Market Opportunities for Alaskan
Yellow Cedar and Western Red Cedar in the Japanese Post & Beam Construction
Industry
Executive Summary
Strategic
Marketing Recommendations for Alaska Lumber Manufacturers
The
use of Alaskan yellow cedar and western red cedar has a long tradition in
Japan. Historically these species were
initially used within the temple industry where their durability and high
quality were highly prized. Following
World War II the combination of increasing housing starts and reduced domestic
timber supply created an opportunity for these species within the housing
construction and shoji screen industry.
This report provides a description of several market opportunities for
Alaskan yellow cedar and western red cedar in Japan. In addition to describing the market opportunity, the report also
provides the technical specification for each product.
This
research has demonstrated that there are a number of potential market
opportunities for cedar lumber from Alaska in Japan. These range from rough green lumber to planed and kiln-dried
lumber to potentially glue 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 dimension
lumber for sill plates in the 2x4 market, lamina for the glue laminated beam
industry, and rough, green or planed, kiln dried lumber for the shoji
manufacturing industry. Having
identified a series of market opportunities for cedar 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 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. The strategic
marketing recommendations developed during the course of this study are
summarized below.
1. Pre-qualify Alaskan sawmills for exporting
to Japan
One
of the great misconceptions about exporting, particularly with smaller firms,
is that they can try out a market for a while and, if export performance
doesn’t meet their expectations, they can simply withdraw from the market. This simplification overlooks the fundamental
differences that exist between doing business domestically and doing business
internationally and the fundamental expectations that foreign customers have
regarding business relationships. In
contrast to the US, business relationships in most other countries,
particularly in Asia, are viewed as long-term relationships involving long-term
commitments to work together. Leaving
an export market, and ending business relationships, can adversely impact a
company’s ability to re-enter the market in the future. Because entering an export market is such a
strategically important decision, a company needs to objectively evaluate their
commitment to exporting and their ability to compete in the export market prior
to entering a foreign market. Answering
the following questions can help a manager evaluate their readiness to begin
exporting.
a) Has the senior
management of the company made a long-term commitment to exporting to Japan? Most studies of export performance have
found that a company can expect to lose money in an export market for the first
two or three years of operation. Since
most US companies tend to plan and operate within a short-term time frame,
managers have to adopt a new, longer-term perspective when operating in a
foreign market. Thus, managers entering
an export market must be prepared to accept losses as the short-term cost of
establishing a profitable export operation.
Clearly making senior management aware of this and having their complete
support is critical to ensuring that the company can weather the difficult
initial start-up period.
b) Are company
managers risk-averse? Given that a
company can expect to lose money during the first few years of exporting,
managers must be aware of, and willing to accept, the risk that accompanies
exporting. Since most small companies
tend to be resource constrained, this is particularly true of financial
resources, it is important that managers have a realistic understanding and
expectation of the benefits and risks associated with exporting.
c) Has the
company developed a strategy to acquire timely and accurate market information? Nothing can help a company offset the risk
of exporting like having access to good market information. Whether market information is obtained from
prospective customers, prospective partners, other exporters, government
agencies, or marketing consultants, it is important for a company looking to
enter Japan to have developed a strategy for obtaining market information that
they can use as the basis for developing their own marketing strategies.
d) Is the company
able and/or willing to adapt their product specifications to meet the needs of
the Japanese market? Few forest products
companies can expect to find that their current mix of products will match the
needs of prospective customers in Japan.
Japanese customers have different expectations and product
specifications than do domestic customers and a sawmill must be prepared to
make at least some modifications to the lumber that they want to export to
Japan. At the very least they should be
prepared to respond to Japanese concerns about lumber quality and the unique
dimensions of the post and beam construction system. This is where good market information can help a company
anticipate how their product fits into the Japanese market and what types of
product modifications might be required for Japan. In addition, managers must have a clear plan for how to deal with
customer claims. Japanese customers are
notorious for demanding high quality and therefore it is important that
potential exporters have a quality control program in place to help reduce
costly claims from customers. At the
same time, claims happen and a manager should be prepared to deal with these in
a fair and equitable manner.
e) What is the appropriate
channel for getting your product into the Japanese market? This depends on the size of the company and
the extent to which the company wants to get involved in the Japanese
market. Options range from using a
freight forwarder to selling through a US exporter to selling products to a
Japanese trading company to selling direct to Japanese home builders. However, since the choice of an entry
channel often involves establishing a business relationship with a Japanese
partner, this is a critically important decision for a company.
