Executive Summary
For fifteen years between 1989 and 2004, US exports of softwood lumber were mired in decline. During this period, the volume of US softwood lumber exports plunged from approximately 8 million m 3 to less than 2 million m 3 . This trend was a reflection of the relatively strong dollar which undermined the competitiveness of US softwood lumber, coupled with regulatory changes in major export markets (particularly Japan ) and a strong housing market in the US . This combination of adverse factors influenced many US softwood lumber manufacturers to abandon their traditional export markets. This was especially evident in Japan where US exports of softwood lumber dropped from 3.5 million m 3 in 1989 to just 115,000 m 3 by 2005.
Recent years have seen a rapid reversal in some of the macroeconomic factors affecting the US softwood lumber industry. The US dollar has weakened considerably against both the Canadian dollar and the euro, greatly increasing the competitiveness of US wood products in export markets. Since 2002 the US dollar has weakened by 33.7% against the Canadian dollar (and is now almost at par with the Canadian currency) and by 34.1% against the euro. This alone has substantially increased the competitiveness of US softwood lumber in most markets.
At the same time, demand for softwood lumber in the US has fallen substantially as a result of the weak housing market. Since 2005, housing starts in the US have declined by 12.8% from 2.06 million starts in 2005 to 1.8 million starts in 2006. Housing starts are projected to drop further in 2007 to between 1.5-1.6 million. In response to the weak housing market, demand for softwood lumber in the US dropped by 6.4%, from 64.3 bbf in 2005 to
60.1 bbf in 2006. More worrying is the fact that US softwood lumber demand is projected to drop to 54.2 bbf in 2007 before recovering only slightly in 2008 to 56.7 bbf.
With prices low and demand weak in the US market, many softwood lumber manufacturers have begun looking offshore again. Between 2004 and 2006, the volume of US softwood lumber exports grew by 18.6% to reach 2.2 million m 3 . More importantly, the value of softwood lumber exports has jumped by 35.5% to reach $592 million. Softwood lumber exports have remained strong during the first four months of 2007, with exports increasing by 14.5% in terms of volume and 25.7% in terms of value. Encouragingly, the strong export performance of softwood lumber has not been confined to a small group of traditional softwood lumber export markets but has occurred across a broad range of markets. In the UK , softwood lumber exports are up by 675% in the four months of 2007, propelling the UK from the 14 th largest market to the third largest market for US softwood lumber.
Douglas-fir (DF) lumber used for beam applications ( hirakaku ) continues to enjoy success in Japan . This success can largely be attributed to the superior performance (with respect to strength, straightness, dimensional stability, and visual appearance) of DF relative to other timber species. Thus, DF maintains a reputation as the premier timber species for hirakaku applications. Yet despite its strong reputation, DF has seen its market share slowly eroded by alternative lumber products such as European whitewood and European redwood glulam lumber. The primary basis for this trend has been the shift towards pre-cut housing components as well as the price sensitivity of Japanese home builders and pre-cutting manufacturers.
The objective of this research was to evaluate the use and specification of structural lumber within the Japanese post and beam construction market, particularly with respect to Douglas-fir lumber in beam applications. In addition, this project follows up on the recommendation of an earlier marketing report recommending that US Douglas-fir manufacturers consider the feasibility of developing and introducing branded DF hirakaku lumber in

Japan . In order to develop a better understanding of the potential opportunity for branded DF hirakaku lumber, two focus groups sessions were held with home builders in Japan . The focus group sessions were supplemented by personal interviews with Japanese post and beam home builders and pre-cutters, the two major end-users of DF hirakaku. Finally, visits were conducted to the major DF sawmills in Japan to develop a better understanding of the competitive role of Japanese DF lumber producers in the market and to explore the role of branding in the marketing of domestically sawn Japanese DF lumber.
Material use in the residential construction industry has been affected by several regulatory changes in Japan . In May, 1998 the Building Standard Law of Japan (BSL) received its first major revision since 1950. To a large degree these revisions were in response to the widespread devastation caused by the Kobe earthquake in 1995 and the perception that the structural performance of wooden post and beam homes, as well as the regulation of construction practices, needed to be improved to ensure the safety of homeowners in Japan . However, the single most important factor affecting the use and specification of structural softwood lumber for use in residential construction in Japan has been the Housing Quality Assurance Act (HQAA). The HQAA was promulgated to improve the quality and performance of new homes and provide homebuyers with specific safeguards and rights when purchasing a new home. The HQAA was developed partially in response to the poor performance of post and beam houses in the Kobe earthquake, but also in response to increasing complaints from home buyers about construction defects and the lack of responsiveness on the part of home builders in correcting those defects.
Japan 's domestic lumber industry presents a contrast to the overall low level of timber self-sufficiency. Whereas over 80% of Japan 's total timber supply is derived from imports, only about 40% of Japan 's softwood lumber demand is provided by imports. Despite Japan 's relatively high level of self-sufficiency in softwood lumber, the domestic lumber industry is characterized by declining production levels as smaller, less efficient sawmills have closed down. The domestic sawmill industry was particularly hard hit by the Asian economic crisis, with the number of sawmills declining from 14,028 in 1996 to 12,810 in 2001. These sawmill closures resulted in large declines in productive capacity from 1997 to 1998. Over the past five years, domestic lumber production has declined from 25 million m 3 to less than 14 million m 3 (and the number of sawmills in 2006 has declined to 8,590), while lumber imports have increased to approximately 9 million m 3 . The combination of declining domestic lumber production and slowly increasing import volumes means that self-sufficiency dropped from 74% in 1991 to the current 60%.
Recent developments in Japan and the US have favorably affected the competitive position of US softwood lumber in Japan and renewed US exporters interest in the Japanese market. The weakening of the US dollar relative to its major competitors in Japan , a weak US housing market and the announced export tariffs on Russian logs all bode well for US lumber in Japan . Therefore, it is in the US forest products industry's best interest to work to work with their Japanese customers to convince Japanese home builders and home buyers that using DF hirakaku is worth the small price premium it commands in the market. For example, a promotional campaign emphasizing the strength, durability and natural beauty of Douglas-fir structural lumber could be very helpful in Japan . In the absence of this type of promotional effort, DF hirakaku products can be expected to continue losing market share in the long-term. One recent estimate derived from interviews with pre-cutters and lumber wholesalers suggests that between 2000 and 2010 the market share for DF hirakaku could shrink from 83% in 2000 to 70% in 2010.
There are a number of factors that constrain the competitiveness of solid sawn US DF hirakaku in Japan, including: high cost of kiln drying large size DF hirakaku, the difficulty in shipping green hirakaku to Japan without developing surface mold and discoloration, the difficulty in maintaining a stable moisture content for kiln dried DF hirakaku during the shipping period to Japan, price fluctuations, reluctance to cut to the lengths required by pre-cutters, the size of the domestic Japanese DF sawmill industry, the high cost of maintaining inventory in Japan, the ready availability of lower cost hirakaku products from domestic DF sawmills and foreign glulam suppliers, the extremely large number of hirakaku size combinations that require a huge number of different hirakaku product sizes (approximately 140 size combinations) and the attendant high inventory costs, and the difficulty in establishing an effective distribution system in Japan
Given the serious constraints associated with establishing and maintaining an adequate supply of imported DF hirakaku in Japan , we would recommend that the US industry not develop a branding program for DF hirakaku in Japan . This decision is further supported by the fact that there is currently a large, well established domestic DF

