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The crisis in the freight market affects deliveries to Asia and the countries around the Red Sea to which Swedish wood products are sent by container ship. Transports within Europe are not affected since the wood products are loaded directly onto the ships.

2017-05-31

Outlook: Strong development - but container shortages

Consumption of wood products is strong and matches Setra’s forecasts for 2017, particularly in Sweden where the construction industry remains at high levels of activity. But in recent months the industry has been wrestling with an acute shortage of containers, writes Olle Berg, Market Director at Setra.

China, Japan and the main markets in Europe are seeing good consumption of wood products. We can see that construction in France is starting to come alive again and in our Swedish home market there is still a building boom. Limiting factors in Sweden at the moment are lead times for materials and a lack of fitters, carpenters and architects, rather than demand. And there are no indications that the rate of construction will slow. Furthermore, there is a strong focus on building in wood, although volumes are still small in relation to steel and concrete.

At the beginning of the year, we predicted that the American market would recover, and it certainly has. Construction is increasing and prices are being forced up by speculations that import duties on Canadian timber will be raised under President Trump.

Hits export industries

On the other hand, something we could not predict is the shortage of containers that affected both the wood products sector and other export industries during the spring. When the South Korean company Hanjin Shipping, one of the world’s largest container transport companies, went bankrupt in September last year, the balance in the container flow was upset. This led to a lack of capacity in some places and the situation was then exacerbated by the Chinese New Year at the end of January. This holiday usually affects the rest of the world since traffic decreases but this year the effect was even greater and most people seem to have been taken by surprise.

An additional factor that worsened the situation is the conflict in the Port of Gothenburg where strikes and overtime blockades have been affecting traffic intermittently for a year now. All this has led to a difficult situation where transport prices, particularly to Asia, have gone through the roof. The countries around the Red Sea have also been affected but there it is easier to find alternative freight solutions.

Price increase was expected

With hindsight, we could have foreseen that prices for container transport would rise eventually, since they were previously extremely low. But that this would hit so hard probably came as a surprise to many people. What we can do now is try to solve the problem. One alternative is to send goods to Asia as break bulk cargo directly on the ships. More expensive and riskier, but nevertheless a solution until the situation has stabilised. Apart from the container situation, we still hold our positive view that 2017 will be better for the wood products trade than 2016. During the spring, Setra broke new ground by sending sample deliveries to Australia. A market the same size as the UK which is very attractive over time.

Photo: Magnus Laupa