A
final important component of pre-qualifying Alaskan firms has to do with
providing potential exporters with support services. These support services can help potential exporters understand
and be prepared for the intricacies of exporting. For example, information on the services that freight forwarders
provide would be useful. Areas where
potential exporters may need assistance include: how to obtain and complete
export paperwork, understanding the different types of export financing
mechanisms available (e.g., irrevocable letter of credit), how to conduct a
business evaluation of potential partners or customers in Japan, how to handle
complaints from customers, and basic business etiquette in Japan.
2. Develop comparative performance properties
of species used for dodai
This
report has focused on assessing market opportunities for two Alaska timber
species: Alaska yellow cedar and western red cedar. The market segment with the greatest potential is using Alaska
yellow cedar as dodai (ground sills) in post and beam construction. While there are currently a wide variety of
lumber species and products used for dodai, none can match the performance and
durability of Alaska yellow cedar. Yet
in our discussions with post and beam pre-cutters and home builders, many were
not aware of the benefits of using Alaska yellow cedar relative to other
species and products. Thus it is
recommended that Alaska lumber manufacturers develop promotional material that
clearly demonstrates the superior performance of Alaska yellow cedar in dodai
applications. This can best be done by
providing a comparison of the physical and mechanical properties of Alaska
yellow cedar relative to competing species and lumber products. Some of the physical and mechanical
properties that might be compared include:
Physical properties: durability, decay resistance, insect
resistance, shrinkage, specific gravity and moisture content.
Mechanical properties: compression strength parallel to
the grain, compression strength perpendicular to the grain, and machinability.
Similarly,
some of the species and lumber products that might be compared to Alaska yellow
cedar include Japanese cypress (hinoki), preservative treated and untreated
hemlock, preservative treated and untreated radiate pine, preservative treated
and untreated Russian larch, preservative treated and untreated Douglas-fir,
and preservative and untreated European spruce and red pine.
3. Trade mission to Japan for qualified Alaska
lumber manufacturers
Once
a prospective exporter has been pre-qualified, it is often useful to bring
qualified companies to Japan on a trade mission. This provides an opportunity for potential exporters to attend
trade shows, meet with potential Japanese customers, see how their products
would be used in Japan, and gain some familiarity with Japan, Japanese culture
and the Japanese business environment.
A trip to Japan can provide the potential exporter with valuable
experience and insights into Japan while providing a useful reference point
upon which to base their final export decision.
4. Consider
developing a marketing campaign promoting the benefits of using Alaska yellow
cedar to homebuyers in Japan
The
implementation of the 10 year Housing Warranty, in conjunction with increasing
homebuyer interest in the Healthy House concept, suggest that a marketing
program targeted to Japanese homebuyers and emphasizing the benefits of Alaska
yellow cedar dodai could be successful in encouraging new homebuyers to specify
Alaska yellow cedar dodai. Anecdotal
information derived through interviews in Japan suggest that a similar
marketing program, carried out using print advertisements displayed in subway
cars through the greater Tokyo area, was successful in increasing demand for
Aomori cedar in post and beam homes. It
should be noted that several homebuilders already highlight their use of Alaska
yellow cedar in ground sill applications in their marketing brochures (e.g.,
Yawata Homes, SxL Homes and Sweden House).
The promotional message should emphasize the three major benefits of
using Alaska yellow cedar in ground contact applications:
1. Alaska yellow cedar is a naturally durable
species with a proven track record in Japan,
2.
Alaska yellow cedar lumber provides a unique combination of durability
and dimensional stability that helps ensure the long-term performance of the
foundation system and reduces the shifting and settling of the house over time
and exposure to the elements. “The long-term structural performance of a
house is only as good as its foundation”
3.
Alaska yellow cedar is naturally durable and resists both fungal and
termite attack without the use of the toxic preservatives that are used to
treat less durable timber species. In
fact, since preservatives can only treat the outer shell of the lumber, Alaska
yellow cedar lumber is much more durable than treated lumber.
5. Consider
promoting the idea of an Alaska yellow cedar foundation system
Since
durability and long-term performance are important to homebuyers and
homebuilders, the US industry should consider promoting the idea of an Alaska
yellow cedar ground contact foundation system.
The foundation of the typical 30 tsubo (1,065 square foot) post and beam
house consists of the floor post (tsuka), girder/sleeper (obiki), floor joist
(neda), and ground sill (dodai), Figure 26.
This idea has the dual advantage of improving the structural performance
of Japanese post and beam homes while increasing the volume of yellow cedar
lumber used in the typical post and beam house from .8 cubic meters to 1.9
cubic meters. This program should
emphasize the benefits to housing performance gained by not only specifying
Alaska yellow cedar for ground sills but also for the other ground contact
foundation members. The message should
be that from a performance and durability point of view, if a builder is going
to use Alaska yellow cedar for the ground sills, then they should utilize it
for all ground contact members. The key
to the long-term performance of a structure, with respect to termite and fungal
attack, is to ensure that all ground contact components of the foundation are
produced from a highly durable species like Alaska yellow cedar.
