The New Zealand - China Log Export Market: An Investigation of Supply Chain Integrity

Abstract

The Problem The overarching objective of this project was to assess the integrity of the New Zealand / China export log supply chain. This included standards, phytosanitary practices, general efficiencies in log handling and risk. The project also aimed at developing innovative alternative business models that combine the introduction of new technologies with process re-design to perform log preparation, log measurement and phytosanitary functions in a more efficient supply chain configuration that aligns with customer needs and strengthens preference for NZ logs in export markets.

Key Results New Zealand’s competitiveness in the Chinese log market is based on (1) low cost – low quality but highly versatile logs, (2) an efficient and cost competitive supply chain, (3) strong relationships with customers, (4) efficient shipping enabled by very large volumes and (5) strong negotiation powers thanks to a significant consolidation of the resource. New Zealand is the only country that provides relatively inexpensive logs to China via an efficient lean supply chain. However, lean is accompanied by risk and New Zealand may be over-exposing itself to the Chinese wood processing markets. This includes risks associated with the Chinese economy, but also risks associated with the Chinese government’s influence over its industries. Fumigation regulations in China have created barriers for North American logs to enter at any port and provided New Zealand with a high degree of market exposure. In general, New Zealand’s logs do not compete directly with logs from other countries. In New Zealand, the log export value chains are configured around three main business models, viz. (a) passive ownership with specialist outsourcing, (b) passive ownership with generalist outsourcing, and (c) active ownership. Chinese customers expressed their dissatisfaction with the number and complexity of log grades originating from New Zealand. There is a fine trade-off between cost efficiency, log grades and product predictability and further research is warranted in this area. Logs that are exported to China are scaled in JAS m3 in New Zealand and in several versions of China’s domestic GB m3 scales in China. This creates double handling and Chinese customer appear relatively open to changes. Chinese customers expressed a preference towards logs with bark. Bark is often sold as a biofuel, creating a small, but significant income stream for Chinese processors. Bark does not form part of price negotiations between New Zealand and China and is delivered to China free of charge. Debarked logs, however, do not contribute sufficiently to supply chain efficiency, even when the bark is sold. Square logs and cored logs do not add value at current log, fuel and shipping prices. Cored logs, however, do create an interesting opportunity if the Chinese customer is willing to pay extra for the additional value added to the log.