Source:
US Department of Commerce and Statistics CanadaContents
- A Technical
Assessment of North American-style 2x4 Construction In Japan
- Director's
Message
- Asian Economic
Flu: Causes, Impacts, and Projections for Recovery
- 1997-98 CINTRAFOR
Graduates
- Canadian Competition
in the Japanese Wood Products Market
- Product Life Cycles in
the North American Wood Panel Market
A
Technical Assessment of North American-style
2x4 Construction In Japan
by Dr. Ivan Eastin, Associate Director, CINTRAFOR
Results of the Assessment of 2x4
Technology Transfer in Japan
The results of the technical assessment identified a number of areas
where a better understanding of the North American style 2x4 technology
would lead to improved cost efficiencies while increasing the quality and
long-term performance of 2x4 homes. In general these areas can be
categorized into two groups: project planning and management and design
detailing and construction techniques. Project planning and management
problems included items such as the construction management system, labor
specialization, the construction inspection system, and architectural design
concepts. While these areas impact the cost structure of a residential
construction project and its overall aesthetic appeal, the second category
of problems, construction techniques, has a direct impact on the long-term
performance of 2x4 homes built in Japan. The second category generally
included items associated with specific 2x4 construction components such
as the foundation system, wall and floor framing, interior finishing, exterior
finishing, ventilation, and insulation. The following discussion
provides further detail about the areas identified by the team of construction
experts.
It should be noted that there is a Japanese version of 2x4 construction technology that co-exists with the North American style. The primary difference between the two systems relates to the size of the basic wall panel used in the construction process. The Japanese 2x4 system utilizes a 3’x6’ panel size, which is based on the size of a traditional tatami mat, while the North American style 2x4 system uses 4’x8’ panels in the construction process. Other differences between the two systems include the stud spacing (17.8 inches versus 16 inches on center) and the greater integration of domestic building materials into the Japanese system. Finally, the Japanese system tends to use more wood in the construction process and thus is less cost effective. This research project was focused exclusively on projects utilizing the North American style 2x4 construction system.
The differences between the traditional post and beam construction method and the North American style 2x4 construction method are a reflection of the cultural differences that exist between the countries. The Japanese interest in North American style 2x4 homes, which were introduced into Japan in 1974, is in part a reflection of the increased standard of living associated with the Bubble Economy of the mid to late 1980’s and partly due to an increased interest in the US lifestyle on the part of many Japanese. Only after the collapse of the Bubble Economy, did Japanese builders and contractors look to imported housing to provide a combination of affordability and value as an answer to the high cost of housing in Japan. The relatively short history of 2x4 housing in Japan means that most Japanese architects have had little opportunity to learn the design detailing that has contributed to the success of 2x4 construction in North America. Perhaps more importantly, the emphasis of builders and contractors during the 1980’s was on designing and building 2x4 homes based on the concept of “Americana” and the American life style.
During the assessment of North American style 2x4 housing projects in Japan it often appeared that architectural design was driven by product selection, availability and western image rather than by design concepts, functions, and details. As a result, the link between architectural design and construction technology was often lacking, contributing to a loss of design continuity within the home and reducing the inherent cost efficiencies of 2x4 construction technology. In addition, it appeared that some Japanese architects and builders lack understanding of imported building materials and the process of specifying these products. Not only did this adversely impact the aesthetics of many of the projects but it also affected the functionality of the designs.
Construction Management
Probably the single most important area of concern noted was the lack
of understanding of the North American 2x4 construction management process.
Building lot sizes are typically quite small in urban Japan. As a
result, most material storage and material preparation occurs on the work
platform increases site congestion and reduces carpenter’s productivity.
In addition, cultural norms require that builders and contractors employ
intricate and expensive scaffolding and tarp systems to minimize the visual
and noise impacts of the construction process on nearby neighbors.
However, these scaffolding systems impede workers movement around the construction
site, restrict their access to the work platform during the construction
process, and complicate the handling and movement of building materials
on site.
