Comment: Strain on forestry infrastructure causing Gisborne port congestion and slow vessel turnaround

Port congestion was especially problematic in June. Photo / File

It's been a dream run over the past six months, which has culminated in the highest export log prices we have seen in 30 odd years. As commented on previously, this has been because of a number of factors, mainly a lack of supply into China from Australia, Europe and the Pacific Northwest.

This has, in turn, provided forest owners with stellar returns and allowed many contractors within the industry to recapitalise and improve the quality of their machinery.

The increase in harvesting activity has put a strain on infrastructure and we are seeing this manifest into congestion at ports and increased turnaround times for trucks, trains and vessels.

June has been especially problematic for port congestion. Repairs to Gisborne's berth have resulted in load rates of less than half the usual level and, as of last week, there were about 13 vessels at anchor.

The average wait time for these vessels to get to the front of the queue is about 22 days at a daily cost of about US$30,000, which equates to a total demurrage cost of US$660,000. This congestion at Gisborne is pushing volume into Napier by truck, which is creating space issues there and resulting in exporters scrambling to keep the gates open.

To top this off, there have been a number of vessels denied entry into NZ ports due to having a dirty hull, which is basically unwanted organisms growing on the underside of the vessel.

This is a result of port congestion worldwide and vessels sitting parked up at ports in tropical waters for extended periods waiting to load or unload.

NZ supply into China has been similar to previous months at around two million cubic metres but we are seeing some competing supply appear in the market from Uruguay and other smaller players as prices reach a point that makes it worthwhile for them to export to China.

Total inventory is still considered low at around 4.3 million cubic metres so there's no real panic about a supply/demand imbalance, just yet.

So why the stomach gurgling and sweating? There are a few indicators that demand is dropping as construction activity in China tapers off. Efforts by a few NZ exporters to push the CFR price above US$200 per cubic metre were met with resistance and resulted in a decrease into the early US$ 190s, still a strong number but also an indication that we may have found the ceiling.

Talking to a number of exporters last week the general comment was that Chinese buyers have stopped answering calls and closed the laptops. Whether this is a genuine drop in demand or an orchestrated ploy to get the sales price down, only time will tell, but the silence is deafening.

Another slight wrinkle is that Taicang Port, the second largest log port in China, has recently started reducing the volume of logs it will receive to a level at which it will only supply the sawmills based on port company land. This is obviously a concern as reduced port space results in reduced demand as smaller sawmillers are forced to relocate to other regions to secure log supply.

As at the time of writing, most exporters are holding back on setting the July wharf gate purchase prices. The belief is that, although there should be a decrease of around $10 per cubic metre for July, most are waiting to see who fires first and at what level. Domestic log prices are generally up across the board in response to the strong export prices and sawmillers will be welcoming some relief, if and when export starts to button off.

So, while we're not quite reaching for the Diastop pills just yet, we are making sure that our plane tickets are transferrable and there's a good stash of Purex in the bathroom.