6. Sawmills should
carefully analyze market segments to ensure a good match with their production
capabilities
Alaska
sawmills need to ensure that they analyze the Japanese market to identify those
market segments that best match their existing production capability. For example, if a sawmill is currently
cutting dimension lumber they don’t necessarily want to begin retooling their
production process to produce metric size lumber for post and beam homes. However, they should also be looking for
opportunities to increase their ability to service other market segments in the
future by broadening their product mix and investing in new production
technology.
7. Investigate
opportunities for YC and RC in products targeted to the R&R, DIY, and
outdoor use markets
Recent
trends suggest that the repair and remodel (R&R), do-it-yourself (DIY), and
decking/outdoor living markets have been growing in recent years in Japan,
despite the general economic malaise.
This growth is expected to continue and increase in the future. In order to gain a better understanding of
these market segments, their potential for growth, and to identify
opportunities for Alaskan wood products, it would be useful to conduct market
research in Japan. This project would
be designed to achieve the following objectives:
1. describe the current R&R, DIY, and outdoor
decking/outdoor living markets in Japan and project the growth of these markets
to 2010,
2. identify specific market opportunities for
Alaskan wood manufacturers,
3. describe marketing channels and pricing
strategies for wood products in these market segments,
4. describe technical specifications for wood
products in these market segments, and
5. provide a set of marketing strategies to
assist Alaskan manufacturers to enter and compete in these market segments.
TABLE OF CONTENTS
Executive
Summary.......................................................................................................................
INTRODUCTION................................................................................................................................. 1
Background
of the JapanESE MARKET FOR forest products............................................ 2
Japan's Economy....................................................................................................................... 2
Japan's Forest Resource....................................................................................................... 6
Summary of Forestry Trends....................................................................................................... 10
Japan's Softwood Lumber industry................................................................................... 12
Summary of Trends in the Softwood Lumber Industry.................................................................... 16
Japanese wood supply and demand................................................................................... 17
Japan's housing starts.......................................................................................................... 19
The Residential Construction Industry and Housing Starts.............................................................. 19
Residential Housing Types.......................................................................................................... 20
Regulatory changes in the residential construction industry................................. 23
Building Standard Law (BSL)....................................................................................................... 23
Housing Quality Assurance Act (HQAA)....................................................................................... 23
Implications for Material Specification in Residential
Construction................................................... 24
Japanese imports of Logs and Lumber.............................................................................. 27
Opportunities
for Alaskan cedar products in japan...................................................... 33
Residential Construction..................................................................................................... 33...........
The Post and Beam Market Segment........................................................................................... 33
Technical
Specifications.......................................................................................................... 37
The 2x4 Market Segment............................................................................................................ 44
Technical
Specifications.......................................................................................................... 44
The Market for Lamina for Laminated Beams................................................................................ 45
Technical
Specifications.......................................................................................................... 45
The Shoji Market........................................................................................................................ 47
Technical
Specifications.......................................................................................................... 52
Strategic
Marketing Recommendations for Alaska Lumber Manufacturers............ 55
Market
Opportunities for Alaskan Yellow Cedar and Western Red Cedar in the Japanese
Post & Beam Construction Industry
Introduction
For most US
manufacturers the decision to export their products into Japan appears to be
fraught with risk and uncertainty.
However, much of this risk and uncertainty can be reduced if the
potential exporter takes the time to develop a basic understanding of the
business environment in Japan and learn how factors such as the economy,
domestic competition, and regulatory change are affecting the business
environment. The objective of this
report is to provide the new to export manager with the information they need
to support this decision making process.
To achieve this
objective, this report will be divided into three sections. The first section will provide the reader
with some insights into the factors that have affected Japan’s economy over the
past decade. The second section will
provide a summary of the forestry and forest products sectors in Japan to
provide the reader with insights into the factors that influence the
performance of their domestic competitors in Japan. This section will also provide a short discussion of the
residential construction industry, the major demand driver for wood products in
Japan, and new building regulations that are influencing how Japanese builders
use and specify wood products. Finally,
the second section will conclude with a summary of how these economic,
marketing, and regulatory changes have affected the competitiveness of US
forest products relative to wood products from other countries.
The third section of
this report will provide a detailed competitive analysis of the Japanese market
for Alaskan yellow cedar and red cedar, including imports, prices, and types of
products imported. This information
will be combined with primary market research conducted in Japan to identify
specific market opportunities for Alaskan yellow cedar and red cedar products
in Japan. Background information will
be provided on each market including the potential size of the market,
technical specifications for wood products in each market segment, and the
opportunities for Alaskan sawmills to compete in these market segments. Finally, the most promising market
opportunities will be summarized and a series of marketing recommendations will
be provided to help Alaskan manufacturers more accurately evaluate their
competitiveness in Japan.
