Vietnam's timber industry urged to seek new opportunities in UK

Hanoi (VNS/VNA) - While many products exported to the UK enjoyed strong increases thanks to the UK-Vietnam Free Trade Agreement (UKVFTA), Vietnam’s timber industry is facing difficulties in expanding in this market, requiring manufacturers and exporters to change their business strategies.

In fact, Vietnam’s wood industry is seeing declining sales overseas.

The export value in July was estimated at 1.41 billion USD, down 5.5% against June and 1.6% year-on-year, according to a report of the General Department of Forestry under the Ministry of Agriculture and Rural Development (MARD).

This was the second month that the export of wood and timber products decelerated.

Earlier, figures from the General Department of Customs showed the export turnover of wood and wood products reached 1.4 billion USD in June, down nearly 11% year-on-year. Ending July, wood and wood products were exported to rake in 10.4 billion USD, up just 1.3% year-on-year.

Declining export orders

According to market insiders, the wood industry will face a big challenge due to a decrease in export orders in the latter half of this year.

A quick survey on 52 timber businesses conducted by the Vietnam Timber and Forest Products Association (Vifores) in collaboration with Forest Trends showed that most companies witnessed decreasing revenues in the US, EU and UK markets.

Thirty-three out of 45 firms exporting to the US said their revenues decreased by nearly 40% compared to the first months of this year. A similar trend is seen in the EU and the UK with two-thirds of the surveyed enterprises reporting revenue drops of over 41%.

Moreover, about 71% of businesses said that orders will continue to decrease towards the end of the year. Under the current market situation, 44% of businesses expected their revenues will fall by about 44% for the whole year.

According to Vifores Chairman Do Xuan Lap, Vietnam's wood industry is integrating deeply with international markets so high inflation and tightening credit policies in response to rising inflation in major markets is driving down demand for non-essential products including wood and wood products.

“High inflation in major markets such as the US, EU and UK is having a direct negative impact on the production and business activities of wood processing enterprises. They are currently facing many difficulties in terms of capital, labour costs and input materials,” Lap said at the industry meeting last week.

New opportunities in the UK

Wood and timber product export to the UK still enjoyed an increase of 14% to 72 million USD in the first three months of 2022 but sales to this market are also declining as consumers are tightening their spending.

The June export value declined 38% year-on-year to 16.3 million USD and in the first half, the reduction rate was 7.7% at 135.5 million USD, data from Vietnam's customs agency showed.

Like other parts of the world, inflation in the UK hit a 40-year high of 9.4% in June as food and energy prices continued to soar, worsening the country’s historic cost-of-living crisis. The Bank of England has implemented five consecutive 25 basis point rate hikes to cool high inflation and is considering a 50 basis point hike at its August policy meeting.

According to David Hopkins, chief executive of Timber Development UK which represents all timber importers and suppliers in the country, the UK’s import of wood and wood products used to rise in the first quarter as merchants start to rebuild stocks after the winter and tend to slow down at the end of the year due to cold weather and holiday seasons.

The UK’s economy is now coping with high inflation, high interest rates and big logistics challenges due to Brexit and the Russia-Ukraine conflict which is pushing up the freight cost.

So far, Vietnam’s predominant timber export to the UK is furniture but Hopkins sees another opportunity for Vietnamese exporters in niche areas such as plywood.

Hopkins said there was huge price inflation in timber products, but noted the demand for this commodity is still strong, especially in the sector that is expected to grow such as the construction of warehouses and lightweight industrial buildings.

“There are big opportunities for plywood from Vietnam,” Hopkins said, noting there are not a lot of the Vietnamese products being used there, but if the construction sector can maintain positive growth, there's always demand for timber products, and “that's a good opportunity for Vietnamese exporters”.

For furniture products, Hopkins said demand is expected to decline in the next two years after a boom in housing repair and maintenance during the pandemic before it can bounce back. This trend will likely happen in the US and the EU which are also suffering from high costs of living.

The bilateral trade between Vietnam and the UK is increasing thanks to the UKVFTA, especially tariffs on wood and timber products will be eliminated within five years (raw wood currently has a tax rate of 2-10%).

However, to compete and expand sales in the UK, Hopkins suggested Vietnamese manufacturers and exporters invest in marketing and promotion to enhance awareness among UK consumers about Vietnamese products.

The concepts of legality and sustainability are important for consumers in the UK and are backed up by legislation.

"The fact that buying goods from Vietnam has a very low risk of illegality is a really positive story," he said, emphasising that promoting this concept is very important not only in the UK but to other customers of Vietnam around the world./.