sawmill industry in Japan . The fact that Japanese DF sawmills have already developed branded hirakaku products further supports this recommendation. It is difficult to see where US sawmills would have a competitive advantage over Japanese sawmills producing branded products, particularly considering the well established distribution channels that the Japanese sawmills have already developed within the pre-cutting and home building industries. Despite this, there are substantial opportunities for US DF sawmills to establish direct supply relationships with medium-sized regional homebuilders and larger national homebuilders. These homebuilders have become extremely cost conscious in the past decade and many expressed interest in purchasing building materials directly from US sawmills as a way to reduce distribution channel costs and improve product quality.
In addition, there is a good opportunity to export kiln dried DF glulam lamina to glulam manufacturers in Japan . This is particularly true if the US industry were to promote DF glulam hirakaku as a superior product to either European whitewood or redwood glulam. However, it would be important for US lamstock producers to resolve the forward pricing issue that currently provides European glulam manufacturers with a competitive advantage. There is also an opportunity to export lamstock produced from other species as well. For example, Alaska yellow cedar lamstock for glulam sill plates ( dodai ) and Sitka spruce for glulam hirakaku. Further research would be required to develop a better assessment of the potential for exporting lamstock to Japanese glulam manufacturers.

​Executive Summary
Over 20% of the world’s population, or 1.2 billion people, live in China, and more than 20% of the urban workforce is employed by foreign and private firms. Disposable income is growing, 10% annually since 1991, making imported products more accessible. China continues its transformation from a centralized to a market economy, and gross national product has grown from 10% in 1978 to 36% in 1996 (Luo, 2001). China’s real estate industry is expanding rapidly due to privatization, tax incentives, and plentiful mortgages. Due to housing reforms that encourage Chinese citizens to own homes, there has been a steadily increasing demand for building products.
Though the Chinese market seems promising, relatively few US firms report successful participation, and managers say this is due to a dirth of complete China business information. Current research on interior building products in China falls short of specific market information, concluding only that there is a potential market. There is little information identifying Chinese product-market characteristics, company competitive advantages, entry strategies, and company performance. This study sought to fill this information gap. The research first developed a model depicting the affects of business objectives, product-market, competitive advantages, and entry strategies on firm performance. Based on this model, a questionnaire was developed and administered using in-depth interviews with Chinese firms and foreign firms doing business in China.
Study findings suggest that foreign firms in China successfully leverage competitive advantages to overcome entry barriers. Cost advantage entry barriers were overcome by scale and scope economies; product barriers lowered by customization and broad product mixes; capital barriers by partnering with Chinese firms experienced in global business; switching cost barriers through shared promotion and education; distribution barriers by increasing Chinese representation, and government barriers by acquiring policy knowledge.

​Abstract
The trade of softwood lumber between the United States and Canada is one of the major forest products trade flows in the world. Since 1996, exports from the four major softwood lumber producing provinces in Canada (British Columbia, Alberta, Ontario, and Quebec) into the US have been regulated by the voluntary export restraint (VER) as defined within the "Softwood Lumber Agreement between the Government of Canada and the Government of the United States of America" (SLA). The SLA allows Canadian producers to export up to 14.7 billion board feet (bbf) of softwood lumber without export fee and imposes high export fees on volumes exceeding the limit. The SLA is a temporary resolution of the trade dispute between the two countries that has lasted for more than fifteen years and is set to expire on March 31st, 2001.
The objective of this study is to determine if the expected effects of the SLA on the US softwood lumber market during the period 1996-1999 have actually occurred. The study discussed four possible direct effects and five possible indirect effects that the SLA might have had on the US softwood lumber market from a simple economic model and a review of the literature. The expected direct effects include: 1) a regulated volume of softwood lumber imports into the US from the four major provinces in Canada, 2) an increase in the price of softwood lumber in the US, 3) an increase in US softwood lumber production, and 4) a decrease in US softwood lumber consumption. The expected indirect effects of the SLA include: 1) a shift in the composition of countries exporting softwood lumber into the US, 2) an upgrade in the quality of softwood lumber exported from the four major Canadian provinces into the US, 3) an increase in the volume of softwood logs and value-added wood products exported from Canada into the US, 4) some attempts by Canadian manufacturers to avoid the export permit requirement under the SLA, and 5) an increase in the use of alternative products (both wood and non-wood) as substitutes for softwood lumber in the US. The study also provides a discussion of the alternative solutions that might be implemented upon the expiration of the SLA on March 31st, 2001 and a discussion of desirability/undesirability of the SLA based upon future softwood resource availability in the US.
 