Background of the Japanese Market for Forest Products
Japan's Economy
The Japanese economy
has been in, or near, recession for most of the 1990-202 period, Figure 1. To a very large extent, Japan’s anemic
economic performance can be attributed to the bubble economy it enjoyed during
the last half of the 1980’s. During
this period, both land prices and the stock market experienced rapid increases
that were out of proportion with Japan’s economic performance, Figures
2-4. However, Japanese banks, suddenly
finding themselves cash rich, encouraged companies and individuals to take out
loans to invest in inflated property and stocks. In many cases, Japanese banks compounded their problems by
encouraging firms to take out new loans to purchase land and stocks using
highly leveraged and inflated assets as collateral for the new loans.
For a short period
this behavior continued to fuel the upward movement of land and stock
prices. By the early 1990s, however,
the inevitable economic slowdown, in concert with other factors, caused a
sudden plunge in land values and the stock market. During the period 1990-1993, the Nikkei 225 lost over 50% of its
value dropping from 38,000 to less than 15,000 in late 1982, Figures 2 and
3. At the same time, land values, which
peaked in 1991, began a steady decline, which has continued unchecked to
2002. During this period, land values
have declined by approximately 40%, Figure 4.
This plunge in asset values was so precipitous that many firms awoke to
find that the bursting of the bubble economy had left them with liabilities
that far exceeded the value of their newly devalued land and stock assets. As a result, bankruptcies skyrocketed in
Japan sending the unemployment rate shooting up from its post-war average of
approximately 2-2.5% to 5.3% in 2001, Figure 5.
Figure 1. Quarterly changes in Japanese GDP, 1990-2001.
Figure 2. Closing averages for the Nikkei 225,
1945-2002.
source: www.globalfindata.com
Figure 3. Closing averages for the Nikkei 225, January
1990-April 2002.
source: www.globalfindata.com
Figure 4. Changes in land values in Japan, 1960-2001.
Figure 5. Annual unemployment rates in Japan,
1960-2001.
Figure 6. Quarterly changes in the consumer price
index, 1997-2001.
To further compound
the economic troubles in Japan, shaken consumers reduced their spending,
helping to send the economy into a deflationary spiral, Figure 6.
Japan's Forest Resource
Contrary to most
people’s impression, Japan is a richly forested country with forests covering
more than two-thirds of its land area (Table 1). Almost 60% of the forests in Japan are privately owned, 31% are
owned by the national government, and other public groups own 11% (Table
2). Private forests are dispersed among
a large number of small plots with over 2.5 million owners. The average size of a forest holding is just
under 10 hectares per forest owner, although this statistic seriously
overstates the size of the typical forest holding. A breakdown of forest owners by size of forest holding shows that
approximately 58% of private forests are less than one hectare in size and an
additional 31% are less than five hectares.
More importantly, barely one percent of forest owners in Japan have
forest holdings that exceed 30 hectares.
This ownership pattern has clear implication on the ability of private
forest owners to economically manage their forests for timber production. It also restricts the ability of forest
owners to access the capital required to actively manage their forests and
improve the quality of their timber.
The age class
distribution for Japanese forests is presented in Figure 7. Almost two-thirds of the private forest
resource (65.1%) is between 21 and 50 years of age (totaling 10.78 million
hectares) while over half of the National Forest resource (54.7%) is in excess
of 71 years in age (totaling 3.85 million hectares). Similarly, the forest data shows that 59.2% of plantation forests
are between 21 years and 40 years of age (6.14 million hectares). However, the age class distribution in
natural forests is bimodal, with 35.6% of natural forests between 31 and 50
years of age (4.70 million hectares) and 37.6 % over 71 years of age (4.97
million hectares).
Timber harvests in
Japan have been generally declining over the period 1960-2000 (Figure 8). The majority of timber harvests have been on
private forests, although the prefectural and municipal forests play a
substantial role in the timber supply.
In contrast, National Forests have traditionally supplied less than 10%
of the timber harvest. From 1960-1973,
the timber harvest from prefectural and municipal forests remained fairly
constant while private harvests declined sharply. From 1973-1991, there was a reversal in this trend and harvests
on private harvests leveled off while prefectural and municipal timber harvests
began to decline. Finally, during the
1990s there has been a substantial decline in the volume of timber harvested in
Japan from all forests.
At the species level,
there have been two important changes in the mix of logs harvested (Figure 8).
First, as described above, the volume of hardwood logs harvested has
declined significantly since the mid 1970s.
