller, as many have either been declared bankrupt, have downsized dramatically or have shifted their attention to maintenance work since the recession that started in 2008. There were around 190,000 wholesale traders of construction materials in the EU in 2007. The number of processers, on-site construction companies, wholesalers and retailers is thought to have decreased in the last five years due to the financial crisis. Prices Real estate developers will face rising costs of materials and services, rising land prices and building permit issues. Customers often ask for a quotation from several contractors, then decide who to commission for the assignment. Price is an important criterion here, making small contractors focus on traders who are able to offer the lowest prices. Buyer requirements regarding quality, sustainability and delivery o Quality: Contractors - as they are also manufacturers - are hired to carry out custom-made building activities. They are therefore able to work with unfinished products. Many contractors are small, family companies which traditionally carry out much of the construction processes themselves. In some cases, however, it could be more efficient for them to buy finished products. o Sustainability: In many cases, a sustainability certficate is not a strict requirement, but awareness is increasing. Some countries, such as the Netherlands and Germany, are opening up their procurement requirements to small and medium sized enterprises. This could lead to more attention being paid to sustainability practices (as a result of public procurement requirements, government buyers require a Chain of Custody (CoC) certificate). o Delivery: Most onsite construction enterprises lack the size to deal directly with exporters, or even manufacturing enterprises of construction materials and equipment. Accordingly, agents, wholesalers and leasing companies constitute an essential link between the manufacturing and onsite construction subsectors.

Processors of tropical timber products destined for the consumer market 

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Products involved The processing sector for consumer tropical timber products imports timber for various purposes: garden furniture2; flooring; windows, doors and frames; staircases and other items of joinery; decking and consumer sales of timber and plywood for DIY use. Items of garden furniture are the most important high value consumer items. Note tropical timber indoor furniture is dealt with in the CBI factsheets on domestic furniture.



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Size of the industry It is hard to determine the size of the processing industry for timber consumer products. A general comment on the processing industry is that, in future, increasing manufacturing will probably be carried out in the producing countries themselves. The size of the industry will thus decline. For example, approximately 30% of all hardwood floors are sold to European manufacturers for cutting or lacquering while, in many cases, this kind of processing can be done in countries of origin too. Prices Prices paid by consumers and importers are higher for fully finished products. Buyer requirements regarding quality, sustainability and delivery o Quality: Processors that import tropical hardwood are usually specialised in a certain product group (doors, kitchen doors, garden furniture). The durability of outdoor products is critical. o Sustainability: The demand for sustainability certificates depends on the product. For most garden furniture and garden articles, certfication is a must. For items such as joinery or stairs, certification is not always a requirement, but awareness is increasing. o Delivery: Flexibility depends on the size of the processing company. In case of larger systematic processing companies, there is usually an annual plan for orders and just-in-time delivery is not as important.

Retail chains selling to consumers Considerations for action  Products involved  If you sell hardwood products to a DIY Retail consumers want ‘easy-to-handle’chain, these should be ready to install building materials. Preferably, the building products, such as decking. Building materials will not need to be processed by materials that require professional the consumer. Various refinement methods installation are generally found in the are possible. In the case of door frames, wholesale channels. retailers sell framed timber which can be simply sawn into several custom-made sizes; they also sell ‘ready-to-install’ door frames which include the door itself. Alongside building materials, 75% of all tropical hardwood garden furniture is sold through the retail channel.  Size of the industry  Large retail chains are not usually There are over 5,000 stores in the suitable trading partners for small-scale European Union belonging to large retail exporters, due to their integrated chain chains, with Kingfisher (UK) being the management strategies and the size of largest with 1,080 stores in Europe in 2014 their orders. Small-scale retail stores are (Kingfischer, EDRA; European DIY-Retail better partners. Association). In 2014, the European home improvement market is projected to grow by 25% compared to 2009. This indicates that the European consumer is increasingly renovating and building themselves, without using a contractor.  Prices Pricing is an important tool for competition, as the DIY-chains are characterised by very low brand loyalty among end customers. This results in no commissions, most likely resulting in increased volume sales through lower prices with large retailers. Higher margins are possible with specialised shops (not DIY chains).  Buyer requirements regarding quality,  As retailers often demand just-in-time sustainability and delivery delivery, providers often proactively o Quality: low-quality retail shops for approach them in order to meet current timber building materials are one of and latent needs. If you do this with your the few market segments in the trading partner (who supplies the timber product sector that have retailer), the chances are that you could seen growth since the economic end up being their preferred supplier. recession that started in 2008.Some of the largest, however, such as Praktiker in Germany struggled and are now insolvent. In the UK and