​Executive Summary
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.

​Executive Summary
Material substitution in the residential construction industry is driven by a variety of factors including product availability, product performance, price, price stability, and in-place costs.  As competition between softwood lumber and substitute products increases, managers need to understand end-users’ changing perceptions of softwood lumber and the competitive position of softwood lumber vis a vis substitute products.  Despite the relative availability of product literature describing substitute building materials, the extent of substitute product diffusion remains unclear.  Perhaps more importantly, virtually no information exists regarding the diffusion process for substitute products in the residential construction industry, including the impact of specific product attributes and end-user characteristics in promoting the diffusion process.  This exploratory study was developed to the competitive relationship between softwood lumber and substitute products in structural end-use applications in the US residential construction industry.  In particular, the study was designed to identify those product attributes that are perceived by residential contractors to be important in influencing the substitution process.
Empirical data for this exploratory study was obtained from a cross-sectional mail survey of 1,500 residential contractors in the United States.  The sample frame for the study was derived from the membership of the National Association of Home Builders (NAHB).  In order to obtain a uniform geographical representation, equal numbers of participants were randomly selected from the northeast, southeast, southwest, and northwest regions of the US.  176 usable questionnaires were returned, providing an effective response rate of 11.7%.
Over 90% of the respondents indicated that they had used at least one substitute product for softwood lumber in a structural end-use application.  The use of specific substitute products varied considerable, with 72.2% of respondents reporting that they had used glulam beams while none of the respondents reported using plastic lumber.  Only two products (glulam beams and wooden I-beams) were use by more than half of the respondents.  Adoption/trial curves for several substitute products show a rapid increase in their use, particularly over the past five years.  Despite this, respondents indicated that their use of structural softwood lumber is changing only moderately.
Respondents were asked to rate the importance of various product attributes in influencing their purchase decision regarding structural building materials.  The analysis of the data indicates that product strength and straightness were rated the most important factors.  Price and price stability were also rated highly, while environmental factors generally received the lowest importance ratings.  A principal components factor analysis of the twelve product attributes indentified three underlying factors that influence the material substitution process: the physical characteristics of the product, the technical characteristics of the product, and economic/supply characteristics of the product.
When asked to rate their satisfaction with softwood lumber, respondents indicated that they were satisfied with only two product attributes:  lumber strength and lumber availability.  Of the remaining product attributes, respondents were neutral regarding three and were dissatisfied with the remaining five product attributes.  Lumber attributes with which respondents expressed dissatisfaction included:  lumber straightness, number of defects, overall lumber quality, price, and price stability.
To explore the impact of environmental issues on the substitution process, respondents were asked to compare the perceived environmental impact of substitute building materials with that of softwood lumber.  Surprisingly, almost all of the substitute products were perceived to produce a lower environmental impact than softwood lumber.  No product was perceived to have a greater environmental impact than softwood lumber and only two products, plastic lumber and plastic/fiber composite lumber, were perceived to have a similar environmental impact.  Finally, a statistical analysis of the research data indicated little variation in the responses based on the geographic location of the firm or the size of the firm.
The residential construction industry is extremely fragmented and competitive and the results of this research indicate that residential contractors are quite willing to experiment with new substitute products.  To counter the competitive threat posed by aggressively promoted substitutes, softwood lumber manufacturers must become market-oriented.  Only by adopting a strong market orientation can they hope to place themselves in a position to understand the needs of residential contractors and develop marketing strategies to meet those needs, thereby increasing customer satisfaction.  It is only by thoroughly understanding and responding to residential contractors needs that the softwood lumber industry can effectively reduce market penetration by the wide range of substitute products currently by offered in the marketplace.
 