It was also noted that specific construction tasks appeared to be scheduled with little consideration of their relationship with other tasks occurring in the construction process. Poor scheduling means that critical tasks are not staged in the proper order and contributes to a lack of overall coordination that adversely impacts production efficiency and increases total construction costs. For example, stairways are often left to be completed until late in the project which forces workers to use ladders to move between floors, greatly hindering their movement and the movement of construction materials within the job site. In most of the projects under construction it was observed that hardwood floors and interior moulding were installed after the installation of wallboard but prior to the mudding, taping and finishing of the wall board. This means that extra time and care must be taken to finish interior wall surfaces in order to ensure that the floor and interior trim is not damaged. Finally, the majority of building materials used in North American style 2x4 projects is imported and carpenters are often required to perform tasks where they are not particularly proficient (i.e., hanging and taping wallboard, installing flooring, putting up moulding, and hanging doors and windows. This problem can be attributed to the fact that the network of skilled workers that performs these tasks using domestic Japanese products is reluctant to work with imported products with which they have little experience.
As described earlier, Japanese concrete foundations are overly expensive, complicated, and subject to construction deficiencies. The typical process employed by Japanese contractors in building a foundation consists of six steps: soil preparation, spreading of a rock base, pouring concrete for the perimeter and interior foundation walls to a sub-grade level, pouring a mud or “rat” slab, pouring a thin mortar cap on top of the foundation walls to bring them to final grade level, and applying a smooth mortar finish to the exterior walls. One problem noted was related to the fact that foundation walls are not initially poured to the final grade level. In order to bring the foundation to the finished grade level, concrete forms are later nailed to the foundation walls and a thin mortar cap (15-30 mm.) is poured. This practice results in poor adhesion between the thin top layer of mortar and the foundation wall, often resulting in the separation and cracking of the mortar cap. Given the frequency with which this was observed, the instability of the mortar cap can adversely impact the structural performance of the house and could result in wall cracks as the house settles.
In addition, it was observed that foundation walls are generally placed under interior walls, both load bearing and non-load bearing. Foundation piers are also placed under long floor span and adjustable support columns are often placed on the foundation piers to provide intermediate support for floor joists to reduce sag and stiffen floors. The adjustable support columns observed were not fastened to either the floor joist or the foundation piers and are subject to failure if a lateral or uplifting force were to be applied to the house as in the case of an earthquake. While these adjustable columns are unnecessary, expensive, and most likely ineffective, they also compromise the structural integrity of the floor system.
It was observed that there appears to be a lack of understanding of some technical details of North American style 2x4 construction technology. This was observed to some degree on almost all of the construction sites visited. In most cases this lack of understanding resulted in higher construction costs without adversely affecting the structural performance of the home. In some cases, a lack of understanding of the proper construction techniques could very well adversely impact the structural performance of the home. For example, on several projects the exterior sheathing for the shear walls was not extended down to the sill plate on the foundation. In the absence of adequately engineered and installed tie-downs, failure to tie the shear walls to the foundation means that the house has minimal resistance to lateral forces and is subject to shifting on the foundation (e.g., for example in the event of an earthquake).
The excessive use of lumber during the rough framing of a 2x4 house was frequently observed in wall, floor, ceiling, and roof construction. For example, the team observed instances where wall studs were doubled in an apparent effort to simulate the 4x4 posts used in traditional post and beam construction. They also noted instances where floor joists were doubled to increase the stiffness of the floor and other cases where dropped ceilings were employed to reduce noise transmission between upper floor and lower floor. Both of these practices require an increased use of lumber and result in higher material and labor costs. The use of blocking in walls was often observed in areas outside of shear wall applications where it serves no structural purpose and is not required by US building codes. For example, blocking was often used behind the ends of adjacent sheets of plywood and drywall for nailing, behind wall mounted cabinets in kitchens and bathrooms, and inside closets where shelving will be installed. The installation of blocking is very labor and time intensive, does not increase structural performance, and results in increased labor costs while slowing down the construction process. It was also observed that the grade of lumber specified for rough framing was often much higher than required, further increasing material costs during the rough framing process. A number of US contractors involved in 2x4 projects in Japan have estimated that the increased use of lumber during the framing process results in a 20-35% increase in framing material costs.
