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Authors: Joseph A. Roos, Daisuke Sasatani, Valerie Barber and Ivan Eastin
With the U.S. housing market at a seventeen year low, it is becoming increasingly important to find global markets for U.S. forest products. One market that values Alaska forest products and offers tremendous opportunity is Japan. However, due to a previously strong U.S. Dollar, increased competition from Europe, and other factors, Alaska forest products have lost significant market share in Japan. The purpose of this research project was to examine recent trends that affect Japan’s forest products market and present potential opportunities for Alaska forest products. Data was collected from government and industry organizations and industry experts were interviewed. The research identified five major trends affecting Japan’s forest products market:
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The Japanese Market for Laminated Lumber & Glulam Beams: Implications for Alaskan Forest Products
Authors: Joseph A. Roos, Valerie Barber, Daisuke Sasatani and Ivan Eastin
The Japanese glulam beam market has been growing steadily since the early 1990’s. From 1993 to 2007, total glulam beam usage increased from 199,300 cubic meters to 1,814,100 cubic meters. Japanese glulam beam supply comes from both domestic production and imports. In 2007, 65% of Japan’s glulam beam production was from domestic manufacturers. However, even though these glulam beams are manufactured in Japan, much of the lamstock lumber used to produce glulam beams is imported. Two of the major imported lamstock species are European whitewood and Russian red pine.
Recently, a number of factors have combined to constrict the imported lamstock supply including a Russian log export tax, the increasing strength of the Euro and Canadian Dollar, and increased demand for wood in Europe and the Middle East. The researchers travelled to Japan and interviewed representatives from Japanese glulam manufacturing facilities. The company representatives were asked what species they are currently using for lamstock, technical specifications, market conditions, and what species they intended to use in the future.
The results of these interviews support the conclusion that there is potential for Alaska hemlock, Alaska yellow cedar, and Alaska Sitka spruce to supply Japan with lamstock lumber. However, the Japanese lamstock market requires that lamstock lumber be kiln dried and milled to exact metric dimensions. In order for Alaska forest products manufacturers to gain entry into the Japanese market, the following recommendations should be considered:
1. Organize workshops to teach Alaska sawmills about the technical requirements of the Japanese lamstock and glued laminated beam market.
2. Pre-qualify sawmills in Alaska that have the technical capability to produce kiln dried lamstock for the Japanese market.
3. Organize a trade mission to visit glulam manufacturers in Japan.
4. Display Alaska lamstock samples and literature at the Japan Home Show held annually in Tokyo.
5. Invite potential Japanese customers to visit sawmills in Alaska.
6. Create Alaska lamstock brands based on the established WWPA registered trademarks. For example, Alaska Hem Lam, Alaska Yellow Cedar Lam, and Alaska Sitka Spruce Lam.
7. In addition to lamstock, lamstock blanks could also be considered for export to Japan.
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Authors: Daisuke Sasatani, Joseph A. Roos, Allen M. Brackley and Ivan Eastin
Alaska exports to Japan decreased dramatically during the 1990's. This decline was caused by a variety of factors including the Japanese recession, a reduced Alaska timber supply, exchange rates, a market shift from green lumber to kiln dried lumber, and increased global competition. However, in 2005 Japan 's GDP, stock market, real estate, and consumer price index were up from the previous year indicating a strong economic recovery. Furthermore, the U.S. Dollar has weakened against the Japanese yen and many economists predict that the U.S. Dollar will continue to decline against the yen due to historically high U.S. fiscal and trade deficits. This will give Japanese companies more purchasing power for U.S. forest products.
In addition to economic changes, Japan 's demographics are changing rapidly. In the first half of 2005, Japan 's net population decreased and the population will continue to decline to the 1960's level of 100 million by 2050. While Japan 's general population is decreasing, the percentage of population over 65 is growing rapidly as the baby boomers reach retirement age. According to a survey published in the Nikkei Weekly Newspaper, one area baby boomers expect to spend money on when they retire is their house. The total size of Japan 's remodel market was 7.0 trillion yen (US$ 60.3 billion) in 2003. The remodel market increased in 2003 and is predicted to increase as more baby boomers retire.