​Executive Summary
The purpose of this project was to assess market opportunities for second-growth clearwood lumber by identifying industry segments that currently utilize clearwood lumber and determining whether alternative markets will continue to exist for clearwood lumber produced from intensively-managed forests in the Pacific Northwest. The historical lumber price data was analyzed and industry segments that have traditionally utilized clearwood lumber were surveyed.
Survey Results
Of survey respondents 33% were moulding manufacturers, 14% were millwork manufacturers, 10% produced doors, 8% made windows and 23% made other products such as furniture, cabinets, crafts, paneling, stair parts, and other specialty products.
The use of individual species was often associated with specific industry segments. Approximately 81% of the ponderosa pine was used in the production of mouldings and windows. Douglas-fir was primarily utilized in the manufacture of doors (49%) and other products (29%). Southern pine was used primarily in structural products, although 15% was used for mouldings and 11% was used for doors. Approximately 87% of the radiata pine was used for the production of moulding and millwork.
The geographic location of the survey respondents was: 33% from the northeast, 26% from the Pacific Northwest, 25% from the southwest, and 16% from the southeast. On average, most of the firms that participated in the survey could be classified as small- to medium-sized. While respondents’ average annual purchase of softwood lumber was reported to be 5,800,000 board feet, the median volume purchased was just 700,000 board feet. Similarly, while the median sales revenue reported by respondents was $2.8 million, average sales revenue was more than three times that amount. Roughly 50% of the respondents reported total sales revenue of less than $2.5 million.
Concerns regarding the ability of plantation-grown timber to substitute for old-growth lumber products may be exaggerated. The study found that the two most important lumber attributes were reliability of supply and price. The least important attributes were identified as being mechanical strength and vertical grain.
Based on a factor analysis, the original sixteen lumber attributes were reduced to four factors:  timber quality, manufacturing properties, mechanical properties, and price/supply.  The results of the survey suggest that many manufacturers in industry segments that have traditionally relied on clearwood lumber as a raw material input have successfully substituted lower-grade lumber (e.g., shop grade lumber), non-traditional species, and non-wood products to offset reduced supplies and price increases.
In 1989, 58% of respondents indicated that raw material substitutes had replaced 31% of the softwood lumber volume previously used in their production process, although the median volume was only 5%.  By 1994 however, 83% of respondents reported that they were substituting 36% (median of 24%) of their softwood lumber with other raw materials.  This is a statistically significant increase.  The top three reasons that respondents indicated were important considerations in their decision to utilize a substitute product were the price of the substitute, product availability, and reliability of supply.  Reduced environmental impact was reported to be the least influential attribute.
Those manufacturers who did use substitute products in their manufacturing process tended to have higher sales revenue and employed twice as many people as firms that did not use substitute products.  Approximately 60% of moulding manufacturers indicated that they used a raw material substitute for softwood lumber, while 77% of millwork manufacturers, 83% of window manufacturers, 62% of door manufacturers, and all of the structural product manufacturers reported using some raw material substitutes in their manufacturing processes.
Price Trends
Analysis of prices for softwood lumber products at the producer wholesale level (based on bi-weekly spot prices) indicate that, while lumber is a semi-homogeneous product, there are important and persistent differences in value based on species and grade.  The user survey results suggest that price is an important variable in the purchase decision and likewise in decisions to utilize substitute raw materials, including non-wood materials. 
There is a definite structure of nominal and real (inflation-adjusted) prices in the softwood lumber market, indicating that buyers purposefully differentiate lumber on the basis of perceived attributes associated with the intended end use.  Lumber grades, which seek to specify broad groups of product attributes, are imperfect. Lumber products can frequently be downgraded to lower end uses and potentially upgraded through reprocessing, for example, by removing knots to produce short clear pieces of lumber.  However, price trends indicate that lumber grades are a useful basis for differentiating products and to measure how prices perform in both a relative and absolute sense over time.
Relative price analysis indicates that clearwood grades of softwood lumber command a significant premium relative to the overall market, as indexed using Douglas-fir Standard & Better 2x4’s as the baseline commodity index.  The aggregate softwood lumber market is sensitive to macro-economic factors linked to business cycles, particularly to residential construction. As such, considerable fluctuation in aggregate lumber prices can be expected, with the overall vector of product prices moving somewhat in tandem.  Nevertheless, movements in relative prices can and do occur, leading to potential substitution between clearwood lumber grades and other, less expensive lumber grades and non-wood substitutes.
The price analysis confirmed that Shop, C & Better selects, and Moulding & Better grades of Douglas-fir, ponderosa pine, and southern pine lumber command significant relative price premiums over the common and structural softwood lumber grades.  Shop grades of Douglas-fir commanded an average premium of 43% while ponderosa pine #3 Shop commanded a premium of 85% relative to the baseline commodity index.  C & Better Select lumber exhibited an even larger relative premium, 125% for southern pine and 474% for ponderosa pine.  Moulding and Better lumber demonstrated relative premiums of 214% for Douglas-fir and 356% for ponderosa pine.  These relative price premiums were quite stable over the 1989-1995 data period, with long-term trends slightly upward with respect to the relative prices for ponderosa pine C & Better Selects and Moulding & Better grades.
Increasing relative prices, however, provide incentives for buyers to consider substitute products.  While the trends estimated in this study are not strongly upward, taken together with the results of the industry survey, the producers of clearwood lumber grades should be aware of the growing potential for substitute products capable of meeting end user demand and which are price competitive.  In the short-term, considerable relative price instability was evident in response to business cycles, with the consequences being that end users frequently experience rapid increases and decreases in the relative prices of clearwood lumber grades which do not reflect longer-term trends but are perceived as indicators of significant market shifts.  As measured by the standard deviation of relative prices around the long-term price trend, clearwood grades of lumber typically had variations three to eight times greater than commodity structural lumber grades.
Markets respond to changes in perceived relative prices, whether generated by a change in the product’s own price or from a change in the price of a competitive product. The analysis of price elasticities (own-price and cross-price) was limited by the availability of relevant price and consumption information at a disaggregated level. The review of the economic literature indicates that softwood lumber is generally price inelastic in both the short- and long-run.  Given the niche nature of markets for clearwood lumber grades, it might be expected that the demand will be somewhat more inelastic, indicating that the quantity of clearwood consumed is less responsive to relative price changes in the short-term, but also that prices will be more sensitive to structural market shifts. Timber supply shifts likely account for much of the relative price instability observed for the higher-valued clearwood lumber products.
In addition to the movements of relative prices, this study found that the price premiums paid for clearwood grades of lumber (in 1995 dollar terms) were substantial and quite stable when measured as the prevailing differences from the overall softwood lumber market.  In real terms, average price premiums for #3 Shop grade lumber over the baseline product ranged from $159/mbf for southern pine and $166/mbf for Douglas-fir to $280/mbf for ponderosa pine. Real price premiums for C & Better Select lumber averaged $405/mbf for southern pine and $1,563/mbf for ponderosa pine.  Finally, real price premiums for Moulding grade lumber were $692/mbf for southern pine and $1,196/mbf for ponderosa pine.  For all the clearwood lumber species/grades combinations with sufficient price data, the real price differences were found to increase modestly over time, with the exception of Douglas-fir Moulding and Better grade lumber, where a slight downward trend in real price difference was observed for a shorter, three-year data period.  The persistence of these price differences over the 1989-95 market cycles and abnormal supply disruptions would indicate that clearwood grades of softwood lumber are effectively differentiated in the perception of end users and the price differences are not a simple result of transient market disruptions.
The analysis also determined the spread of real prices between commodity and clearwood lumber grades within individual species of lumber.  Where it is possible to alter the grade yields through intensive forest management, the spread of real prices is highly relevant as more clearwood replaces lower-valued grades in the total lumber recovery volume.  Real price spreads remained stable during the 1989-95 period for the clearwood grades, with slightly positive trends observed for all products with the exception of Douglas-fir Moulding & Better grade lumber.
Conclusions
This study found that clearwood lumber is a differentiated product for which end users are willing to pay a substantial premium.  Those respondents who utilize clearwood lumber as a raw material input in their manufacturing process indicated that they value reliability of supply, price, and price stability over timber quality.  This would seem to indicate that manufacturers cannot, or will not, continue to accept higher relative prices and rapid price fluctuations.  The lumber price trend data indicate that softwood lumber products are highly differentiated in terms of perceived market value, reflecting the unique attributes of specific lumber grades that are valued by end users.  The price analysis supports the conclusion that price-induced substitution is an important driver behind the convergence in relative prices between the higher grade ponderosa pine lumber products and the overall softwood lumber market, but that clearwood grades of lumber have generally maintained their relative price differentials.  However, the price analysis and industrial survey results suggest that, for more and more manufacturers, clearwood lumber attributes may be available from lower grade lumber products and substitute products.  The survey results clearly indicate that many manufacturers are switching to substitute products to meet their raw material needs and provide price stability for their manufacturing operation.
Based on these results, lumber producers and plantation managers can better assess whether to adopt management practices that emphasize the production of clearwood lumber for high-value niche markets, or whether they might be better off focusing on the production of commodity grade products.  Given the significantly different cost structure associated with each of these production strategies, the results of this study can help managers determine which strategy is the most cost effective based on the characteristics of the market segments they are serving.
 