Another area of concern relates to exterior finish details that influence the ability of exterior walls to resist air and water infiltration. In many instances, gaps were observed in the areas where exterior siding butted up to doors and windows as well as at the corners of the house. In addition, flashing above doors and windows was frequently deficient or missing completely. These problems provide an opportunity for water to penetrate into the walls of the house, establishing an opportunity for decay and degradation in the wall system, windows, and doors to occur in the future.
One of the advantages of the 2x4 construction system is improved energy efficiency, a feature that makes 2x4 homes attractive to Japanese consumers given the temperature and humidity extremes experienced in winter and summer. The evaluation team observed a general lack of understanding regarding the installation of insulation. They observed cases where undersized batts of insulation were used as well as instances where oversized batts of insulation were compressed into walls and ceilings, reducing the loft of the insulation as well as its insulating ability. They also found that walls and ceilings were under insulated (e.g., R11 and R19 insulation was usually used in walls and ceilings when US building codes generally specify R19 and R30 insulation in these applications). In addition, the team reported that many of the houses visited did not have adequate venting in the soffits and attics and non-functional vents were often located on the peaks of homes solely for aesthetic purposes. The failure to adequately vent these roof spaces can result in moisture buildup which, when combined with high humidity and high temperatures, can lead to the degradation and premature failure of the roof system.
Given Japanese consumers expectation of quality, the long-term growth
potential of the 2x4 residential housing market is dependent on ensuring
the quality of 2x4 houses built in Japan, particularly given the strong
association between this type of construction technology and US building
materials. From a marketing perspective, the role of quality is more
important than low price in Japan and every effort should be made to ensure
that the North American style 2x4 construction technology is implemented
correctly by Japanese contractors and carpenters. Failure to ensure
the efficient transfer of North American 2x4 technology will contribute
to a perception by Japanese home buyers that 2x4 housing is poor quality
and could undermine efforts by US and Japanese companies and associations
to further develop this growing segment of the Japanese housing market.
Director's
Notes:
Bruce Lippke
What a difference a year can make. 1997 began as the seventh consecutive year of high timber prices, largely a consequence of reduced harvests resulting from environmental constraints that began in 1989. By the end of the year timber export price premiums had dropped to levels not experienced since the international recession in the early 1980’s. Timber export revenues in Washington State alone have declined by $600 million or more annually, or 30% of the value of recent harvests. This raises several questions. Was this price drop a direct consequence of the recent Asian economic crisis? When will the market begin to recover? How long will it take to return to previous activity levels? Unfortunately, there are no easy answers to these questions, even though they are of the utmost importance to the region.
1997 also started as the third year of strong growth in secondary manufactured building material exports to Japan as deregulation in Japan’s housing market continues. The year ended with building material markets in disarray. Even when the statistics for the year are released they will offer little insight for the future except that changes are inevitable. The question remains, will deregulation and secondary export growth get back on track or will protectionism rise again and block US imports? We provide a brief summary of the Asian financial crisis and what it might mean to the forest sector on page__.
There are several new CINTRAFOR publications available this month. “Marketing Strategy Effects on Contractor Perceptions of Residential Siding Materials” (WP64) is the second CINTRAFOR study completed for the Western Red Cedar Lumber Association (WRCLA). The study, combined with data from the first study, “North American Residential Decking and Siding Market”, (WP56) provides information on: 1) residential siding use patterns over time, 2) consumer perceptions of residential siding materials before and after WRCLA promotional campaign, and 3) consumer exposure to the WRCLA promotional campaign and the effects of exposure. “The Forest Sector in the Russian Far East: Status and Near-Term Development” (WP63) is an assessment of Russian Far East timber holdings and their development potential. Two articles appearing in other publications are available through CINTRAFOR. Financial Performance, Capital Expense, and International Activities of the North American Pulp and Paper Industry, at Mid-Decade, (RE45) appeared in the October issue of the TAPPI Journal, and New Growth, (RE44) an analysis of China’s domestic timber production and import potential, appeared in the China Business Review. Finally, “Reviews and Errata Report on Forest Health of the United States by the Forest Health Science Panel” (RE43B) is a peer review by independent scientists as well as errata and corrections to syntax and analysis in the earlier report.