Unfortunately, there is no species specific data collected for the
hardwood harvest in Japan. Second, the volume
of pine harvested in Japan has also declined significantly from 1952-1998. During this period, the volume of pine logs
harvested declined from 11 million cubic meters (28.2% of the total log
harvest) to 2 million cubic meters (10.5% of the total log harvest).
Figure
7. Age class distribution for natural
and plantation forests in Japan.
Figure
8. Total harvest volume in Japan, by
species.
The stumpage price
data displays not only the price trends for the three major softwood species,
it also highlights the fact that each of these species is differentiated in the
marketplace (Figure 9). This
differentiation is clearly illustrated by the fact that hinoki consistently receives a price premium relative to sugi and pine, particularly after
1965. In contrast, the price premium
for sugi relative to pine is less
than that for hinoki, indicating that
sugi and pine are perceived to be
somewhat similar by end-users although a higher value is clearly attached to sugi relative to pine.
From 1950-1965,
stumpage prices for the three major softwood species increased at an average
annual rate of 52% for sugi, 53% for hinoki, and 38% for pine. From 1966-1980, stumpage prices for these
species continued to rise at an annual rate of 8.8% for sugi, 18.7% for hinoki
and 5.9% for pine. It was during this
period that the price differential between hinoki
and the other major species became significant. From 1950-1966, the price premium for hinoki relative to sugi
had averaged 12.6%, yet from 1966-1980, the price premium for hinoki (relative to sugi) rose to as high as 92% and averaged a hefty 68.8%.
Finally, from
1981-2000, stumpage prices dropped significantly for all three of the major
softwood species. The stumpage price
declines ranged from an average annual price decline of 2.6% for hinoki to 2.9% for pine, and 3.1% for sugi.
Despite these declines, the price differential for hinoki continued to rise reaching 148% in 2000. From 1981-2000, the price premium for hinoki averaged 124.7%, relative to sugi.
Clearly, this is a major reason why more area has been reforested with hinoki than sugi since the early 1980s.
Figure
9. Forestry labor wages relative to
stumpage price trends for the major softwood species.
Figure
10. Demographic trends for forestry
workers in Japan.
In contrast to
stumpage prices, the logging wages have increased steadily since 1960. At the same time, there has been a
significant demographic shift in the forestry industry (Figure 10). Not only has the number of workers in
forestry declined from 440,000 in 1960 to less than 80,000 in 1999, the age
structure of the workforce has changed dramatically. The most recent survey of forestry workers shows that 57% were
over the age of 55 while less than 10% were under the age of 35. The combination of a declining and aging
workforce and a rising wage structure has serious implications for the
productivity and efficiency of the forestry industry.
Summary of Forestry Trends
Japan's forest sector
faces several physical and structural challenges, most of which adversely
impact the competitiveness of the forestry sector in general and the small
private forest owner in particular. One
of the most basic obstacles is Japan's geography. Many forests are located in
steep terrain, which makes forest management challenging and increases the
costs of building roads, harvesting, and transporting the logs from the
forest. These high costs are further
exacerbated by the fact that the majority of private forests are very small,
which makes it difficult for the owners to raise capital and harvest their
forests. At the same time emigration
from rural to urban areas reduces the number of available workers. The workers who remain are aging and few
younger workers are drawn to the hard and dangerous labor involved with
forestry, despite the fact that wages for forestry work are increasing.
Meanwhile, on the
demand side, stumpage prices for the major domestic species (sugi, hinoki, and pine) have been declining precipitously since
1980. Caught between rising costs of
production and declining prices, many forestry households are finding it more
and more difficult to continue in business.
This point is aptly illustrated by a set of financial statistics
published by the Forestry Agency in Japan.
Based on a time series of production cost and stumpage price data, the
Forestry Agency has calculated the internal rate of return derived from an
investment in a sugi plantation. Using their own methodology, the Forestry
Agency estimates that the internal rate of return from a sugi plantation has declined from 6.3% in 1965 to 4.1% in 1975 to
2.1% in 1985 to 0.9% in 1993 (the most current year for which this data is
available). Their results clearly show
that it is becoming virtually impossible to manage a forest plantation as a
viable economic enterprise.
Given the high cost
of forestry in Japan relative to other supply regions of the world, it is time
to reassess the future role of the forestry sector in Japan. Given the comparative disadvantage that
Japan faces in the production of timber, it may be time to focus on the
environmental role of the forests, rather than the role of the forest as a raw
material supply. If this assessment is
correct, it would have considerable implications for countries supplying forest
products into Japan.