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Germany, the retail DIY trade picked up at the end of 2013. Sustainability: Many DIY-chains have set ambitious sustainability goals that include increased shares of sustainably certified wood products in the future. For example, Groupe Adeo has launched its Kbane range dedicated to green products and services for the home and Brico in Belgium requires 100% certified timber products. The EU member states with most FSC Chain of Custody-certificates (in order of size in January 2014) are the UK, Germany, Italy, the Netherlands, Poland and France. In contrast, in the Southern member states the market share of FSC is marginal, partly due to the lack of consumer awareness in these regions. Delivery: Retailers do not want their distribution centres to be used for storage, instead they want to achieve a continouous product flow. The supply chain is completely customer focused; it’s about making things easy for the customer and making sure that products are available at any moment. European consumers want direct delivery and minimum waiting times. Flexibility is therefore vital.

Major regional differences in the EU and EFTA markets in the consumer market segment 

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In the majority of EU countries, expenditure on DIY products has fallen since 2008 and has only started to pick up in early 2014. During the financial crisis, the building materials sector was impacted by severe reductions in demand, especially in the private residential market. Spending on public works was also under pressure due to the crisis (targets are to reduce deficits by 50% by 2013 and public revenues and costs should be balanced by 2016). While Germany, Austria, Poland and Belgium were the most resilient, the markets in Central, Eastern and Southern Europe saw the sharpest declines, with Spain, Greece, Portugal and the Baltic states suffering from falls in expenditure in excess of 14%. DIY stores are drawing consumers back into their stores by offering more ‘ready-to-install’ products. Expansion of European retail chains in many Eastern European countries: Although short-term prospects involve further declines, long term prospects should be more positive, as indicated by the expansion of European DIY-chains in many Eastern European countries. For example, the German DIY group Praktiker is planning to establish small DIY stores, covering between 1,000m² and 1,500m², in Hungary, and the Kingﬁsher Group has just expanded its Polish portfolio to 70 stores, with 65 Castorama stores and ﬁve Brico Depot hardware store discounters. Major European DIY retailers in 2011 which are still operational include Kingfischer, Groupe ADEO, Obi, Bauhaus, Hornbach, Kesko/Rautakesko, Zeus, REWE and Mr Bricolage (Source EDRA). Germany – largest consumer market: With a value in excess of € 37 billion in 2010, Germany remains by far the largest market by consumer expenditure of timber products. It is home to some of the largest DIY retailers in Europe, OBI and Bauhaus, which all continue to expand aggressively across the Central and Eastern European region.



Figure 2:

Example of quality/price ratio of a typical consumer product - tropical hardwood garden table  Characteristics

 Design

Upper-end

 Sustainability  Price  Trade channel

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Middle range

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Lower-end

Design Sustainability Price Trade channel

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Design Sustainability Price Trade channel

 Tropical timber with excellent product characteristics such as strength, density, durability and aesthetics (graining, texture, colour).  Mineral marks less than 1/8" x 3/8"are accepted but not entire length of board  Very, very light and infrequent piling marks are accepted  Sound knots of less than 3/8" are accepted  Fish eyes are accepted  Checks, splits, stains and wormholes are not accepted  Timber with a high durability level that is still easy to handle/process (700kg/m3 and higher); some high to very high density timber species include keruing, greenheart, ekki and iroko;  Products with high added value such as a unique design. Used only for high-end applications where focus is less on price and more on product characteristics.  Certified sustainable by third party;  Price range in retail: from € 350 to over € 1,000 for one garden table  Specialised quality furniture stores.  Good/medium quality timber with good product characteristics such as strength, density, durability, workability, finishing quality and aesthetics. Low to medium density utility timbers such as shorea, limba and niangon are often used for external joinery and medium priced furniture;  All colours, variations and natural characteristics of wood species are accepted  Rustic looking mineral marks are accepted  Light piling marks are accepted  Occasional wormholes are accepted  Products with added value, but no particular unique design.  Tropical timber that is verified legal or controlled wood (one step before sustainable);  Price range in retail: from € 180 to € 350 for one garden table  DIY stores or other retail stores.  Lower grade timber (possibly from plantations) with many knots and cracks;  Widely available and not specifically preferred by buyers and easy to substitute;  Products with standard, simple design and low-added value;  Not verified legal or certified sustainable.  Price range in retail: from € 25 to € 180 for one garden table  DIY stores or other lower end retail stores

