Singapore: A Free Trade Case Study

The city-state of Singapore has transformed itself from a backwater colonial outpost to a world leader in international trade and finance in just a half-century's time.  How does something like this happen?  The Economist has a great summary for those with any interest in Asia's financial markets here.  For our purposes, let's look at what's happening with lumber and the associated products thereof.

The latest population figures for China come in at about 1.45 billion.  India at about 1.2 billion.  That's a lot of people, and people seem to acquire a few things made of wood over the course of their lives.  How does this affect me in the United States?  Well, the global trades of lumber products, pulp, manufactured goods, etc. are always going to be disproportionally skewed by activities in emerging markets.  I'm focusing on the activities of these Asian markets because price and supply fluctuations 10,000 miles away most certainly have an impact on pricing at home.

The point to be made here is that tropical lumber products fall under a very wide swath of variation.  If you've ever bought an $11 sheet of underlayment with a bamboo veneer from Home Depot that was manufactured in Vietnam, you've benefited from increased production in emerging markets.  A cheap assemble-it-yourself table from Ikea made in the Philippines--same thing.  The fact of the matter is that the industrialized countries simply cannot compete on an even playing field with manufactured goods on a global scale.  We still have vast supplies of North American forest products available for domestic production and consumption, due to the fact that our timber reserves remain vast, and are increasingly managed responsibly.

What does this mean to the exotic lumber market?  Despite the fact that the vast majority of tropical forests featuring the high-end decking materials such as Ipe, Cumaru, and Massaranduba are responsibly managed, it doesn't take much imagination to know where the irresponsible forestry is being practiced in the world.  The same people who bark about how the rain forests are disappearing worldwide are quite powerless to address concerns in countries that share no such concern over responsible management and growth.

Singapore, with its duty-free port, has become a hub of raw materials and manufactured goods.  I don't know if there is such a thing as "product laundering" to effectively wipe out the trace source of such goods, but if there is, it most certainly exists in this port.  It appears to me that about half the lumber goods flowing through that port are sourced in countries that are signors to no international treaties advocating responsible forestry.

So, next time you're sharing some drinks at a friends' home, and he or she starts bemoaning the state of the world's rain forests, take a close look at their furniture.  Ask if they know where the plywood was sourced to build their new green home.  You might just surprise those who seem to be the most concerned.

China Lights Up The Dollar

When researching the global supply and demand for lumber and lumber products, I was not surprised to note the dominant role that Chinese production and trading activities played on the global pricing and distribution structure.  East Asia in general was a surprising market, however, and for reasons that were somewhat enlightening.

General information about global lumber supply and demand is difficult to come by.  Oftentimes, the most current data I'm seeking is lagged by over a year.  I'll admit I've not been tracking data for very long now, but the conclusions one can draw from basic analysis is eye-opening.

I would have been quite surprised, for example, to find that Vietnam is the world's leading exporter of Wooden Furniture and parts, and has been since 2006.  It is no surprise that the United States is the leading importer of these products, and has been a worldwide leader for quite some time.  The ITTO (International Tropical Timber Organization) has their 2009 Annual Report available here.

The localized Asian market is predictably dominated by Chinese activity on both the import and export end, but Japan and Malaysia are dominant players as well.  Malaysia is a world leader in export activity, and Japanese imports of finished products are annually among the highest in East Asia.  At Specialty Lumber Solutions, we deal predominately with South American imported lumbers, but the activity in Asia, due to its sheer volume, makes it important to note for future world supply and demand fluctuations.

As China attempts to cool its overheated economy (or not--love that central planning!), the rest of the world sits and waits.  The Chinese are divesting in the US Dollar, and the global trade imbalances the US is already facing will become inflationary over time as the global markets react to trade activities.  In the meantime, a weakened dollar is good news for our Canadian and Mexican neighbors, all the while pointing toward the inevitability of US inflation to reflect the weakened currency and higher commodity pricing across the board.

As current economic trends necessitate, I will attempt to provide a very basic analysis on a periodic basis concerning these and other trends.  Comments are always welcome.

Specialty Lumber Solutions: The Beginnings

Specialty Lumber Solutions had some pretty modest beginnings.  Myself and my business partner-to-be Charles Menifee were working construction during the winter of 2006-7 in downtown Kansas City.  The project was located at the Manhattan condominiums on Charlotte Street, and the penthouse called for preassembled ipe panels to be hung from the ceiling.

These panels were damned heavy.  I was more than a bit skeptical about hanging these things over my head, but over time, some confidence was gained toward the application.  The place had arclengths for wall space through the main hallway, and the panels contoured the walls...I'll have to kick up some pictures of that thing...Like I said, a modest start here.

Before long, Charles was running around to the local trade shows, and was making contacts with local suppliers that dealt in exotic lumber supplies.  (Between finishing, assembling, and hanging these panels.)  I had never worked that species of lumber prior to that job.  I lived, as I still do, in Baldwin City, Kansas, some 45 miles southwest of KC.  I just kept putting up the lumber...

And a few other jobs followed.  Mostly decks.  I'm pretty sure Thanksgiving Eve of 2007 featured me, Charles, and my brother Travis installing some decking.  We rolled out about dinnertime.  I think it got down to damned near zero that night.  Memory is a tricky thing, but I certainly remember removing frost from the lumber under floodlights.  And it was damned cold.

Thanksgiving morning, I got a flat tire on the way back to Olathe.  That was a blast.  It was awfully cold.  A couple of Kansas State Troopers pulled over to watch me change the tire and curse under my breath.  The home was adjacent to that of a local news and endorsement celebrity, but I didn't ask him for his seal of approval.  I was late for Thanksgiving dinner...but it was still there once the thing got tied up.

I kept puttering around, building log cabins and such, and Charles would help out a bit here and there.  But he had moved on to selling wood.  Almost a couple of years ago now, he contacted me and told me he was striking out on his own.  He's been selling wood ever since.  Now, we're an LLC in the state of Missouri.  I helped him out here and there for most of the past year, trying to keep the taxes filed, etc. etc. etc., and I've been giving this thing a "full-time run" ever since the start of this year.  That's dishonest--Charles was all-in before I would catch up to the work he'd already done...  But now, it looks like I'm committed to keeping this thing going full-speed.

So I write this blog.  Actual content will follow--I promise.  My initial thought is to provide periodic insight into the domestic lumber market, its newest products and supplies, and hopefully get valuable feedback from our customers and future clients.  I don't claim to have all the answers about anything, but I'll sure look into something if it might be relevant to the domestic exotic lumber industry.