Changing US Supply Chains for Tropical Hardwoods: An Assessment

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Changing US Supply Chains for Tropical Hardwoods
An Assessment

• Constance L. McDermott,
• Associate Research Scientist, Yale
• Lloyd C. Irland, Lecturer Sr. Scientist, Yale
• A. L. (Tom) Hammett, Research Scientist, Yale
  Professor, Virginia Tech

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Contents

• Motivations
• US Role and General Trends
• Regions China, Amazon, Congo, SE Asia
• Specific Supply Chains
• Issues
• Summary

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Notes

• General overview of a series of detailed reports
• Available later this year
• Focus here on assessment and diagnosis, rather
  than on policy

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Motivations

• WWF Support for Global Forest Trade Network and
  Priority setting as to
• Companies
• Products regions
• Yale Familiarize with tropical supply chains and
  industry realities
• Assess policy implications

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Information Sources

• FAS, ITC websites
• Detailed local studies by ENGOs
• Goetzl/Ekstrom assessment for ITTO (2007)
• Annual ITTO data updates
• Association and company information
• Interviews and web searching
• Peer reviews

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Resource Conditions

• Significant pace of deforestation/degradation
• In some, horrific social/political conditions
• Hotspots of species endangerment
• And potential biodiversity loss
• Many factors at work not just timber

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ITTO 2005 Assessment Grim results Africa
6.1 Asia-Pacific 15.0 Latin America 3.5
0 or dont know
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Qualifications

• Data can be very poor
• Classification in customs data
• Illegal logging
• Weak statistical systems
• Regional data weak
• e.g. Amazon versus all Brazil
• Desk study limited direct interviewing

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US Companies

• US firms as concession operators or primary
  processors in the tropics are rare
• Often buy through export agents or internationals
• Complex distribution chain within US
• Both generalists and specialists

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Buying Factors US Market

• Tradition
• Dark Color
• Rare and costly carriage trade
• Durability (teak)
• Low cost (!)
• Not all is expensive e.g. okoume
• Much goes into low-value applications
• Remember the lauan door?
• Some tropical species are economy flooring
  items at the Boxes

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China as a Trade Node
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Russia 69 of total
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China Second largest after Canada
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China Global Resource Drive

• Diplomatic/investment offensives
• Control of concessions
• Largest single forest concession in Cameroon
• Many elsewhere
• Corporate players state, mixed, private
• Imports est. at 35 of consumption
• Likely to continue to rise

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Supply Chains General

• Multi step
• Some steps invisible, e.g. shadow partners on
  concessions, grease to the Big Men
• Often one or more wholesale steps where chain of
  custody vanishes
• Many supply chains ending in US are routed
  through several other countries

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Supply chains

• Value added in-country typically low but rising
• Patterns of integration complex
• Great bulk of this wood comes from public lands!
• Companies at source often small
• Vertical integration varies by region/ product

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Supply Direct US imports 1,000,000 USD
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Indirect US Imports Furniture
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Amazon

• Many multinationals active there
• Mills small
• Remote Upper Amazon active, often across Andes to
  Pacific
• Roads improving
• Govt. action on illegal logging reportedly
  affecting the trade

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Africa Congo

• Several major publicly traded firms operate in
  Africa
• Groupe Rougier
• Danzer
• DLH
• Alpi Group
• Vertically integrated, global marketing

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Okoume Plywood

• Logs cut in CAR or Northern DRC
• To port Doaula, Cameroon
• Offshore trading company
• China wholesale log market
• Plywood plant
• Exporter
• US importer
• US distributor
• US industrial account or retailer

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SE Asia

• Supply nets shifting from Japan, So Korea, Taiwan
  to PR China
• China the new transit processing node
• Offshore Chinese US capital active in
  mainland China
• Vietnam a mini-node especially lawn and garden
• Logs from adjacent landlocked sources
• Become the new Ho Chi Minh Trail
• Land clearing wood oil palm, pulpwood, other

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Governance Failure

• Failed states
• 8 nations rated fragile, 340 MM ha forest
• Regions in hands of armed mafias/warlords
• Colombia
• Cambodia
• Myanmar
• Democratic Republic of Congo
• Major targets of FLEGT actions

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Corruption

• Study Regions contain some of the worlds most
  corrupt nations
• Simple average CPI for 21 supplier nations 2.8
• Out of possible 10
• US 7.3
• 3.0 or less rampant corruption

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Policy Initiatives

• Supply Chain pressures by NGOs
• FLEGT activities
• Appointment of Independent Observers
• Trade actions by domestic industries
• Lacy Act amendments US
• Individual governments getting tough
• But, weve seen this before
• REDD Initiatives

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Summary

• USA leverage as a direct consumer of primary wood
  products is small
• Total amount of US direct imports 2.3 B in 2007
  from 21 supplier nations
• US import tropical woods typically indirect
• Furniture or other
• Via third countries

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Summary, cont

• China is THE global supply node for tropical
  species
• US companies are major participants there
• Total US imports in 2006 from China
• 20 Billion
• Supply chains responses will have to involve
  third countries
• Governance weakness limits policy options

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Questions?
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Thank you for your interest!

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