Freight has taken the fun out of any price increases, with freight rates rising at a similar rate to sales prices. Some of this is attributed to fuel as barrel prices climb out the gate.
To compound issues, the Environmental Protection Authority (EPA) introduced a host of new rules in January this year that all but prevent the use of methyl bromide for fumigation.
Methyl bromide is a key fumigant for cargoes bound for China which is used on port to fumigate logs stowed on the top deck of a vessel. Now that this is all but impossible, exporters have had to move to debarking deck-stowed logs or finding vessels that carry full under-deck cargoes, further increasing costs and port congestion.
The effect of the Ukraine invasion on freight rates is yet to be fully understood.
Russian President Vladimir Putin's Navy conveniently lobbed a missile into the side of a Bangladeshi cargo vessel last week in the Black Sea which has put the frighteners up the shipping industry.
This, and the threat of excluding Russia from the Swift payment system, is seeing many of the vessels operating in the Atlantic now headed south to the Pacific, which will hopefully free up some capacity and counter some of the increased fuel costs.
March at wharf gate (AWG) export prices surprised many with solid increases from a number of exporters but a very wide spread of around $15/JAS between either end of the spectrum. A-grade in most ports (excluding Gisborne) is in the early $140s/JAS which is $10/JAS over the three-year average.
The disparity between exporters is primarily due to the rapidly increasing freight costs, with some having been smart/lucky enough to fix March rates earlier than others.
It is likely that the CFR price will continue to climb over the next few months and the ability to see this in AWG prices will rely solely on how far the shipping companies can push their rates. To compound matters, the $NZ:USD has climbed NZ$0.02 over the past few days which has the net effect of removing NZ$5/JAS from sales prices.
New Zealand log supply is usually peaking during March but Covid-19 will probably pull the handbrake on as it infiltrates the supply chain.
The biggest issue will be at the ports, with marshalling companies already signalling reduced hours in reaction to staff illness.
Port congestion is generally an issue at this time of year anyway but, as every log needs to be measured and bar-coded before it's loaded on a ship, absenteeism is likely to put a stranglehold on the New Zealand supply in the short to medium term.
Carbon has traded some solid increases in 2022, breaking through the $85/NZU mark before retreating to just under $80/NZU at close of play last week. This represents around $50k/ha or $1900/ha/yr for those who are in the averaging scheme.
Sounds appealing but don't expect to plant your hill country out this year as seedlings and labour are already spoken for. We are continually fielding calls from landowners wanting to plant this year; but we (and most other companies) are fully committed for 2022 and 2023 is filling up fast.
Economic Development Minister Stuart Nash has recently indicated changes to policy settings so that radiata will no longer be allowed as a permanent forest species. This will be viewed as a positive sign by many in our industry as large-scale, untended, non-productive permanent radiata forests benefit no one long term and will more than likely create a liability for someone down the track.
Resilience is the key in any commodity-based business, and it looks like 2022 will test how resilient some players in the industry are in the face of rapidly changing and volatile global parameters. Having said that, this is not our first rodeo and we're all used to wearing steel undies, so bring it on.