Japan's Softwood Lumber Industry
The lumber industry in Japan has traditionally been
characterized by small-scale “mom and pop” sawmills operating within a very
localized, rural, market. These mills
typically process locally produced logs into lumber for use by local home
builders. Most of their lumber is sold
to local wholesalers who perform many of the marketing functions for the
sawmill. As a result, many small
sawmills have a poor understanding of the markets and demand for their
products. Increasing competition from
imported lumber has contributed to the problems confronting local sawmills, as
has the closure of a large number of small rural sawmills over the past twenty
years. These small rural sawmills were
often family run and the continued movement of population from the rural areas
to the big cities has left many of these small sawmills to close when the owner
retires.
Large sawmills
located in the industrial zones of large cities have replaced small rural
sawmills. These larger sawmills often
process a combination of imported logs and domestic logs, although some of the
largest sawmills process imported logs exclusively. These mills are larger, more efficient, with more modern
equipment and better access to capital than are the small local mills. However, these mills are also confronted
with the rising cost of production that have plagued the small rural mills and
they often find themselves at a competitive disadvantage with foreign lumber
producers.
The number of
sawmills in Japan has been declining steadily since 1963, while lumber
production has been declining since 1973 (Figure 11). The number of sawmills in Japan, which totaled 25,295 in 1963,
fell to just 11,692 in 2000. As a
consequence, lumber production has declined from a high of 45.3 million cubic
meters in 1973 to 17.2 million cubic meters in 2000. It is interesting to note that while the number of sawmills
declined 51.3% since 1973, the decline in lumber production over the same time
period has been a much higher 62%.
Clearly, mill closures are not limited to just the small, rural “mom and
pop” sawmills.
The number of
sawmills in 2000 totaled 11,692, a decline of 16.4% from 1996. Meanwhile, the number of employees in the
sawmill industry fell to 73,625, a decline of 26%. Similarly, lumber production declined 28.8% from 1996 to 2000. Although the greatest percentage of sawmill
closures occurred on the island of Hokkaido, the data shows that there were
mill closures occurred in every region of Japan. However, it should be noted that not all of the drop in lumber
production is attributed to mill closures.
Rather, some of the drop in production can be attributed to curtailed
production levels due to reduced demand in the housing sector as a result of
the prolonged economic slump in Japan.
In addition, production decreases can also be attributed to foreign
competition and increased lumber imports.
Figure
11. Number of sawmills and lumber
production in Japan, 1959-2000.
Many sawmills in
Japan utilize a combination of domestic and imported logs in their raw material
mix (Table 3). In 1999, 5,568 sawmills
(45.5% of total sawmills) processed only domestic logs while an additional
2,246 sawmills (18.3%) relied on domestic logs for more than 50% of their raw
material inputs. In contrast, 1,711
sawmills (14% of the total) processed only imported logs while an additional
2,715 sawmills (22.2% of total) processed primarily imported logs. This suggests that a majority of the
sawmills in Japan (63.8%) are primarily or exclusively processing domestic
logs.
Sawmills processing
imported logs tend to have a higher level of average production, as the log
input data suggests (Table 3). In 1999,
the average annual lumber production for mills that process domestic logs was
833 m3, yet it was 1,413 m3 for mills that process
imported logs. This is hardly
surprising, given the fact that imported sawlogs, in general, have a larger
diameter and are higher quality than domestic sawlogs. As a result, we would expect that sawmills
processing imported sawlogs would be more efficient with a higher level of
productivity. The highest share of
imported logs are found in Chubu, Shikoku, and Kinki regions and the share of
US logs in the imported log mix exceeds 50% in every region except Hokkaido
(Table 3).
Table 3.
Log input volumes for sawmills in Japan, by region and log type (1996 vs
1999).
|
|
1996 (1,000 m3)
|
|
1999 (1,000 m3)
|
|
Prefecture
|
Total
|
Domestic
|
Imported
|
US
|
|
Total
|
Domestic
|
Imported
|
US
|
|
Total
|
35,545
|
16,154
|
19,391
|
12,799
|
|
27,449
|
13,246
|
14,203
|
8,458
|
|
Hokkaido
|
3,713
|
2,526
|
1,187
|
577
|
|
2,952
|
2,068
|
884
|
262
|
|
Tohoku
|
5,615
|
3,062
|
2,553
|
1,625
|
|
4,224
|
2,445
|
1,779
|
890
|
|
Kanto
|
2,166
|
1,223
|
943
|
740
|
|
1,591
|
978
|
613
|
447
|
|
Chubu
|
6,984
|
1,726
|
5,258
|
2,630
|
|
5,267
|
1,366
|
3,901
|
1,649
|
|
Kinki
|
4,420
|
1,647
|
2,773
|
2,111
|
|
3,097
|
1,331
|
1,766
|
1,263
|
|
Chugoku
|
4,337
|
1,102
|
3,235
|
2,666
|
|
3,677
|
897
|
2,780
|
2,296
|
|
Shikoku
|
3,369
|
1,308
|
2,061
|
1,460
|
|
2,550
|
1,050
|
1,500
|
1,043
|
|
Kyusu-Okinawa
|
4,941
|
3,560
|
1,381
|
990
|
|
4,091
|
3,111
|
980
|
608
|
As discussed earlier, many
of the sawmills in Japan are extremely small and inefficient “mom-and-pop” type
operations. Fully 53.3% of the sawmills
employ four or less workers while an additional 29.4% employ between 5 and 9
workers. In contrast, less than 5% of
all sawmills in Japan employ twenty or more workers. Clearly the sawmill industry in Japan continues to be
characterized by the small “mom-and-pop” sawmills located primarily in rural
areas and processing domestic sugi
and hinoki logs for use by local
builders.