In addition, over the last 18 months a consortium of US and Canadian
research scientists has developed a comprehensive research plan to characterize
the environmental performance of wood products through the life cycle stages
of forest regeneration, processing, wood construction, building use, and
final disposal, i.e., from cradle to grave. The report and research
plan entitled “Environmental-Performance Research Priorities: Wood Products”
was reprinted for the Consortium for Research on Renewable Industrial Materials
(CORRIM), an organization CINTRAFOR helped establish, and is available
as RE46. A one-page fact sheet on the project is also available.
Asian
Economic Flu: Causes, Impacts,
and Projections for Recovery
by Bruce Lippke, Director, CINTRAFOR
Asia's strong economic growth began to slow down in early 1998, resulting in a growing volume of defaulted bank loans as a consequence of poor lending practices. Too many loans were granted on the basis of state support or personal relationships instead of collateral and risk.
When speculative investments made by large corporations began to fail, a crisis of confidence contributed to a flight of capital and overall financial devastation for the region. While these poor investment decisions may have been a trademark of Asia's less than open market system, many countries including the US have experienced financial disruptions as a consequence of excess lending on their way to a long period of economic growth. The robust Asian economic development of the past twenty-five years may be restored if the integrity of financial markets improves and the lending process becomes open and competitive.
The US has experienced several periods of financial excess including recent periods of bad energy loans, excessive investment in urban real estate, and deregulation of the savings and loan industry. Mexico and other Latin American countries have also experienced several periods of debt repayment problems, which as contrasted with Asia's excessive private debt, were largely due to excessive government debt.
The magnitude of the Asian debt problem was first estimated to be less severe than the Mexican debt problem of 1994. However, similar to the Mexican debt situation, the Asian crisis in confidence has lead to large capital outflows starting in Thailand and spreading quickly to Malaysia, the Philippines, Indonesia and Korea. These flows were exacerbated by the reaction of several Asian leaders who blamed speculators and threatened retaliation instead of taking actions that would restore confidence in the ability of markets to solve their financial problems.
The result so far has been a substantial decline is stock values (typically -30 to -50%) and currency rates (-30% to 60% and more) with the expectation of some decline in economic growth in contrast to their recent history of high growth. Consequentially, companies with foreign denominated debt will have great difficulty repaying loans with their deflated currencies. At the same time, the region's exports have become extremely competitive in global markets. When their production is priced competitively in consuming countries like the US, Asian products will still provide very large profit margins in their local currencies. This will allow the Asian countries to restore growth through exports once they get past the crisis in financial confidence and can restore their production of export goods.
Domestic Impacts
The US, Europe and other countries whose currencies have not devalued will begin to lose their share in export markets and experience a decline in their trade balance. These consuming countries will also experience deflationary price pressures as Asian products relieve capacity shortages, with products priced low enough to move their volume. The US and other developed countries will experience extended economic growth without capacity shortages or an inflation induced recession. Once stabilized, the economic recovery of the depressed countries should be fairly rapid given their super-competitive exports. Countries with strong currencies will have the opportunity to make investments and asset purchases in these devalued countries at bargain prices. A more diverse group of investors in these markets will also provide greater financial transparency, improving the confidence in the market. Several of the Asian stock markets already show substantial investors anticipate the restoration of some financial stability.
