As vessels are generally paid for on a time basis, any non-productive wait times outside of loading or unloading increase the m3 unit cost. As NZ ports grapple with Covid absenteeism and a general lack of staff anyway, the ability to unload and load vessels has been impacted, creating wait times around the country.
In addition, the EPA has effectively ruled out the use of methyl bromide, the only fumigant accepted by China for the top deck cargo (around one-third of the vessel's cargo) which has resulted in the industry moving to debarking of all deck stowed logs as a substitution.
While debarking sounds like a better option, in reality you can't build one overnight and therefore exporters are scrambling to secure top deck cargos where they can. As the Port of Tauranga has the most available debarked volume, vessels are waiting up to two weeks at Tauranga for a load due to congestion – at $US35,000/day or $NZ1.65/m3/day.
Thankfully, the NZ dollar has been playing ball, with a drop not seen since the first round of Covid lockdowns which has helped offset some of the freight cost increases. This will be cold comfort to Finance Minister Grant Robertson as the direct impact of the depreciated dollar will keep the foot firmly on the inflation throttle.
The China Covid elimination strategy hasn't gone so well in recent weeks with some very hard lockdowns in some of the busiest cities in China. This has flowed through to weak demand as it's pretty hard to convert logs to lumber from your 30m2 apartment in Beijing.
We are expecting to see reasonably sharp increases in inventory if the lockdowns continue through May, which is likely as the Chinese government doesn't like to admit defeat, even if the general population is starting to lose its sense of humour with being locked down.
Supply from NZ is down on previous months due to port constraints, subdued returns and a general level of unease by forest owners regarding global stability. Global supply is also lacklustre and is not expected to increase from current levels for the remainder of the year which bodes well for NZ and the potential for price increases through Q3.
Increased fuel costs also are starting to bite harvesting and cartage contractors, and many are passing on this cost in the form of fuel adjustment factors (FAF). Your average harvesting crew will chew through around 4 litres of diesel per tonne of log and, with around $0.82/litre increase in the last 12 months, you're looking at harvest cost increases in the order of $3.28/tonne.
Trucks generally only get around 1.6km per litre on average which equates to 1.9 litres of fuel per tonne per 100km. Using the same increase in fuel cost and an average cartage distance of 150km from forest to mill or port, the actual increase in cartage cost is $2.33/tonne. Add these together and, over the last 12 months, you're contributing an additional $5.60 per tonne or around $3000/ha to the fuel producers' bottom line.
How long the increased fuel costs last is anyone's guess but as long as Russia's war with Ukraine continues we're more than likely stuck with it. Any reductions that were provided through government concessions in excise tax and road user charges have been countered by the exchange rate which has increased the cost of all imports.
Domestic log demand remains buoyant for both pruned and unpruned sawlogs. Many mills have mirrored other parts of the supply chain with large staff absenteeism due to Covid which has impacted production.
The building industry will likely blame log exports for timber supply issues again; however, thankfully, the Gib suppliers have taken the heat away from us which is much appreciated.
• Marcus Musson is a director of forest management company Forest 360.