The primary end-use
for lumber in Japan is the construction industry, primarily the residential
construction sector (Table 4). In 1999,
81% of lumber was used in the construction industry. The primary end-uses are the posts (35.4%) and beams (30.4%) used
to build post and beam homes. Other
applications utilize the remaining 3.5 million m3 of lumber, with
the primary end-uses being packaging (53.5%) and civil engineering works
(20.8%). While the total volume of
lumber consumed has declined 25% since 1996, the distribution of lumber
consumption within specific end-use applications has changed little.
Table 4.
End-uses for domestically produced lumber (m3), by supply
source, 1999.
|
|
|
Construction
|
|
|
|
|
Log source
|
Total
|
Boards
|
Beams
|
Posts
|
Civil Eng.
|
Packaging
|
Industrial
|
Other
|
|
Domestic
|
8,751,000
|
1,821,000
|
2,160,000
|
3,414,000
|
271,000
|
685,000
|
140,000
|
260,000
|
|
S.E. Asia
|
357,000
|
76,000
|
32,000
|
20,000
|
6,000
|
92,000
|
88,000
|
43,000
|
|
US
|
5,761,000
|
545,000
|
1,934,000
|
2,548,000
|
227,000
|
278,000
|
131,000
|
98,000
|
|
Russia
|
2,241,000
|
199,000
|
1,270,000
|
423,000
|
172,000
|
101,000
|
42,000
|
34,000
|
|
NZ
|
805,000
|
11,000
|
18,000
|
17,000
|
35,000
|
695,000
|
4,000
|
25,000
|
|
Other
|
250,000
|
60,000
|
110,000
|
8,000
|
16,000
|
20,000
|
12,000
|
24,000
|
Figure
12. Estimated sawmill production costs
in British Columbia and Japan, 1996.
Source: Japan Wood-Products Information and Research
Center (JAWIC)
The structure and
size of sawmills in Japan adversely impacts the financial structure of the
industry (Figure 12). Production cost
estimates for 1996 indicate that Japanese costs are approximately 156% higher
than a sawmill in British Columbia, Canada.
While labor, energy, and capital costs are less than 50% higher than BC,
stumpage prices for sugi are 250% higher
than hemlock. However, mill size and
production capacity has a substantial influence on variable costs like energy
and labor. Thus we would expect to see
a lower variable cost structure (on a cubic meter basis) in BC, where the
average production of a sawmill is approximately 150,000 m3/year
relative to the typical sugi sawmill
in Japan, which has an average annual production capacity of 7,000 m3.
The distribution
channels for domestically produced and imported lumber in Japan are extended,
with several levels of intermediaries at the national, regional, and local
levels. Lumber distribution involves a
number of different entities including domestic manufacturers, primary
wholesalers, secondary wholesaler(s), retailers, and home builders. These organizations and individuals perform a
variety of functions, including production, inventory, credit (tegata), delivery, and service. Primary wholesalers distribute lumber
nationally for manufacturers often provide their customers with credit
terms. Secondary wholesalers receive
lumber products from primary wholesalers and resell them to wholesalers,
retailers and builders within a specific geographic region. Secondary wholesalers also provide financing
for the customers.
Manufacturers often
provide 90-120 day Tegata (credit) to
the primary wholesaler. The primary
wholesaler then typically provides credit terms to secondary wholesalers on a
60 day basis while secondary wholesalers provides 30 day credit to
homebuilders. Tegata are often
structured so that the customer pays 50% in cash and receives credit terms for
an additional 50% of the price. Tegata are often sold by the holder to
their bank at a 2.3% discount, and there is usually no interest (essentially an
interest free loan).
Summary of Trends in the Softwood Lumber Industry
Japanese Wood Supply and Demand
During the post-war
era, Japan went from being essentially self-sufficient in meeting its timber
demands to relying on imports for more than 80% of its timber requirements
(Figure 13). From 1955-2000, domestic
timber production steadily declined from approximately 65 million m3
to less than 20 million m3.