The problem for US building material exports is that Japan, which has been facing .a~1½ubble economy problem over the last six years, has done relatively little to restore liquidity in its banking system. Bad loans stifle the lending of credit resulting in a stand-still economy. Attempts to stimulate the economy have been too little and too late given the increase in their non-performing loans with the rest of Asia and loss in exports. Japan’s economic stimulus plans that were announced for FY98 are largely offset by the worsening condition in the rest of Asia.
Despite pressure from the US and Europe, the Japanese government has been relatively complacent about repackaging bad loans or providing economic stimulus to create an engine economy as a means to achieve a broad based economic recovery. Complacency in dealing with these problems is perhaps not as bad as a return to protectionism, which could easily trigger further retrenchment and a global deflation similar to the problems experienced during the 1930's. Unlike the smaller Asian countries that are in trouble, Japan is too large to re-stimulate its economy with exports alone and has therefore become the key in determining the terms of Asia's recovery. Until Japan become more aggressive about stimulating its economy and restructuring the banking system to absorb bad loans in order to be able to lend again, the best the country can produce is continued stagnation. If the deflationary consequences worsen, Japan may be prompted to adopt new economic programs, but the country’s current administration does not appear to be able to agree on more than cosmetic fixes, which are insufficient to offset the negative impacts from other Asian countries' financial problems.
The impact on Japanese housing is particularly important to US exporters. Japan’s housing market has faired remarkably well for an economy suffering six years of stagnant growth. Unemployment rates however, are rising, meaning fewer new households and more doubling up of existing households, a clear sign of weakening housing demand. While deflation in real estate has made housing more affordable to new buyers, the deflation cycle seems to be leveling off and the housing market will likely become more sensitive to income and job growth. A rebound in the Japanese housing market during 1998-1999 is still possible, but seems to be stalled by Japanese complacency about the economy.
The excess US forest products inventory that accumulated in Japan over the summer was reduced by the price collapse, with North American producers shipping more product to the stronger US and European markets. However, without a Japanese market recovery, US markets will receive enough surplus product from other regions to keep US prices low, despite higher domestic housing prices and a strong US economy.
Timber sale transactions in PNW reached record high prices over recent years supported by the high prices in export markets. Now these timber prices are contributing to such a highcost structure that products from the sales are uncompetitive even in US markets, resulting in more mill downtime and closures. Production capacity in the PNW has never fully adjusted down to the environmentally constrained harvest levels, and the international market decline will cause another round of shutdowns. The viability of the PNW forest sector will be tested even with strong domestic demand, since much of the success of the PNW forest industry is determined by the Pacific Rim export market. At the same time however, the US South has apparently expanded its processing capacity to the limits of timber availability, evident by periods of Southern lumber prices exceeding Western prices in contrast with the opposite behavior just two years ago. This tightening in southern supply will likely drive US prices up and provide an opportunity to shift more PNW export product back to the US market.
Predictions for Recovery
The most likely future scenario seems to be for a recovery in the Asian
markets. However, Asia's weakened currencies will work against them importing
from the US but it will encourage investment in their currencies. Continued
stagnation in the Japan economy will postpone the timing of US export growth
into a more deregulated Japanese housing market. The deflationary aspects
of the Asian crisis have helped extend the US economic growth cycle as
any shortage in capacity can be met with increased imports at a low price.
The dollar will eventually weaken with the increased consumption of foreign
goods (a dollar outflow), and as the opportunity to invest overseas increases
(increasing the outflow), and as the recent flight of capit4 out of Asia
returns to Asia (not flowing into a US safe-haven). The reduction
in US competitiveness will over time, begin to be self-correcting with
a declining currency.
There is still a significant risk that a few more bad policy decisions could keep the fragile Asian financial system in turmoil. There has been too much tending with too little transparency, leading to excessive speculation before the economic bubble burst. Short-term solutions that have been suggested, such as currency controls and reduced lending requirements to increase liquidity may only worsen the transparency problem by bailing out bad investors without creating a higher fiduciary standard.
