Thursday, October 27, 2011

Engineered hardwood anti-dumping saga nears conclusion while markets shift

Almost a year after the International Trade commission (ITC) announced an affirmative determination in its preliminary investigation of anti-dumping and countervailing claims made by US engineered hardwood flooring manufacturers’ against China, the case is heading for a final determination in November.
The ITC has held its final hearing of the investigation where both sides stated their case for the last time in public.

Floorcovering weekly produced an excellent article for its readers (ITC holds final hearing on imported Chinese engineered wood) which summarized the event. What I found particularly interesting were the comments from both sides in the case; the US manufacturers represented by the Coalition for American Hardwood Parity (CAHP) and US distributors and importers represented by the Alliance for Free Choice and Jobs in Flooring (AFCJF).

Here's my take on some of their comments:

Comments  by US manufacturers.
•    A large US manufacturer claims it has had to lay off one third of its workforce and that capacity utilization sits at 43%.
I believe any lay offs and capacity utilization reductions is mainly due to the catastrophic decline in the US housing market resulting from bad decisions by US banks.
•    The playing field has changed. It is a race to the bottom and is driven by something that did not exist five years ago and that is imports of Chinese products.
Chinese products have been around for the past 10 years including the time of the housing boom in the early to mid nineties.This would have been a better time to complain as at that time the allegations made in this case were much closer to the truth. But they're right in one aspect. The playing field has changed - the global playing field that is - and we need to be aware of that.
•    Chinese cloning of creative product and illegal logging all contribute to the increase in sales of Chinese products in the US.
To blame the Chinese for cloning is not really fair. All US manufacturers closely monitor the new product introductions of their domestic competitors and if successful they happily clone them, sometimes they even used China to do it. Thinking ahead, if US manufacturers  export to China's growing floor covering market they will surely ship products compatible with existing consumer preferences there. Is that a form of cloning?

Comments by Importers and US distributors:
•    Chinese suppliers are more flexible regarding minimum volume requirements and therefore make private label programs easier and more viable.
Chinese manufacturing methods allow them to make smaller product runs efficiently.
•    Chinese products complement rather than compete with those of US manufacturers.
The vast majority of Chinese products have a sliced veneer face which resembles solid products whereas the vast majority of US manufactured products have a peeled veneer face and this gives a totally different visual.
So there are the major comments from both parties.  I remain unconvinced that the US manufacturers have a case. It is interesting to note that whilst the importers and distributors have received widespread support from their peers, many of whom were in attendance at the hearing, the two largest US manufacturers appear to have maintained a neutral stance throughout the proceedings.

A year ago I posted here and said it would be very interesting to see how it all falls out with the one certainty being it will be a win for the lawyers. I still stand by this comment. When the final ruling is announced (and both sides are appearing optimistic following the latest amendments to the duties) lets hope it is not a pyrrhic victory for whoever prevails and in particular for our industry, and lets hope we can now move on to more critical, strategic planning.

Strategic planning includes looking at shifting markets

While this battle has raged, the US flooring and housing markets have shown few signs of recovery but some markets abroad have grown at unprecedented rates.  A prudent long-term strategy would be to use the time and energy we've spent on this battle to study the shifting market conditions and  explore opportunities in exports and strategic partnerships.  Ironically, the biggest and fastest growing market is China where the demand for floor covering is growing expotentialy with its unprecedented construction schedule.  China cannot keep up with its demand for wood.  Many sawmills in the Western U.S. and Canada are are now exporting up to 30 to 40% of their production to the fast growing Asian market. Canada can't keep up with the call for wood from China. While that is largely softwood, the Chinese construction boom that is absorbing great quantities of softwood will also need flooring. Eventually hardwood flooring produced in China will have to stay in China to meet that demand and China's demand for hardwood and their flooring import market will grow. Will you be ready?

Nothing stays the same forever and that includes floor covering markets.


David Wootton is President of The Wootton Group, an independent flooring consultancy, and a member of the Floor Covering Institute. He is past CEO of both Columbia Flooring and Harris-Tarkett.

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