As explained above, the Japanese market has shifted from green lumber to kiln dried lumber. Alaska has more than doubled their kiln dry capacity since the late 1990's and this opens up Japan 's kiln dried lumber market. Additionally, the Ketchikan Wood Technology Center has established Alaska-specific lumber grade marks to differentiate Alaska timber species' unique characteristics. The Japanese market has always valued quality and there is now an opportunity to communicate Alaska lumber quality by promoting these new grade marks in Japan
The results of this research suggest that many niche markets exist for Alaska forest products:
1. Tract housing power builders
Tract housing developments built by a new category of builder called “power builders” have increased in Japan 's urban areas. This is a growing market segment in Japan and these power builders are large enough to import Alaska forest products in large quantities.
2. Kiln dried lumber
Alaska has substantially increased its kiln dried lumber capacity recently. Japan 's ten year warranty building requirement has increased demand for kiln dried lumber. There is ample demand for kiln dried lumber in both the 2x4 and post and beam housing markets.
3. Lamstock market
There has been an increase in demand for engineered wood and the number of Japanese glulam manufacturers. The results of the Ketchikan Wood Technology Center Alaska species testing program have shown Alaska lumber has superior strength properties compared with many other species making it suitable for lamstock.
4. Pre-cut lumber market
Almost 75 percent of Japanese post and beam starts used pre-cut lumber. Japan 's pre-cut lumber mills are a strong market to target with lumber sizes that could be used with their pre-cut lumber machines. The lumber sizes vary based on the application.
5. Alaska yellow-cedar for sill plate ( dodai )
Due to its natural decay resistant properties, Alaska yellow-cedar is very popular for sill plates and other structural lumber used in ground contact applications in Japan .
6. Alaska yellow-cedar for garden accessories and tubs
Alaska yellow-cedar's decay resistant properties make it an excellent species for outdoor garden accessories such as decking and decking accessories, benches, gazebos, and lattice. As explained earlier, there are a lot of retirees in Japan and this number will be increasing. Many retirees spend more time in their gardens and the demand for garden accessories is expected to increase.
Also, Alaska yellow-cedar is considered a substitute for hinoki , (Japanese falsecypress). Japanese people traditionally take a bath daily. Soaking tubs are especially popular in Japan and most detached houses have one. An Alaska yellow-cedar tub could be developed and positioned as an upscale alternative to a hinoki tub.
7. Home improvement market for retirees
Japan 's baby boomers are approaching retirement age. Many Japanese retiring workers receive a large lump sum payment, which they often use to improve their house. The senior home improvement market is expected to grow substantially as baby boomers start to retire.
8. Remodel market
The remodeling market is expanding. There is an opportunity for lumber producers to collaborate with builders specializing in remodels, architects, and designers to develop higher quality products to sell to Japan .
9. Wood Chips
It has been estimated that over 2.3 million acres of timber have been affected in the Kenai Peninsula by the spruce bark beetle. One potential application for beetled killed spruce is wood chips. Japan has one of the largest pulp and paper markets in the world.
10. Gift Market
Japan 's gift market has strong potential for smaller wood products and craft items. This market offers tremendous opportunity for smaller wood products that can be packaged and shipped easily. It would also make the gift more attractive if wood items are bundled with other “made in Alaska ” items, such as smoked salmon.
11. Brand Strategy
As described above, the Ketchikan Wood Technology Center has registered proprietary grade marks for Alaska species. These grade marks are “Alaska Hem”, “Alaska Yellow Cedar”, and “Alaska Spruce”. These three grade marks should be developed into a brand that communicates the quality of Alaska forest products to forest products manufacturers, pre-cutters, and homebuilders.