Expected changes in the consumer market segment 

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European companies focus on innovative and eco-design: In the processing sector, European companies have undertaken a lengthy process of restructuring and modernisation as production volumes have reduced. Major factors of competitiveness for the European processing sector now consist of research and innovation, combined with design and added value. Exporters to the processing sector question whether they can deliver plain, processed products directly to the consumer market. European consumers are increasingly renovating and building themselves, without using a contractor. Therefore, a wide variety of tropical timber building materials is now available in retail channels (e.g. wood based panels, doors, floors, furniture, mouldings, floors). Good dimensional accuracy is needed in order to incorporate prefabricated building materials intended for consumers, such as bathroom and kitchen sub-assemblies, into the relevant spaces. Floor coverings are offered pre-cut and in standard sizes in some instances to fit rooms. DIY-chains are currently increasing their product range of ‘ready-to-install’ building materials. This is an opportunity for exporters who can deliver standard sized ready-to-install-products, as more value is added. Recession causes bankruptcy for many small European companies: Not only construction companies, but also wholesalers and do-it-yourself stores have suffered from the slowdown in the housing sector. Signs of growth are now apparent in the UK, Dutch and German markets for housing and construction. It is expected, as the housing market grows, that the sector will continue in a more consolidated fashion as a result of the fact that many small companies that deal with building materials have vanished. This is a threat for exporters who only sell in small quantities, as larger companies usually place larger orders, but offers scope for niche products and for exporters joining together to offer larger quantities.

This survey was compiled for CBI by Wageningen UR (LEI and Alterra) in collaboration with Marco Bijl January 2014 Disclaimer CBI market information tools: http://www.cbi.eu/disclaimer Source: CBI Market Information Database • URL: www.cbi.eu • Contact: [email protected] • www.cbi.eu/disclaimer


Annex 1 - description of actors in figure 1 Agent An export agent works in the country from which the product is exported. He operates as a representative of your company and promotes and markets the product. The risk of loss remains with the exporter, not the agent. An import agent is based in the country where the product is supposed to be sold. In this case, the agent represents the buyer(s).  By working for a number of clients, or because of his contacts, a commercial agent can extend the marketing reach of the business and bring in customers who exporters otherwise could not obtain. He does not represent either the seller or the buyer, but brings buyers and sellers together. An agent usually gets paid on commission.  Some claim that agents may lead to a higher risk of unsold stock, since they are less dependent on actual sales. Others claim that having an agent or export advisor leads to a lesser risk of unsold stocks, because they are often familiar with more buyers than you and can therefore be flexible and switch sales around Europe. In this case, it would actually be an advantage.  Doing business with agents is very unsustainable. Every contract could be the last. As such, it is not really a viable option for the current situation, where both importer and exporter are looking for longer term relationships. Importer An importer may represent large consumers of industrial goods, such as foreign government purchasing missions, but also DIY chains, manufacturers, small shop owners, contractors and wholesalers. To help overcome supply shortages and meet rising demand for just-in-time trading, some larger European timber importers have established huge concentration yards close to the main ports, notably in the northern EU such as in the Netherlands, Belgium and Germany. These companies play a central role in the European trade in verified wood products. Due to their scale, they are well placed both to encourage suppliers to achieve forest certification and to benefit from economies of scale in the chain of custody. There is often a higher margin than when dealing with importing agents. Long term relations can be established.  they are familiar with local markets and can supply considerable information, assistance and guidance;  they have strong relationships with suppliers and buyers all over the world;  they often offer extensive product ranges of different brands;  they enable you to access international markets while avoiding logistics issues and many trade-related risks;  they take care of import formalities;  they often demand a long period of exclusivity, therefore you need to be sure that you choose one that has experience with selling your type of products and has customers for the goods you sell;  saving on costs for an agent or freelance export advisor may not always lead to higher margins for you as an exporter. Supermarkets often use this as an excuse to press prices even more. Distributor/Wholesaler Distributors deliver products to retail chains or construction/building companies or small contractors.  They usually buy in bulk and focus on secondary processed building materials. This requires accurate, consistent quality and tight size specifications.  Demands in terms of quantity and service can often not be met by small suppliers from outside the EU.  The advantage is that they often have the network to sell the products to another customer if a buyer cancels the order. Retailers sell directly to consumers (DIY, carpentry stores). If you sell hardwood products to a DIY chain, these should be ready to install products, such as decking. Building materials that require professional installation are generally found in the wholesale channels.  No commissions, most likely resulting in increased volume sales through lower price with large retailers. Higher margins are possible with specialised shops (not DIY chains).  Do-it-yourself retailers (DIY) rarely pay premiums; in contrast, they sometimes impose price-reductions for non-certified products (Source: ETTF, 2011).  High upfront investment and ongoing support costs;  With large retailers, it is harder to establish trade relationships for smaller suppliers due to large volumes demanded by most retailers.



