John R. Osgood
JOHN R. OSGOOD heads his own lumber and veneers firm in Los Angeles, California.
My family has been importing tropical timber for 50 years, since my father first began buying Philippine mahogany. It started for us as a small and specialized trade. In the early days it even had a certain romance, dealing in exotic products from Asia. Since then, the changes in the relationships between importers and suppliers in tropical timber have been part of the change away from colonialism. The relationships between businessmen and government regulatory agencies in most industrialized countries have also become much more complex in the past 20 or 30 years. Commerce and trade have changed very much over that period for all involved. Everyone says that the world has become smaller. Perhaps; but the result has not necessarily been greater understanding. Since producers and importers are obviously linked to each other, and need each other, they ought to examine the practical consequences of these changes. With this in mind, I present here some of my own problems and points of view. Partly they are normal business risks and partly they involve basic differences between the world of and the mentalities of the producers and of the importers. In either case they need to be appreciated by those who sit on either side of the shipping orders. 'The importers' problems tend to fall into two general categories: mechanical and economic.
· Movements by water are always necessary, and often these shipments have to be made from small, remote points. Getting vessels to call at such ports is normally full of the frustrations of delays and cancellations. In a business where much must be coordinated, such delays and cancellations can lose contracts for us, and margins of profit.Sometimes the tonnages required by the carrier exceed the factories' ability to produce; this seems to be like the old question of which came first, the chicken or the egg. Therefore, one of the first things we try to do in assessing a possible new supply is to establish whether or not the freighting is a workable situation. Many projects die at this point.
LOADING LOGS IN THE ANDAMAN ISLANDS complications lie ahead
· Since developing countries are short of working capital, the supplier often needs to post a letter of credit. This means that the importer has to come up with the money before seeing the merchandise and then normally must market it on open account. A broker can only hope that the customer finds the stock acceptable on arrival, that the credit reports on this customer are accurate, and then, that he can and will pay for it.· Another potential problem is marine insurance. Many developing countries are in areas where typhoons, tornadoes, hurricanes and monsoons are commonplace. The mills and jetties seem to be very prone to fire, so adequate insurance coverage is a requirement. Where only insufficient coverage has been obtained, there have been problems. In addition, procedures and regulations usually complicate the importer's task. Theoretically, such complications should concern the mill rather than the importer. In cases where an investor has already made cash advances or investments of some kind, he can sometimes be delayed unexpectedly by additional red tape.
· Another widespread problem is the insistence on "irregular payments". It is not at all unusual for an importer to find that his order-his investment -has somehow put him into the position of having to pay ransom to complete what should have been a normal business operation.
· Customs (and customs law) is an area of constant difficulty and risk for importers. For instance, in the United States, customs law differs considerably from other kinds of law. There is no statute of limitations and the Government seems to work on the principle that the importer is guilty until proven innocent. Our office had to pay more than $2000 in additional duty on a shipment of plywood -that had been imported 18 years earlier. This means that a first-class customs broker is very important and one should follow his advice. More important, importer; should be prepared -to pay extra duty on notice and not hope that certain charges will never be discovered. It is one more way in which an importer's costs can increase unpredictably. But we know of importers who have virtually been bankrupted by increased duties adjudicated payable many years after delivery. e' With timber products, grading is a significant problem. Producers in developing countries are, by and large. unfamiliar with what is required and with the end use in the importer's country. The producer therefore should be told what is expected. There is a regrettable lack of communication here. Inspection must be carefully handled either by the importer's own personnel or by somebody who can be trusted. It is not enough, for example, simply for an importer to refer to US grading rules of one kind or another. A lot of work needs to be done to change attitudes and promote information exchange on both sides.
. . . a lot of work needs to be done to change attitudes and promote information exchange on both sides
So much for the more obvious mechanical problems. I do not want, however, to leave the impression that these difficulties are sufficient to discourage the very idea of importing. In spite of what I have said above, many people have managed to conduct successful importing businesses over many years.
Now for the problems I have chosen to call economic. These problems have become increasingly important in recent years. For a long time producers were basically at the ' mercy of the consuming areas, and economic problems were always secondary compared with the mechanical ones. However, it has become increasingly evident now that hardwood timber reserves throughout the world have been dwindling fast and that reforestation has been sadly neglected. The producers have gradually become aware that they have a patrimony which can-not be maintained on a sustained yield basis.
In addition, many formerly viable areas of timber supply such as West Africa have become lost to the international market, permanently or temporarily, due to overexploitation or political instability. Accordingly, many of the remaining areas, primarily in southeast Asia, have discovered that North America, Japan, Europe, the, Near East and Australia are all competing for the same remaining trees. As a result, groups such as the, Southeast Asia Log Producer's Association have been formed. In some respects they are like, or would like to be like, OPEC, perhaps establishing rates of production and setting prices for a resource for which there is a large demand. The importers may have to pay higher prices than originally contracted in order to maintain their volume in the presence of a newer and higher bidder. In essence, the sanctity of a contract is threatened or no longer exists. The importer may start to think about alternative sources of supply and substitute species.
In addition to having to renegotiate contract prices, importers face the problem of basing their costs upon variable currency rates. This is a normal risk, but it ought to be appreciated by producers because it often creates an expensive situation for the importer tied to a particular customer. Ocean freight rates also have increased enormously over the past few years, and each increase in the price of oil probably results in a disproportionate increase in ocean freight. Such problems will probably be with us for a long time.
Sometimes it is necessary to renegotiate outstanding orders as many as three times, and it is difficult to sell anything for forward shipment when one does not know what price will eventually have to be asked. Accordingly, most importers feel safe only in selling material after it has been put aboard a vessel. This naturally distorts the true supply/demand picture, making it much more difficult for our customers to plan ahead. There is also always the danger that supply will unexpectedly overtake demand. Human nature seems to decree that in periods of scarcity, one buys three or four times more than is needed in the hope of getting enough. Since it takes only a very small percentage one way or another to create a shortage or a surplus, the risks of doing business are increased even further.
reforestation, if begun soon, could both increase and stabilize the international supply of timber
While this is a general litany of the difficulties involved in importing timber products, it is only fair to say that there is a brighter side too. Some of the problems, particularly the mechanical ones, would seem reasonably easy to solve through various kinds of bilateral and regional agreement. Some economic problems will always remain, but as the economic disparity between developing and developed countries decreases, we can expect more stability to develop in the international marketplace. Finally, efforts at reforestation, if begun soon, could both increase and stabilize the international supply of timber.