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Material Use in the US Deck Market: An Assessment of the Market Potential for Alaska Yellow Cedar
Authors: Ivan Eastin, Indroneil Ganguly, Steve Shook and Al Brackley
The deck building industry is going through a period of rapid growth and dramatic change with respect to the types of materials available to build decks. A 2001 study by the Freedonia Group estimates that the demand for decking materials will increase by almost 20% between 2000 and 2010. To better understand material use and contractor preferences within the deck building industry, CINTRAFOR, with funding support from the USDA Forest Service Wood Utilization Lab in Sitka, AK) recently completed a survey of 205 deck builders and 213 home builders across the US. In particular, this research project was interested in documenting the current usage of Alaska Yellow Cedar (AYC) in residential decking, evaluating builders perceptions of AYC lumber as a decking material, assessing the potential for expanding the use of AYC in deck building and developing a set of strategic marketing recommendations to promote the expanded use of AYC in deck building. Refinement of the marketing recommendations should be considered once an accurate supply projection for AYC logs is available.
The deck building industry is dominated by small to medium-sized firms with over 63% of survey respondents indicating that their sales revenue was less than $1 million in 2003. In contrast, over 11% of deck builders generated sales revenue in excess of $5 million. The average deck builder constructed 93 decks with an average deck size of 456 square feet. Since the average construction cost for a new deck was $6,161, the average construction cost for a deck in the US was $13.51 per square foot. Approximately 45% of the construction cost was attributed to the deck surface while 33% was for the substructure and 21% was for accessories. Just over 40% of deck builder projects were new (first time) decks built on existing homes while 25% were new decks built on new homes and almost a third were replacement decks built on existing homes. However, the survey data clearly shows substantial differences in deck characteristics based on geographic location. For example, deck builders in the eastern US built more than twice as many decks per year as companies in the western US (126 decks vs. 52) although the average deck size was significantly higher in the west (530 square feet vs. 395 square feet). Despite this, the average construction cost was relatively similar between the regions ($15.04 per square foot in the west vs. $15.90)
Material use in the substructure was dominated by treated lumber with a market share of over 90%. Material use in deck surface applications was dominated by wood-plastic composite products followed by treated lumber and western red cedar. Finally, approximately 30% of deck accessories were built using wood-plastic composites and treated lumber while an additional 18% were built from western red cedar. Deck builders were also asked to indicate the relative importance of a variety of product attributes in their material specification decision. The most important attributes in the material specification process were long life, visual appearance, consistent material quality and product availability. In contrast, the lowest rated attribute was low price. In other words, deck builders base their material purchase decisions less on price, preferring to focus on material quality. This suggests that home owners are less price-sensitive in the purchase of a deck, preferring high quality, durability and ease of maintenance over low price.
Strategic Marketing Recommendations
The results of the market research suggest that the target market for Alaska yellow cedar should be deck builders located on the US west coast, comprised of California, Oregon and Washington. The survey results show that decks built in this market are larger, more expensive and more likely to use naturally durable woods. The focus on deck builders is based on the fact that the demand for decking lumber in the repair and remodel market is expected to total 4.4 billion board feet in 2005 as compared to a demand of just 700 million board feet in the new construction market. In addition, our research results indicate that approximately 46% of the decks built on new homes are subcontracted out to deck builders. It is important to note that the survey results suggest that homeowners play a very important role in specifying decking material. For example, home builders indicated that home owners were responsible for specifying the decking material 30% of the time while deck contractors indicated that the homeowners specified the decking materials almost 50% of the time.
The product offering should reflect a premium product strategy. Based on the survey results we recommend that lumber manufacturers in Alaska supply a family of products that includes decking lumber, deck joists and accessory products. This recommendation is based on the survey results showing that the use of naturally decay resistant wood is substantially higher in deck surface and deck accessory applications as opposed to deck substructures.
Developing an efficient distribution channel for AYC decking products will be critical to the market development strategy. Our market research clearly shows that many deck builders cited the lack of availability as a primary reason why they have not been willing to use AYC or why they have not increased their use of AYC. Consequently, it will be important to match the expected supply of products with the size of the target market. Uncertainty over the short-term supply would argue for a more conservative strategy that constrains the size of the target market during the initial phase of the marketing campaign, allowing it to increase only as an increased supply of AYC products become available. Further, given the distance of Alaska suppliers from the target market, we would recommend that Alaska lumber producers consider establishing a relationship with stocking wholesalers that would allow for substantial volumes of product to be inventoried within a target market to reduce the logistical constraints of providing a reliable supply of products within a short timeframe.