South Korea, Thailand, and the Philippines appear to be on the path to corrective actions while the signals for Indonesia and Malaysia are still mixed. Japan has stalled taking direct action on its huge portfolio of bad loans. Unfortunately their growth has been so slow that they have made little progress in paying the bad debts which have grown larger with deflation, and the compounding effects of their Asian lending.
The International Monetary Fund (IMF) has become the lender of last resort when the international community recognized that lack of a solution would have negative impacts on everyone. US leadership in resolving the Mexican government debt crisis was much easier to rationalize than taking the same steps for secretive Asian capitalists, given our closer trading relationship with Mexico. A lack of political support for the IMF effort could result in an even more severe backlash. The question should not be why should we bailout foreign speculators, but how can we restore a climate for healthy investments in a democratizing world?
One of the remaining wildcards is China with its many large uncompetitive government. business enterprises. Early currency devaluation by China, as a means to prevent further erosion of their competitiveness, could trigger devaluation by other countries. Such a move would do little to solve their internal problems. A smaller currency devaluation following an improvement in the rest of the region's economic situation seems more likely. Asia needs engine economies to restore growth and repair financial integrity. The size of the Chinese economy makes it an important player in this scenario even though it remains less open to outside trade and investment than its neighbors do.
Another wildcard may be the political backlash associated with the financial crisis. Support for the IMF may be a primary issue, but internal ethnic unrest is a consequence of reduced standards of living can also be critical to restoring stability. Since no two countries have similar political support issues, unrest should be contained so it does not become a regional problem.
The decisions that lead to this latest Asian economic slump have had
potentially long-terrn and far-reaching effects. From these mistakes however,
there is a high probability that Asian leaders will support democratic
market oriented institutions with an open and transparent financial system
that will stimulate another round of growth and improved standard of living
for the Asian region.
Steve Shook and Weihuan Xu, two students who worked on CINTRAFOR funded projects, received their doctoral degrees this year. Steve received his degree in forest products marketing and completed his thesis titled “Innovation in the US Residential Construction Industry: An Integrated Model of Determinants of Firm Innovativeness for Engineered Wood Products” which based on a survey of US residential builders, analyzed the adoption process for new wood-based building materials. Mr. Xu received his Ph.D. in forest economics and authored the thesis “Experimental Choice Analysis of Non-Market Values for Ecosystem Management with Preference Heterogeneity.” This study sought to address the issue of urban versus rural forest land management opinions by using contingent valuation to determine public preferences and the marginal cost individuals would be willing to pay to preserve non-monetary forest values such as aesthetics, jobs, and biodiversity.
Upcoming Graduates
Three students who work for CINTRAFOR will receive their graduate degrees
in forest products marketing this quarter. David Wright researched
new markets for small diameter timber for the US Forest Service and completed
a market survey to determine lumber wholesalers’ attitudes for an analysis
of the introduction and marketing of lesser-used timber species.
Amy Bjorkman focused on the pulp and paper industry during her degree program
and co-authored the paper “Financial Performance, Capital Expense, and
International Activities of the North American Pulp and Paper Industry
at Mid-Decade” which appeared in the TAPPI Journal. Amy also completed
a survey and professional paper on buyer and seller relationships in the
newsprint industry. Robert Hashizume focused on the Japanese 2x4
construction market and completed a market survey and evaluation of strategies
affecting technology transfer in the Japanese 2x4 construction market.
Robert also researched small diameter timber for the US Forest Service.
Canadian
Competition in the Japanese Wood Products Market
by Rosemarie Braden
The imported housing and building products market in Japan has undergone a difficult year. The devalued yen coupled with a new consumption tax imposed in April 1997, has had a profound impact on the wooden housing industry. For the month of September, the number of wooden housing starts in Japan declined 41% compared with the previous year. Experts predict that the market will rebound, however the resulting market will mostly likely be more competitive. Not only are more importers from the US involved in this market, but more countries are also focusing on developing their value-added export markets in Japan. Canada in particular is making gains in the Japanese housing market.