​Executive Summary
Japan has long been Asia's largest importer of softwood sawlogs and lumber and is the major destination for U.S- Pacific Northwest wood product exports. In the period lasting from 1980 to 1993, 3apan imported an annual average of 15.2 million CUM of softwood sawlogs and 5.4 million CUM of softwood lumber. The country's major softwood suppliers are the Pacific Northwest states of the U.S., British Columbia in Canada, and the Russian Far East and Siberia. In recent years, New Zealand and Chile have also supplied increasing volumes of softwood products to Japan, mostly in the form of Radiata pine flowing from these countries' expanding conifer plantations. Recent changes in the supply structure within Japan's foreign supplier countries promise to significantly 'impact the Japanese softwood market In particular, reductions in North American harvests related to conservation and a general depletion of old-growth stock will increasingly limit the availability of high quality Douglas fir and Western hemlock sawlogs and lumber, products which have long been the mainstay of Japan's softwood import market. Similarly, moves to restrict exports of raw logs from North America, Southeast Asia and elsewhere have increasingly threatened the supply of both softwood sawlogs and hardwood peelers to Japan's lumber and plywood mills. At the same time, growing quantities of lower quality Radiata pine from New Zealand and Chile, as well as potential increases in medium quality Russian spruce and larch, will likely be available to the Japanese in the near future. While no shortage of softwoods is predicted, higher quality softwood products are expected to be increasingly scarce.
The Japanese softwood market is, in reality, a highly differentiated market where different species and grades of softwood meet specific end market requirements. Prices for different softwood products vary greatly, and substitution between sources and types of wood is often restricted. Japan has long paid significant price premiums for old-growth and higher quality second-growth Douglas fir and Western hemlock products. In view of impending supply restrictions for high quality softwoods, these premiums. can be expected to persist Firms wishing to take advantage of these premiums, either through forest management practices designed to increase quality, or through the export of processed lumber, need to consider not only the nature of their targeted market, but also the strengths and weaknesses of potential competitors. if national concerns over log exports results in a reduction of softwood roundwood exports, it cannot automatically be assumed that standard U.S. grades of commodity lumber can replace or substitute for the decrease. Rather, a more complete understanding of specific Japanese market requirements is needed to best exploit the comparative advantage of higher valued North American wood products.
Japanese Housing Market
The bulk of Japanese softwood swag and lumber imports is used in residential housing construction. Due to demographic factors, increasing income, and a comparatively rapid turnover in housing stock, Japan has one of the highest residential construction rates in the world both in gross and in per capita terms. Over the last decade, new housing starts in Japan have averaged over 1.4 million units per year. Predictions for 2000-2010 likewise foresee a level of around 1.3 million units per year. while in the two decades leading up to 1980 the share of non-wooden housing starts prim ferro-concrete multiple unit dwellings) increased substantially, shares of wood and non-wood starts have stabilized over the last decade with each commanding approximately half of the total market for housing units. This combined with predictions of stable overall demand for housing leads to the expectation of continued strong Japanese demand for softwood lumber.
Wooden housing styles and construction techniques in Japan can be divided into two general categories: traditional post and beam" housing, and Western "2x49' platform housing as well as related prefabricated construction techniques. Traditional post & beam housing currently accounts for over 85 percent of Japan's wood housing market. Since this construction style features a great deal of exposed wood particularly the posts and beams which constitute the major structural elements of the house), aesthetic as well as structural lumber characteristics are extremely important Pacific Northwest Douglas fir and Western hemlock have been used extensively in Japanese traditional housing construction, and it is this market, more than any other, which has supported the price premiums enjoyed by North American timber exporters in the past.
Since its introduction to Japan in 1974, Western style 2x4 housing construction has made steady gains. At approximately 56 thousand units in 1993, 2x4 housing now commands 8 percent of Japan's total wood housing market In addition to its cost advantage over traditional methods, 2x4 housing has enjoyed. substantial promotion from North American governments, industrial associations and other organizations. Though the market penetration of 2x4 housing has been less than originally hoped for by its promoters, its progress has been consistent, and continued increases in market share should be expected. As North American suppliers have virtually monopolized the supply of dimension lumber to this market, benefits of the expansion of 2x4 housing in Japan to U.S. Pacific Northwest producers have been immediate. There is, however, no reason to believe that other producers will not begin to supply this market in the medium-term, North American suppliers to the 2x4 market can expect to face increasing competition from mills in Japan and elsewhere cutting lower priced Russian species and perhaps Radiata pine. Due to its demand for higher quality lumber, the traditional housing market will be more insulated from increasing competition from these other suppliers.
In 1992, wooden prefabricated housing stood at 15 thousand starts, accounting for about 5 percent of the total market for wooden units. This represents a strong increase over 1980 levels. Japanese prefabricated housing is generally associated with Japan's major home-building corporations, and it often incorporates factory pre-construction with modular building techniques using "unit-bathrooms" and similar products. Some of the firms engaged in this form of housing construction have developed their own proprietary standards, and foreign firms wishing to export to this market will have to work in close cooperation with their Japanese customers.
Japan's Major Softwood Sawlog and Lumber Suppliers
Japanese Domestic Production
Japan itself is the single largest supplier of softwood logs to its own domestic market In 1993, Japanese domestic production supplied 15.9 million CUM of softwood sawlogs to Japan’s. sawmills. This represents a slight decline from the 17.7 million CUM supplied in 1980.
For many years the Japanese have predicted an increase in domestic roundwood production based on the over 10 million hectares of maturing conifer plantations possessed by the country. Economic factors, however, have mitigated against any substantial expansion in domestic harvest The most pressing problem is the high labor intensity of Japanese forestry combined with a chronic shortage of forest labor and a more than fourteen-fold increase in wages since 1960. In light of these and other problems, predictions of domestic harvest increases are becoming less common, and it is assumed that Japanese softwood production will continue at current or slightly lower levels well into the next century.
The Japanese domestic sawmiling industry is likewise in decline. Between 1980 and 1992, the number of sawmills in Japan fell by 28 percent to approximately 15 thousand mills. Gross material inputs for sawmills likewise fell by 25 percent, though much of this decline has been in the last few years. Currently, Japanese mills are struggling under increased prices for their mainstay Douglas fir and Western hemlock sawlogs as well as increased lumber imports from abroad. Continuing declines in domestic sawmills and production capacity are predicted, and this, in turn, will yield greater opportunities to foreign producers interested in exporting lumber products to Japan.
The United States
The U.S., and particularly the Pacific Northwest states of Oregon and Washington, are Japan's largest foreign supplier of softwood logs. The U.S. has long maintained over half of the total market share of Japanese softwood log imports. Since 1990, however, U.S. export volumes have fallen sharply from 10.9 million CUM to 7.6 million CUM, with market share declining from 63 percent to 52 percent.  After making steady gains throughout most of the 1980s, U.S. softwood lumber exports to Japan have experienced similar declines since 1990. In the case of lumber, gross export volumes (2 million CUM in 1993) and market share (24 percent in 1993) are considerably lower those for logs. Continuing harvest restrictions related to the Spotted owl and other conservation issues promise to further limit harvests in the Pacific Northwest region and thereby reduce the amount of U.S. timber available for export to Japan. Likewise, calls for increased restrictions on raw log exports in the hopes of increasing domestic U.S. processing could further decrease the availability of softwood sawlogs to Japanese mills. In the fixture, U.S. exporters to Japan will face increased competition for raw materials and, perhaps, increased pressure to raise the value added content of their exports. This, in turn, will give added incentives to producers to find the highest value Japanese market niches for their products..
Siberia and the Russian Far East
Siberia and the Russian Far East constitute the second largest softwood log supplier to Japan. After declining throughout much of the 1980s and early 1990s log exports from these regions showed their first signs of recovery in 1993. In that year Japanese log imports from Russia increased to 4.5 million CUM, a gain of 26 percent over the previous year. Russian market share of Japanese log imports likewise increased from 24 percent in 1992 to 31 percent in 1993. Much of this is seen as a response to resource constraints in the United States. Russian productive capacity and the ability of Russian species (mostly larch, spruce and fir) to substitute for Pacific Northwest Doug]as fir and Western Hemlock however, is limited. Inadequate infrastructure and a chronic shortage of capital currently restricts increases in production, and the quality of Russian timber generally does not meet Japanese specifications for the main structural components used in traditional housing. Japanese imports of lumber from Russia have been relatively insignificant The same sort of processing capacity and quality constraints pertaining to logs apply to lumber as well.
Canada
Except for a brief period in the mid to late 1980s, Canadian exports of softwood logs to Japan have remained well under 1 million CUM. For the most part, this is due to long-standing restrictions on raw log exports from British Columbia (the province supplying the overwhelming majority of Canadian wood product exports to Japan). Canadian exports of softwood lumber to Japan, on the other hand, comprise well over half of the total share of Japanese softwood lumber imports. In 1993, Japan imported 5.4 million CUM of softwood lumber from Canada, representing a 65 percent market share and a 23 percent increase in volume over 1992 levels. Strong increases in Canadian lumber exports to Japan are evident throughout the late 1980s and early 1990s, but continued expansion is limited by resource constraints and conservation issues similar to those in the U.S. Pacific Northwest British Columbia does have a large available forest resource, but much of this is in the interior where lodgepole pine and other lower valued species predominate. Though this wood may be suitable for the production of dimension lumber, it is doubtful that much of it will find its way into Japan's traditional housing sector.
New Zealand
In 1993 New Zealand softwood log exports to Japan stood at 1.7 million CUM, accounting for a 12 percent share of Japan's softwood log import market and making New Zealand Japan's third largest softwood log supplier. This 1993 volume was nearly seven times greater than New Zealand's log export volume to Japan for 1986, reflecting strong annual in creases from 1987 to 1992 followed by a 7 percent decline in 1993. Over 85 percent of 1993 exports were Radiata pine. Given the species composition of New Zealand’s forest resource, this percentage is expected to continue or even increase. Total New Zealand sawlog production is predicted to increase to approximately 16 million CUM in the first decade of the next century (as compared to a 1986-1992 average of roughly 6 million CUM of softwood sawlogs). New Zealand has devoted a great deal of effort to increasing the quality of Radiata pine products through intensive forest management and new lumber production techniques To date, however, Radiata pine is used in Japan primarily for packaging materials and other lower valued end-uses (this provides an explanation for the volume decline in 1993, as the Japanese recession impacted the packaging industry more than the relatively robust housing construction industry). New Zealand lumber exports to Japan in 1993 stood at 235 thousand CUM and were likewise dominated by Radiata pine
Chile
Chile also has a large plantation resource planted predominantly in Radiata pine Significant increases in Chile's softwood production are predicted beginning in the late 1990s, with total production expected to reach a level of between 21 and 27 million CUM by the turn of the century. The majority of this wood is also expected to be Radiata pine. In 1993 Chile exported 201 thousand CUM of softwood logs to Japan for a market share of only 1.5 percent Softwood lumber exports to Japan, however, stood at 398 thousand ~UM for a share of 4.7 percent of Japan' S softwood lumber import market This reflects strong increases in Chilean lumber exports to Japan throughout most of the 1980s. Most of these exports are thought to be in the form of cants and flitches for remanufacture in Japan into the same sort of products for which New Zealand Radiata pine is used (i.e. packaging materials and other low priced end-uses). In the case of both New Zealand and Chile, increased exports of Radiata pine are expected to. continue to supply the packaging materials market as well as compete with lower-valued products in the residential construction market However, the species is not thought to be an adequate substitute in the higher-valued end-uses, which Pacific Northwest and Japanese domestic species have dominated in the past
Other Factors Affecting Softwood Supply
Other factors affecting future softwood supplies available to Japan include rapid economic growth in China and other Asian nations, export restrictions and supply constraints for Southeast Asian hardwoods, and technological innovations in softwood lumber production. Cross border trade in softwood logs from the Russian Far East to China has been substantial, and New Zealand has reported sharply increased exports to China and Korea in the last few years In general, China and Korea do not possess the same preference for high quality lumber products (residential housing in both Korea and China is constructed manly of brick and stone), and continued economic growth in these countries is expected to most strongly impact the lower end of the softwood market Similarly, export restrictions of Indonesian and, more recently, Malaysian hardwood logs have led to rapid price gains in Japan for Lauan logs used in plywood manufacture. Increasingly, the Japanese have substituted softwood plywood in uses previously dominated by hardwoods. With expected technological improvements, this substitution will continue to expand, thus increasing demand for softwood plywood, veneers and other softwood panel products.
While the previous two factors will tend to increase demand for softwood products, technological innovations in the production of lumber will extend softwood supplies through greater efficiencies or, perhaps more importantly in the context of this report, allow for the substitution of lower-priced species in end-uses currently demanding higher priced softwoods. New laminating technologies that allow for the production of the larger squares commonly used in Japanese traditional housing is one prominent example. Here, clear veneers may be attached to cores produced from lower priced softwoods or composite materials.
Conclusion and Recommendations
In light of supply constraints, it is important that U.S. Pacific Northwest producers locate and fully exploit the best market opportunities for their products. Japan has long provided such an opportunity in the past, but primarily in the form of unprocessed log exports. Given Japan's strong economy (and Yen),stable demand for new housing and well defined preference for quality softwood products, it will continue to provide substantial market opportunities to Pacific Northwest producers in the future. To realize this potential, Northwest producers will increasingly need to understand the characteristics of Japan's differentiated market for processed timber and devise strategies to best exploit the comparative advantage of Pacific Northwest species in higher valued Japanese market niches.
As in the past, the highest premiums will go to those suppliers who can provide the Japanese market with high quality Douglas fir and Western hemlock logs and sawnwood. These premiums, in turn, may justify increased forest management efforts aimed at the production of clearwood and other quality characteristics. Likewise, they may help ameliorate some of the costs entailed in longer rotation lengths and intensive thinnings called for in new forest management regimes designed to produce environmental benefits as well as timber.
While benefits to U.S. Pacific Northwest lumber mills and value-added product exporters from the expansion of 2x4 construction in Japan have been considerable, the current marketing and policy emphasis on expanding the use of western 2x4 construction in tat country should be reexamined to include traditional post and beam market niches. A 2x4-only strategy virtually ignores the lion's share of the Japanese wooden residential construction market, and most 2x4 applications do not necessarily highlight the aesthetic and structural characteristics of Pacific Northwest Douglas fir and Western hemlock Traditional post and beam housing, on the other hand, has resulted in a strong Japanese preference for high quality North American softwoods and has been the driving force behind U.S. softwood exports to Japan and the price premiums associated with this trade. Moreover, in that it allows for increased substitution using lower priced softwoods, 2x4 construction in Japan will, in the future, be more open to competition from the other Pacific Rim producers considered in this study. This is not to argue that the promotion of 2x4 construction in Japan should be abandoned altogether, but rather that greater marketing efforts aimed at expanding lumber and value-added product exports to the Japanese traditional housing market are also called for.
 