The survey results suggest that deck builders using naturally durable wood species have a relatively low price sensitivity which supports our recommendation for implementing a premium pricing strategy. In contrast, deck builders placed the highest importance on lumber attributes such as durability, beauty, consistent material quality and reliability of supply. Emphasizing these lumber attributes will further support the premium pricing strategy. We recommend initially pricing AYC slightly lower than similar WRC and redwood products.
The promotional message must support the effort of positioning AYC as a high quality decking material. This means that the promotional message should emphasize the beauty, natural decay resistance, durability and consistent material quality of AYC. This can be effectively done by a direct comparison of AYC, WRC and RW across the major product attributes. As part of this strategy it may be useful to distinguish AYC from WRC and RW in terms of color, contrasting its light color to the darker colors of WRC and RW. This strategy will appeal to deck builders and home owners who are looking for a decking material that has beauty, durability and natural decay resistance but which provides a unique light colored appearance.
The promotional strategy must address the fact that many deck builders (and home owners) are unfamiliar with the properties and appearance of AYC. This can be accomplished through a variety of strategies, including working with stocking wholesalers to build sample decks in their show rooms and establishing a website to educate potential users on the properties, end-uses and benefits of using AYC.
The survey data further indicated that deck builders utilized a broad range of information sources to learn about new decking materials. As a result, we recommend that AYC producers consider a low-cost strategy to provide information on AYC across a broad range of media including the internet (through use of a website on AYC), attendance at trade shows (for example, the annual Deck Expo conference), material spec sheets for distribution through stocking wholesalers, advertising in industry magazines and advertising in consumer lifestyle magazines that emphasize the outdoor living. Finally, it may be useful to consider the possibility of offering promotional incentives for stocking wholesalers who install sample AYC decking exhibits in their sales showroom area and who meet specified sales goals.
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Authors: Ivan Eastin, Joseph Roos and Peter Tsournos
Despite the poor economy in Japan, there remain promising niche markets for Alaskan softwood lumber. The unique characteristics of Alaskan softwood species are well suited to the demands of the Japanese market in general and Japanese post and beam home builders in particular. In addition, Alaskan species, particularly Sitka spruce and Alaska yellow cedar, enjoy a good reputation in Japan. For example, as a result of recent regulatory changes in the residential construction sector, it may be advantageous for Alaskan producers to supply kiln-dried lumber and glu-lam products milled to the specific dimensions required by the post and beam industry. Given that Alaskan producers cannot compete solely on the basis of price, a more effective strategy is to differentiate their products using non-price attributes that are valued in Japan. The primary aims of this research were to identify niche market opportunities for Alaskan timber species in the Japanese post and beam industry, describe those market opportunities and provide recommendations to help Alaskan sawmills evaluate the niche opportunities in Japan and objectively assess how those market opportunities match their own production and sales capabilities. The market opportunities in specific niche markets are described below.
The Housing Quality Assurance Act of 2000 requires that all builders provide a 10 year warranty on their homes, including the structural components used to frame-in the house. This requirement has had a significant impact on the species of lumber specified for structural components that are used in ground contact applications. In the future, Japanese builders are expected to increase their use of naturally durable timber species in an effort to reduce their liability and increase the performance of their homes. A second factor influencing material specification in residential construction has been the homebuyers’ increasing awareness of, and concern about, “sick house syndrome”. Sick house syndrome has received extensive coverage within the Japanese media and, while it is primarily attributed to off-gassing of volatile organic compounds (VOC’s) from carpeting, paint, and vinyl wall coverings and their adhesives, this concern on the part of some homebuyers has caused a growing number of builders to reduce or discontinue their use of engineered wood products and pressure treated wood. The combination of these two factors provides Alaskan sawmills with a unique opportunity to increase their sales of Alaska yellow cedar lumber in both the post and beam as well as the 2x4 segments in the home building industry.