While primary products still make up the bulk of wood products exported
from the US and Canada, secondary products are increasing. As Canada’s
government focuses on developing the country’s secondary manufacturing
sector, Canada is becoming a more significant source of competition.
Increased stumpage costs and the Forest Practices Code have contributed
to a decline in timber harvests. Canadian companies have responded
to this raw material supply shortage in the same way PNW companies responded
to the 1989 log export ban - by shifting toward value-added manufacturing.
Since Canada entered the secondary product market, the country has greatly
increased its exports. In Japan, promotional efforts such as model
home projects, trade-show exhibits, and trade missions have increased demand
for Canadian products. For the second year in a row, Canada surpassed
PNW prefabricated home exports to Japan, and the gap between other US and
Canadian exports is narrowing. Between 1992 and 1996 Canadian exports
of prefabricated homes to Japan increased by 71% annually and now total
$63.4 million (Table 1).
| Table 1. Canadian, US, and Pacific Northwest exports
to Japan, 1992-1996
Source:
US Department of Commerce and Statistics Canada |
In addition to gains in the secondary building products market, Canada consistently maintains a large share of the Japanese market for primary products used in the construction industry. In 1996, Canada exported $1.7 billion in lumber to Japan, capturing 38% of the Japanese imported lumber market. This is almost three times the US and PNW share. Canada’s share of the non-tropical plywood market is also substantial. Since 1992, Canadian revenues from plywood exports to Japan have increased 52% annually, resulted in a 10% increase in market share. Comparatively, the PNW exported $7 million in plywood in 1996, represents a 9% market share decline from 1992-1996. Approximately 84% of Japan’s OSB is imported from Canada, although the US is increasing its market share. Between 1992 and 1996, US exports of OSB increased 161% annually. OSB exports from the PNW now total $6.2 million.
In the primary product sector, the PNW lost 8% of its share of the Japanese market relative to total US and Canadian exports. Only softwood log and OSB exports from the PNW have increased since 1992. Secondary product market shares have also declined for the region’s two leading export products; prefabricated homes and fabricated structural wood members and builders’ joinery. The PNW’s share of the prefabricated wooden building market in Japan declined 5% while its share of the fabricated structural wood member and joinery market declined 13%. Despite losing market share in a number of secondary product categories, the total market share of PNW secondary wood products in Japan increased by 5%. While the PNW has lost market share in certain sectors, total US and Canadian exports to Japan have increased since 1992. Therefore, this gain can be explained as a larger share the increasing North American export market.
These data illustrate that Canada has quite a way to go before it surpasses
the US and PNW in many product sectors. However, the US and the PNW
are losing market share to Canada in many areas. As more countries
compete for this market it is important for US and PNW firms to concentrate
on productivity gains, promotional work, translated technical support and
installation materials, and timely customer service, in order to maintain
and expand its business in Asia.
Product
Life Cycles in the North American Wood Panel Market
Excerpted from the upcoming Working Paper: “Forecasting the Product
Life Cycles of Structural Wood Panel Products”, by Dr. Steven Shook, William
Turner, and Dr. Ivan Eastin.
Western Plywood. The
growth of western plywood in the US was quite stable up to World War II,
as evidenced in
Figure 1. After the war however, western plywood production increased
at a very high rate until it reached its peak production output of 7.899
billion square feet (1/2” thickness basis) in 1965. In fact, the
western plywood industry led all other individual industrial sectors in
growth in the US on an annual basis from 1950 to 1965. During this
time, the industry grew at an average annual rate of 14%.
