Volume 46, Issue 8 - October 2007

In the News

Market News
Housing Starts Down, Distributors Still Bullish
While sales of single-family homes were down 10.2 percent in July compared to a year ago, this decline doesn’t just affect homebuilders, it also affects their distributor partners as well.

One would think distributors would give nothing but negative feedback about their markets, but that’s not the case. 

“Like most other regions, we’ve seen the slowdown with the metro markets especially weak,” says Joe Bayer, president and chief executive officer of Bayer Built Woodworks, a distributor in Belgrade, Minn.

Bayer says commercial projects have been a part of his business for years (in a two-step process). 

“Margins have been tighter than ever as our competition becomes more aggressive,” he says. “We’re busy quoting, but sales in this area have tapered as well. Interest rates have a much larger effect on this larger-dollar project. We’ve been seeing many projects delayed or put on hold lately.”

Bayer says his company is struggling like everyone else to get through the housing decline, but he gives encouraging words to customers.

“Don’t get caught up in the media hype,” Bayer says. “Stay the course, keep the faith.”

Ted Reiter, sales and marketing manager for J.B. O’Meara Co. in Burnsville, Minn., says the decrease in the housing market has made his company’s customer base look at every aspect to be more efficient.

“New housing starts are clearly down in our territory.  It saddens us to see how our loyal customer base has been affected; however, it is making companies look at every aspect of the business to see how they can improve efficiencies. We see regions down as much as 30 percent.”

Reiter says many things have changed in distribution including margins. 

“Customers are forced to shop around to maximize profits per sale; therefore, the market has become more competitive,” he says. “We see some distributors selling products near cost which is simply weakening the market. Jobs will be lost and efficiencies will suffer if margins are sacrificed. We also have to work harder to sell less which can increase frustrations at every level of our industry.”

Carl Detering, president of the Detering Co. in Houston, says that he is just beginning to see the housing market slowdown in his area. 

“We have been fortunate in that the segment of the market that we target for millwork in Houston (the custom and semi-custom market) has not been too badly affected to this point,” Detering says. “We are, however, I believe, beginning to see a slowdown. The production market in our area is off significantly and we expect this to catch up with us.”

Detering says his company is trying to deal with the slowdown by strengthening sales efforts and focusing on product specialties, like brick, windows and cabinets to make up for what the company thinks will be a downturn in its millwork business.

Gerald Wille, vice president of Edward Hines Lumber Co. in Buffalo Grove, Ill., says his distributorship’s sales aren’t down as much as the current market is, but he says his company has had to look at every variable expense and make the necessary cost cuts while maintaining service levels.

Wille doesn’t see an increase in housing starts in the foreseeable future, but he says, “As difficult as this down turn is, we have been through these before and we will survive. It is important [for our customers] to do business with established suppliers that will work with them through the difficult times.”

Foreign Relations
Battling Once Again
Just when it looks like the United States and Canada are in agreement about softwood lumber, something goes amiss. 

This time, the United States has initiated official arbitration proceedings against Canada to resolve issues relating to Canada’s non-compliance with certain terms of the U.S.-Canada Softwood Lumber Agreement (SLA). 

A release from the Coalition for Fair Lumber Imports (CFFLI), an alliance of large and small lumber producers, their employees and woodland owners from around the United States, says the United States was forced to initiate this arbitration proceeding in light of Canada’s repeated refusals to properly implement the agreement. The United States and the U.S. lumber industry have not asked for any concession from Canada, rather they demand that Canada honor its commitments. Canada is in clear violation of the agreement as it has: failed to fully collect the required border taxes, including surge taxes on exports from British Columbia and Alberta; failed to properly administer the export quota system; and failed to stop providing new tax payer-funded subsidies to its industry.

Under the terms of the agreement, either party can request a binding dispute settlement ruling by the London Court of International Arbitration. The London Court isn’t a public institution; it’s a not-for profit company that’s geared to resolve commercial disputes.

A ruling in the favor of the United States would result in significant export tax liabilities for Canadian softwood lumber exporters and a tightening of permissible export quotas to comport with the terms of the agreement. Currently available data, according to the CFFLI, indicate that through May 2007, Canada’s mounting under-collection of required export taxes totals at least $116 million and provinces’ total over-quota shipments is estimated to be 522 million board feet.

“The coalition supports the initiatives taken by the U.S. Government as Canada has unilaterally and without consultation undermined the softwood lumber agreement by refusing to implement key terms,” says CFFLI chairman Steve Swanson. “The required tax and quota limits on shipments are essential to remedy Canada’s unfair trade practices. Canada’s failure to honor its commitments under the agreement continues to severely harm the U.S. lumber industry which is suffering curtailments and layoffs caused by production cutbacks that are occurring twice the rate in the United States compared to our subsidized Canadian counterparts.”

There are also Canadians that want to see this arbitration work.

“You want to see how the arbitration is going to work so the agreement can stand the test of time,” said B.C. forests minister Rich Coleman in an article in The Canadian Press. “This is certainly something that’s going to tell us that.”

“This is the first time the London court has become an integral part of a state-to-state treaty,” said professor Roger Alford, an arbitration law expert at Pepperdine University in The Canadian Press article.

The softwood agreement says that arbitrations will be completed within a six month period of a panel being appointed.

In a Pre-APEC Talk with U.S. trade representative Susan Schwab, she said, “As you know, we really regret the fact that we’ve had to resort to arbitration. We are less than a year into an agreement that was designed to resolve a 20-year problem … And we want to see this agreement work for the seven-to-nine year lifespan that it was intended and is intended to operate. Unfortunately, we felt compelled to go to arbitration.”

Schwab said this arbitration through the London Court will be a new experience. “We have very little experience with this kind of arbitration. And so, yes, the arbitration will be very significant in terms of telling us how successful the SLA will be,” Schwab said. “But it also will be very interesting for those of us with much more experience with WTO and NAFTA dispute resolution.” 

Weather Shield Awarded for Environmental Efforts

Weather Shield Mfg. Inc. in Medford, Wis., has announced it is one of nine Wisconsin companies that recently received the Wisconsin Business Friend of the Environment Award for outstanding achievements in environmental protection. The company was among those chosen from 41 candidates nominated by peers and, in some cases, the companies themselves. Weather Shield was nominated by Industrial Recyclers of Wisconsin (IROW).

“Considering all the companies that I work with, no company does more than Weather Shield when it comes to recycling and striving for environmental stewardship,” says Cory Tomczyk, president of IROW.An independent panel of judges, including an environmental regulator, representatives from industry, environmental groups and the University of Wisconsin System selected the winners. www.weathershield.com 

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