Lamina For Glue-Laminated Beams
Currently there are six glu-lam beam manufacturers in Japan that utilize Alaska yellow cedar lumber to produce laminated dodai and posts. Alaska yellow cedar glu-lam ground sills tend to be used in higher end homes, although some builders of mid-price homes use yellow cedar glu-lam ground sills as a way of demonstrating the high quality of their houses and differentiating their homes from their competitors. In addition to ground sills, there are also opportunities to export lamstock produced from Sitka spruce and hemlock for use as posts and structural beams. This is particularly true because Alaskan timber species tend to be slow growth with narrower growth rings and correspondingly higher strength characteristics than the same species growing in other parts of the Pacific Northwest.
Lumber For Shoji Components
Traditional Japanese homes typically have a tatami room. The tatami room may be where the family gathers or it may serve as a bedroom at night. Tatami rooms use a large volume of appearance grade wood in exposed applications such as beams, shoji screens, and moldings. While there are fewer tatami rooms being built in Japanese homes today, there is still a good demand for high quality yellow and red cedar, as well as Sitka spruce and white spruce, for shoji components. In addition, the price premiums obtained for shoji grade lumber make this a good market for lumber manufacturers.
This research has demonstrated that there are a number of potential market opportunities in Japan for softwood lumber from Alaska. These range from rough green lumber to planed and kiln-dried lumber to laminated yellow cedar sill plates (dodai). The most promising opportunities were found to be yellow cedar dodai for the post and beam market, 2x4 and 2x6 yellow cedar dimension lumber for sill plates in the 2x4 market, Alaska yellow cedar, Sitka spruce, and hemlock lamina for the laminated beam industry, and rough, green or planed, kiln-dried yellow cedar, western red cedar, Sitka spruce, and white spruce lumber for the shoji manufacturing industry. Having identified a series of market opportunities for softwood lumber from Alaska is not enough though. A more important factor is to provide sawmill managers in Alaska with a series of marketing recommendations that will allow them to objectively assess and determine if exporting softwood lumber to Japan makes strategic sense for their company and, perhaps more importantly, that will assist them in determining whether their company is prepared to make the commitment of time and resources that are critical to achieving success in the Japanese market. A series of ten strategic marketing recommendations developed during the course of this study are presented and discussed.
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Authors: Ivan Eastin and Rose Braden
The export segment of Alaska's forest products industry is characterized by its supply of high-quality Sitka spruce, western hemlock, western red cedar, and Alaska (yellow) cedar, all highly valued in domestic and export markets. The industry, however, is also characterized by its limited in-state and out-of-state transportation infrastructure, low economies of scale at most processing facilities, and harvest regulations that threaten the consistent supply of timber.
Alaska firms have clearly been dependent upon exporting primary wood products, deriving over $660 million in revenue in 1993, the industry's peak. However, by 1998 export revenue had dropped below $200 million. This sharp decline is due to a variety of factors including the Asian economic crisis, declining international timber prices, lower cost competitors, changes in forest harvest regulations that led to a decline in Alaska's timber harvest, rising domestic processing costs, and expensive and time consuming shipping logistics to export markets.
Alaska producers must confront several challenges in order to survive and expand their role as a competitor in the international timber market. An important aspect of succeeding in an increasingly competitive market is product differentiation. Alaska suppliers must identify what products are in high demand in which markets and effectively match their production capabilities with specific product/market opportunities. This report describes some market opportunities for Alaska wood products and evaluates the ability of Alaska firms to compete in these product markets. The markets examined were: 1) Japan, 2) Korea, 3) China, and 4) Western Europe.
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Authors: James A. Stevens and Darius M. Adams
The purpose of this study was to examine the prospects and opportunities for expansion of market pulp exports from Alaska. The focus was on opportunities for the addition or new capacity and expansion of exports in grades not now produced. We provide a brief overview of the existing industry in Alaska, its historical development, the characteristics of its facilities, sources of raw materials, and its financial problems. And we provide a view of the potential markets for expanded pulp exports by grade, the likely competition to be faced by Alaskan producers, and the comparative cost position of Alaskan mills vis a vis other regions. Certain conclusions emerge.
