Change works its way into every action, according to a report here which describes the process of Creative Destruction: “The creative destruction of the business world forces companies and individuals to continually look for the most efficient way of doing tasks.”
In contemplating countless changes in the lumber industry since the subprime mortgage crisis of 2008, efficiency, consolidation, and risk management are recurring themes. One Northeast lumber wholesaler reports, “During the ramp-up to the crisis, anyone who had a hammer was building. There were more spec houses and condos than buyers, and more retail exposure. Many retailers were aligned with one or two large general contractors – and ultimately got burned. In the recovery, we’ve seen this cleaned up, to the demise of some retailers and a lot of builders.”
For many dealers in the Midwest, credit constraints have reportedly intensified since the crisis. According to one trader at a large buying cooperative, “With business coming back, and coming back big in some cases, many of our dealers don’t have the credit or cash flow to buy what they need.” Another trader working in the Midwest market suggests that now “all the risk is at the reloads”, alluding to a shift to extreme hand-to-mouth buying patterns. She adds “everyone downsized in the downturn – everyone’s running lean.. from the mills, to the railroads, trucks, wholesalers, dealers, builders – it’s been a real domino effect.”
In the Southwest, one trader with a high quality re-manufacturer reports the biggest change is a smaller customer base. “There were several companies that didn’t survive the slowdown.. unfortunately, a number of them were good customers. As the market improves, the business they had is now going elsewhere. The biggest challenge has been trying to get established with the companies that are now getting that business, companies with which I had no prior relationship due to the fact that they were our former customers’ competition.”
What are the biggest changes you’ve seen in your market area since the travails of the 2008 financial crisis? Are there any challenges in your accommodating those changes?
2 thoughts on “Change.. it’s everywhere..”
What changes have you seen in risk management? It was tough if you were a builder and input costs didn’t decline with the housing market, combined with schizophrenic Chinese demand made price risk a huge problem.
Appreciate your comment. While demand for lumber in North America is gradually increasing with the U.S. housing market recovery, liquidity is still a big issue. With so many conflicting forces at play throughout the world, market sentiment is more erratic than ever, more difficult to read. Enhanced risk management is reflected in prevailing caution on so many different levels. Extreme hand-to-mouth-buying patterns, just-in-time delivery is in evidence. Wholesale distributors and dealers alike are monitoring leanest of inventories, limiting exposure in face of highly volatile markets. Vendor-managed inventories (VMI) are one example of evolving programs aimed at mitigating risk.