​Executive Summary
The reduction in timber supply in the U.S. Pacific Northwest region to protect the northern spotted owl is just one of a number of similar, ongoing adjustments in timber supply globally. The rapid rise in wood product prices experienced within the last 12 months -- an increase of 100 percent--is suggestive of a substantial supply reduction rather than a cyclical housing recovery impacting demand.  As such, the price adjustment in the wood products markets is forcing a permanent change in wood flow, rather than the cyclical changes associated with demand fluctuations. The reductions in timber supply will continue to impact market prices until adjustments of wood flow in world markets are complete. Many global producers will expand their production with higher wood prices.  One result is that international producers benefit while consumers must pay the higher prices.
Supply reductions are not limited to U.S. Pacific Northwest regional production but also include hardwoods from the tropics, and, prospectively British Colombian products. Tropical hardwood producers are reducing their harvests to meet sustainable timber harvest targets evolving from International Tropical Timber Organization (ITTO) negotiations. These reductions do cause reactions in markets. We can expect the substitution of softwood plywood for hardwood plywood in Asian markets since there are relatively fewer alternative hardwood suppliers than softwood. Specification differences in plywood manufacturing are not easily met by North American producers, leading to a pre-disposition of this demand shift to be in logs rather thin panels, although manufacturing specifications could also change over time with investments in panel plants dedicated for export markets. As for British Columbia, a provincial "fast track" study is currently underway for each forest planning unit. These studies are expected to recommend lower harvest levels in favor of changing environmental policies of the same magnitude as the spotted owl related reductions in the U.S. Pacific Northwest region.
We have utilized the CINTRAFOR Global Trade Model (CGTM) to analyze the global impacts of these supply reductions. The CGTM is a global forest sector model developed over the last decade at the International Institute for Applied Systems Analysis in Austria and the University of Washington. This model has been used most recently to understand the impacts of constraining tropical timber production in Asia in studies commissioned by the World Bank and the London Environmental Economics Center for ITTO.
This report analyzes the supply impacts on prices, who pays, who benefits, and what may be the broader environmental implications of new supplies replacing previous supply patterns through changes in international trade flows. The study also examines the implications of greater exports from Russia, the only country with a substantial inventory of mature softwoods.
Major conclusions from the analysis are:

