The South African timber treatment industry is suffering from self-inflicted deflation, which is threatening the collapse of many businesses in a matter of years.
Timber traders are the key players driving this trend by insisting that suppliers consistently cut the prices of their treated timber, then playing treaters off against each other to get lower prices.
Some treaters are cutting out these middlemen, who are providing less and less value to the industry, by selling straight to agricultural depots and hardware stores. Others feel bullied into consistently lowering their prices.
We have seen that their acquiescence is placing their businesses in jeopardy.
“We have seen that over time, reputable timber operators who request a fair price are the ones who perform best.”
“Nobody is acknowledging the deflationary mindset in our industry and it’s a very dangerous one, particularly in an inflationary environment,” said Bertus. “We understand that every business is unique, and our current economic climate is making people frightened that they’ll lose business. This is a realistic fear and comes true in some situations.
“But we have seen that over time, reputable operations who request a fair price are the ones that perform best.”
Our broader economy is characterised by inflation, not deflation – the opposite of the trajectory in our industry.
Timber treaters often agree to cut their prices without realising they will make a loss. At first they have full order books, but soon problems start to catch up with them and they have a cash-flow problem. “You can’t tap blood out of stone. If you’re selling at too low a price, you risk harming your business by draining its cash. The temptation to cut costs becomes extremely tempting, which could lead to lower-quality products if the business then operates unethically.”
We would like to share what we have seen in our industry, to give practical examples. We understand this might ruffle some feathers, but we’re simply giving a reflection and expressing our concern.
Some treaters cut their expenses by buying sub-standard timber, skimping on equipment, or taking shortcuts with the treatment process – all of which results in a poor final product. They often also use the cheapest transport, which can break down.
“Their supply chain is rotten, it fails them, and they find themselves unable to supply the volumes the outlets require, on time,” observed Bertus. “Their customers then revert to the more expensive and reliable suppliers whom they had initially rejected but who can supply a good product, timeously.”
“For business to work sustainably, both parties need to be happy and make a reasonable living. There’s a serious problem when businesses feel that for them to progress, someone else must lose out. This is the mindset gripping our industry.”
Looking at the inflationary pressure on raw materials alone: imagine that a plantation owner agrees simply not to increase the price of his timber. In an inflationary market such as ours, at about 6% CPI, he would be in a serious predicament. If one does a calculation and assumes that a plantation is worth R100 000 million, over a 10-year span the plantation should have appreciated to roughly R179 000 million. Instead, he has lost R79 million, should he not be proactive in keeping up with inflationary pressures.
This is a staggering loss. It would be much worse when we consider the price reductions offered. The above example does not take biological appreciation into account.
The problem could be circumvented: if enough timber treaters said ‘no’ to lower prices, timber merchants and resellers would get the message that prices need to go up. “Negotiation is good, but there’s always a point at which ‘no’ needs to be said, and it’s not happening soon enough in the timber industry.
“For business to work sustainably, both parties need to be happy and make a reasonable living. There’s a serious problem when businesses feel that for them to progress, someone else must lose out. This is the mindset gripping our industry at the moment.”
Dolphin Bay, too, experiences pressure to cut our prices. However, price-cutting is a weak way to compete because it precludes positive business practice and growth, eventually crippling the business.
“Dolphin Bay has been leading the industry in services and technical developments, which include the automation of our manufacturing plants in Mossel Bay and Sabie, and has started moving into the automation of timber treatment plants. We are heavily invested in the success and renewal of our industry. This requires that we and our customers have sustainable business models.
“There should be an element of fun within business. If we continuously feel under threat, it is not fun and something should change.
“Our words might sound critical to some, but we write out of a profound care for the sustainability of our industry, as we have seen the dangers lurking not far away.
“We hope this story will encourage you.”
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