Large construction & civil engineering Civil engineering involves the construction of large projects such as bridges, roads, and hydraulic works.  A government usually commissions the construction of civil engineering. In most Western and Northern EU countries, governments have public procurement policies regarding sustainable timber. Therefore, all of the sawn wood in the civil engineering sector is either FSC certified, PEFC certified or imported through a FLEGT agreement. The Sustainable Timber Action project aimed to help government buyers and exporting suppliers to meet the needs of EU public procurement, including procuring guidelines for suppliers.  Major events like the Olympic Games and football championships can lead to additional investments in infrastructure and buildings.  The building segment consists of construction work for residential and commercial purposes including government housing. Timber for these projects often requires an FSC-certificate (as well as traceability and legality guarantees under the EUTR). Smaller manufacturers and contractors for private customers are not bound by procurement policies and seldom focus on sustainability. They are rarely CoC certified and do not regularly buy FSC certified tropical sawn wood. Residential construction & building Contractors are hired by consumers to build gardens or make alterations to their houses. They buy their tropical timber building materials from timber wholesalers but also within the DIY market.  Smaller contractors for private customers are not bound by procurement policies and seldom focus on sustainability, especially in Southern and Eastern European countries. They are rarely CoC certified and do not regularly buy certified building materials unless the customer specifically asks for this.  Awareness of sustainability is much higher with consumers who are buying floors and doors, but much lower for those buying panel boards. The likelihood of selling FSC certified timber panel boards to a small building contractor with a price premium is therefore low.  Usually, only very large construction companies source directly from developing countries. Therefore, if you are exporting to the bigger contractors, you need to be able to offer a consistent supply in many containers per month.  With direct sales, you may want to hire a freight forwarder (essentially a "travel agent for freight"). This is an independent agent that aids and facilitates shipments of exported goods. Freight forwarders are familiar with the procedures and regulations for shipping products overseas. As an agent of the exporter, a forwarder becomes the port representative. For the exporter, an advantage is reduced costs as a result of the aggregation of international shipments Retail (Wholesale and DIY) Timber products sold in DIY chains are often ready-to-install or made from MDF or other engineered timber products that are easy to handle, rather than tropical hardwood. If you sell hardwood products to a DIY chain, these should be ready to install items, such as door knobs, moulding and decking. Building materials that require professional installation are generally found in the wholesale channels.  No commissions, most likely resulting in increased volume sales through lower prices with large retailers. Higher margins are possible with specialised shops (not DIY chains).  Do-it-yourself retailers (DIY) very rarely pay premiums; in contrast, they sometimes impose price-reductions for non-certified products (Source: ETTF, 2011).  High upfront investment and on-going support costs;  With large retailers, it is harder to establish trade relationships for smaller suppliers due to large volumes demanded by most retailers. Processing industry for consumer articles The processing sector for consumer articles imports timber for various purposes: flooring; windows, doors and frames; staircases and other items of joinery; garden furniture and decking.  A specific characteristic of the (secondary) processing sector is that they are dependent on cargoes from exporters and the construction activities of their buyers. They therefore require very accurate planning.  Substitution by non-hardwood and new composite timber building materials, especially from Eastern European countries and member states, is a threat. These countries are often perceived as easier trading partners than tropical supply countries (in terms of distance and reliability regarding delivery times).  The average margin for producers from developing countries is 20% of the retail price. For processors this is between 5 and 20% (depending on the level of added value). Are Source: CBI Market Information Database • URL: www.cbi.eu • Contact: [email protected] • www.cbi.eu/disclaimer


you able to sell more sophisticated products and increase margins?