It seems likely that expanded market pulp exports from Alaska will find their principal markets around the Pacific Rim and particularly in the developed or emerging countries of Asia. There is potential for continued growth in pulp demand in the region. Given constraints on domestic fiber supplies, environmental and cost considerations in domestic pulp production, and continued strong growth in domestic paper and board consumption, Asian demands for pulp imports will likely continue to grow similarly to recent historical trends. Japan will be the source of most of this growth. Both FAO and IIASA projections suggest for Asia as a whole that this increase by 2000 could be as much as twice the current pulp imports. For Asia this would amount to imports totaling some 2.0 million metric tons.
A new Alaska mill will produce long-fiber pulp in direct competition with existing major producers in British Columbia and the U.S. Pacific Northwest. Current trends in capacity expansion and the projections of both FAO and IIASA indicate that these regions will continue to figure prominently in Pacific Rim and specifically Asian pulp markets. If the IIASA projections are correct, however, rising wood costs could push the U.S. Pacific Coast into the role of marginal producer, with the bulk of export growth going to British Columbia. It is also clear that Chile and, to a lesser extent, New Zealand are likely to capture growing shares of this trade. And Brazil will be mounting a major effort to substitute its short-fiber pulps for traditional coniferous grades. Both the IIASA and FAO projections suggest that Brazil will have some success in this venture. Cost competition will be keen in this market, particularly within light of the prospect of constant or only limited growth in real pulp prices.
Given the substantial cost advantages of South American producers, a minimum condition for a successful Alaska expansion will be the ability to deliver its product in Asian markets at costs at least as low as those in the Pacific Northwest and British Columbia. We are unable, however, to identify any particular cost advantage for an Alaska mill relative to its closest potential competitors in western North America. Our analysis examined both a traditional bleached kraft mill and a smaller, high yield, thermo-mechanical pulp (TMP) mill. In either case, an Alaska mill seems to face cost problems across the full range of inputs, with major disadvantages in wood, labor, energy, and construction costs. The cost disadvantage is even greater when compared to the U.S. South or major Latin American producers. Thus, although a market may exist, it is not immediately obvious that Alaska is in a position to pursue some share of it.
These results should he viewed only as broad indicators. Given the time and resource constraints of the present study, we have relied exclusively on secondary and published data to support our analysis. A far more detailed and specific study of both the market and cost sides is needed to reach a definitive conclusion on any particular project. Three items merit specific mention for further study:
1. There is a strong need for close attention to resource and capacity developments in the southern hemisphere. The rapid growth of plantation-based mills in South Africa, New Zealand, and South America has dramatically changed the nature of competition in the global market for pulp in the past two decades. In sharp contrast to the dependence in western North America on natural forests, this resource base was designed and grown to meet mill requirements. The mills operate with considerable advantages in wood costs relative to mills in the northern hemisphere using fiber from natural stands.
2. Previous studies note the potential attractiveness of a TMP mill on the basis of lower capital costs, lower environmental impacts, higher pulp yield, ability to tailor pulp characteristics to specific customer needs, and so forth. High-yield pulping technology has been developing rapidly and is characterized by considerable flexibility in its adaptation to specific resource and market conditions. Detailed analysis may reveal opportunities for targeting particularly high-valued markets, reducing energy and wood costs through technical adaptations, or lowering transport costs through pooled shipping arrangements with existing pulp facilities. As a consequence, this option would seem to warrant close and continuing evaluation.
3. A final key item relates to the cost and availability of wood fiber. In our analysis, we have identified Alaska as a region of pulp production that is relatively high in wood cost, owing in part to high costs of logging and transport of logs and chips. Though our estimates are admittedly crude, this is a crucial concern, because wood is the main variable input cost in production (outside Latin America). At the same time, it is evident that the bulk of wood supplies to a new mill in Alaska must come from the National Forest and that the Forest Service is under intense pressure to limit both current and future harvest levels. These circumstances seem to warrant a thorough analysis of prospective future wood supplies and costs under several assumptions about prospective Agency policies and levels of operation of existing log, lumber, and pulping facilities.
This study was undertaken through a grant from the USDA, Forest Service, Pacific Northwest Research Station and the Center for International Trade in Forest Products at the University of Washington. The report, part of a larger study of Alaska forest resource opportunities, was completed in 1989. The trends noted in the study have continued and the conclusions, based on data available at the time, remain valid.