Total production of western plywood began a steady decline starting in 1965, and has yet to stabilize. Western plywood’s market share of the US structural wood panel market, as displayed in Figure 2, declined from 100% in 1963, to 50% in 1978, to slightly over 10% in 1995. One of several factors contributing to western plywood’s market share decline in the structural wood panel market was the introduction of a competing product – southern pine plywood
Southern Pine Plywood. The initial speed at which the southern pine plywood industry grew is evident in the dramatic increase in the number of production plants operating commercially between 1963 and 1967. According to Holley (1969), only one of the 156 structural plywood plants (less than 1%) operating in the United States in 1963 was producing southern pine plywood. By 1967, southern pine plywood plants represented 34 of the 184 American structural plywood-producing plants (18.5%). Substantial credit to southern pine plywood’s rapid market acceptance can be attributed to the Douglas Fir Plywood Association (DFPA), which changed its name to the American Plywood Association in 1964 to better reflect the introduction of a new species being used in commercial structural plywood production. The DFPA began certifying southern pine plywood equally with western plywood in the early 1960s. As a result, American consumers (i.e., designers, specifiers, builders, homebuyers) of structural plywood were assured of southern pine plywood’s quality from its initial introduction into the market (Norman 1964).
As Figure 1 indicates, it took less than 16 years for southern pine plywood to surpass western plywood as the structural wood panel market share leader in the United States (market share being based on square feet of production on a 1/2-inch thickness basis). Southern pine plywood maintained the top market share position in the United States from 1979 to 1995, when it was surpassed by the fourth generation structural wood panel product - oriented strandboard. It is interesting to note that at the time of southern pine plywood’s introduction into the structural wood panel market, some industry experts were predicting that it would not pose a serious threat to the western plywood industry’s future growth (Norman 1964). These experts reasoned that the South could not supply enough southern pine peeler logs to meet the growing market demand for structural wood panels. These forecasts, however, failed to consider the technological advances that would be made in the production of southern pine veneer and plywood (e.g., spindleless lathes, veneer drying systems, high moisture resin technology), as well as a developing trend toward higher value lumber and peeler log production rather than pulpwood production.
Waferboard. Waferboard was first produced on a very small commercial scale in 1955 by the Pack River Lumber Company in Sand Point, Idaho (Clark 1955, 1981). This venture was short-lived, however, and no commercial waferboard production occurred again in the United States until 1971. Only one waferboard producer existed in the United States between the years of 1971 and 1979. After 1979, considerable expansion occurred in the nonveneered structural wood panel industry, and this expansion had a significant impact on the entire structural wood panel industry (Fuller 1984a). Waferboard production in the United States peaked in 1982, before declining to the point where no waferboard was produced in the United States after 1990.
Although waferboard as a product was relatively short-lived and never represented a substantial share of the United States structural wood panel market, as evidenced in Figure 2, its importance in influencing market acceptance for the fourth generation of structural wood panels - oriented strandboard - should not be overlooked. Waferboard provided consumers with a knowledge base concerning the attributes that structural nonveneered wood panels possessed relative to western and southern pine plywood.
Oriented Strandboard. In less than 17 years, OSB has become the market share leader in the United States structural wood panel market, as evidenced in Figure 2. In 1995, OSB represented a market share in the structural wood panel market of 45.4%, as compared to southern pine plywood’s 44.0% and western plywood’s 10.5%. OSB took one year longer to become the structural wood panel market share leader than it took southern pine plywood to overtake western plywood. Note, however, that southern pine plywood is not nearly as radical in appearance and production from western plywood as OSB is from western and southern pine plywood. Therefore, the ability of southern pine plywood producers to piggy-back on consumer perceptions of western plywood were probably much greater than those of OSB producers.
The relative success of OSB over waferboard in the structural wood panel
market can be attributed to superior product attributes and a similar method
of production, including economies of scale (Spelter 1997). As Figure
3 reveals, the average price of OSB has been lower than that of both western
and southern pine plywood since 1980 (given equivalent thickness).
While the average price of OSB has always been greater than that of waferboard,
this difference has been marginal. Furthermore, comparing the price
differential between OSB and waferboard fails to account for the value,
or utility, that consumers receive from each of the products’ attributes;
the value that consumers receive from nearly every OSB product attribute
generally exceeds that received for waferboard.
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