• The cumulative impact of a 33 million cubic meter supply reduction--while only 4.5 percent of the global supply--is significant. It produces observable responses from other regions to offset the decline in harvests, including a 16 percent redirection of trade flows.
• The reduced number production in the constrained region is redistributed among major competitors around the globe. Major gains are made by higher-cost forest producers as log prices allow marginal producers to expand their production.
• Reduced product supply is substantial, leading to a 30 percent reduction in product demand by 1995 as a result of higher prices. While this analysis does not directly address the impacts of this demand reduction on non-wood product consumption, one can expect a greater use of energy-intensive non-wood substitutes to replace the loss in wood product demand.
• Over the short term, higher-cost producers harvest more area to offset the timber supply reduction. Anywhere from 1.12 to 1.61 hectares are harvested for every one hectare preserved. The range depends on estimates of timber stocking levels on the replacement hectares. The harvested area ratio increases to a range of 1.59 to 1.91 if Siberia were to expand its timber harvest levels.
• Over the longer term, these impacts are exacerbated as higher productive forest lands in the Pacific Northwest and British Columbia are replaced by less fertile forest lands. The annual loss in forest land productivity is estimated between 17 and 44 percent, depending on stock level assumptions and the response from Siberia, These annual productivity losses are cumulative and will add to the ratio of harvested to preserved area as high-volume, old growth stocks are replaced by lower-volume, second growth timber with longer rotations. In addition, these high-cost producers are likely to have limitations in their processing infrastructure, leading to additional waste both in the mill operation and at the forest harvest level.
• Consumers are the major losers. They pay $2.5 billion dollars as a result of the timber supply reduction, Mill operators also lose. Gains by southern mills are only 20 percent of the losses to mill operators in the west. Timber producers gain $1.4 billion dollars. These impacts are reduced substantially if Siberia expands its timber harvest levels.

Concerns over wetlands, other species preservation, federal below-cost timber sales, and sustainable harvest levels in other regions will add further strains on global wood supplies and cause a greater shift in regional timber production as other areas will respond to offset any timber supply reduction. Additional supply constraints will magnify the impacts with more wood demand shifting to non-wood substitutes.
Environmental tradeoffs may be counterproductive through increased harvest acreage. While timberland is preserved in the U.S. Pacific Northwest Westside region and British Columbia, greater areas in other producing regions are harvested to offset only 60 percent of the timber production decline. The shift from high to low productive areas may well result in new environmental problems. Non-wood substitution will increase carbon dioxide emissions, for example.
While current short-term market conditions show U.S. prices well above those implied in this analysis, economic theory and the CGTM would suggest these prices will come down as international markets adjust and international consumers absorb a portion of the cost. However, there are many reservations as to the desirability of increasing harvests in other regions, which may result in. institutional constraints around the world. The process of globalization of timber shortages may become more difficult to address than is evident from historical experience.
 

Introduction
This study was done to explore the possibility of exporting charcoal from the Seward, Alaska area.  In investigating any product’s market feasibility, three general cost areas are examined: Production, Transportation, Marketing and Selling.  While all three areas are of importance, the purpose of this marketing paper relates only to transportation and marketing. To give a clear picture of issues involved with charcoal marketing, this report is broken into four main sections.

1. The first section looks at market uses and prices of charcoal in countries of the Pacific Rim, which are separated into net importers and net exporters.  Net importers represent potential markets and net exporters form the competition.
   
2. The second section of the analysis is developed from interviews of charcoal producers in the United States.  The status of current U.S. charcoal exports and product and marketing strategies are discussed.
   
3. The third part of the report provides a detailed transportation cost breakdown.  Different transportation methods, modes and carriers were investigated.
   
4. The fourth part summarizes the three main market potentials.
   

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​This report presents the results of an investigation into softwood lumber grading systems used in Europe with an emphasis on systems used, or proposed, for international trade transactions.  The report also presents comparisons and approximate cross-references of these systems with North American grades.  This involves the use of previously published comparisons as well as new material developed during the course of this study.  The study also briefly examines the nature of the European softwood lumber market and its future prospects.  The information presented in this study represents a step in the direction of improving the North American manufacturer’s understanding of Europe.
 
The information contained in this report relied principally on a search of available literature in the University of Washington Library system, reports sent in response to out letters to various European testing and research organizations, and conversations with representatives of the American Plywood Association and Western Wood Products Association.  Consequently, interpretations regarding historical background and current status of lumber grading practices in Europe may be limited by not having the opportunity to observe practices first hand or to converse with firms heavily involved in European trade.  It is believed that the information contained in this report is a fairly accurate description of major events and combined with the grade cross-reference will be useful to North American producers.