Timber imports, on the other hand, have increased tremendously, jumping
from 2.5 million m3 in 1995 to almost 90 million m3 in
1996 before dropping off to 75 million m3 during the current
economic recession. Overall, timber
demand has generally followed the economy, increasing during period of economic
growth (1960-1972 and 1985-1991) and declining during periods of slow economic
performance (1973-1975, 1979-1983, and 1997-2000). While timber demand suffered a sharp decline following the Asian
economic crisis, virtually all of the reduced demand was absorbed by timber
imports and domestic production volumes remained relatively constant during the
period 1998-2000.
Figure
13. The trend in Japanese wood
self-sufficiency and imports, 1955-2000.
Japan's domestic
lumber production volumes are a sharp contrast to its overall timber
self-sufficiency. Whereas over 80% of
the timber supply is derived from imports, only about 30% of Japan's softwood
lumber demand is provided by lumber imports (Figure 14). Despite Japan's relatively high level of
self-sufficiency, the domestic lumber industry has been is plagued by declining
production levels as smaller, less efficient sawmills have closed down. Over the past decade, domestic lumber
production has declined from 28 million m3 to 18 million m3,
while lumber imports have remained fairly constant at approximately 9 million m3. The combination of declining domestic
production and relatively constant import volumes means that self-sufficiency
has dropped from 78% in 1991 to 67% in 2000.
The lumber 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
1998. These sawmill closures resulted
in the large declines in productive capacity in 1997 and 1998.
Figure
14. Japanese production, imports, and
self-sufficiency of lumber, 1991-2000.
Japan's Housing Starts
The Residential Construction Industry and Housing Starts
The single greatest
end use for imported wood in Japan is housing construction. Analysts estimated that in 1992, 79% of
lumber shipments in Japan were used in housing construction (Gaston 1997). Japan’s residential housing market has
consistently been one of the largest and most dynamic in the world. From 1987-1997, Japan’s housing starts were
approximately equal to those in the United States even though Japan has only
46.9% of the population and 3.9% of the land area of the US.
A combination of
factors have historically supported the relatively high number of housing
starts in Japan, including active construction of rental housing, low mortgage
interest rates, active government support for inexpensive housing, sustained
growth of per capita income, population growth, rapid turnover of existing
housing stock, large migration to urban centers, large volumes of existing low
quality housing in need of replacement, improved tax benefits for housing, and
increasing land prices (JETRO 1995; Robertson and Waggener 1995; Eastin 1999). For example, since 1950 the population in
Japan has doubled while average household size has fallen from 5.02 to 3.01,
suggesting that smaller nuclear families are replacing traditional extended
family living situations (Robertson and Waggener 1995). The growing population and the number of
nuclear family households has helped support the demand for housing.
While the long-term
trend has been an increase in Japan's population, recent population statistics
and demographic projections clearly show that the birth rate is declining and
average life expectancy is increasing.
This combination of demographic trends suggests that the population in
Japan will begin to decline after 2010.
As a result, demand for new housing is also expected to decline and most
demographers estimate that housing starts in Japan will stabilize at around 1.1
million from 2002-2010 before declining to approximately 800,000 to 900,000
starts per annum.
In 2000, housing
starts in the US and Japan totaled 1.53 million and 1.23 million units,
respectively (Figure 15). Housing
starts in the US and Japanese have tended to follow world economic trends while
exhibiting differences based on domestic trends as well. The economies of both countries grew rapidly
in the early 1970s, as indicated by the high level of housing starts, until
1973 when the OPEC oil crisis slowed the economies and contributed to a decline
in the number of new housing starts.
Both countries also experienced housing slumps in the early 1980s and
early 1990s in response to the second oil crisis and the Persian Gulf War,
respectively.
In Japan, the number
of housing starts built was very high during the late 1980s (the so-called
Bubble-Economy) and in 1996. 1996 was
the first time since the bubble economy
when housing starts increased at double-digit rates over the previous
year. The high number of housing starts
in 1996 has been attributed, in part, to the rebuilding after the 1995 Hanshin
Earthquake in Kobe. The Kobe earthquake
damaged approximately 147,600 houses (Japan Lumber Reports 1995) and displaced
over 400,000 households (Pacific Rim Wood Market Report 1996). There were many new housing starts in 1996
also because homeowners rushed to purchase houses before the Ministry of
Finance increased the national consumption tax from 3% to 5% on April 1,
1997. Since the increased consumption
tax applied to housing construction, consumers wanted to avoid paying hundreds
of thousands of yen in extra taxes.
Figure
15. Comparison of Japanese and US
housing starts, 1965-2000.
Since 1997, Japan's
continuing economic difficulties have had a devastating impact on the country's
housing industry. Thousands of contractors have gone out of business and the
number of new housing starts has declined from 1.66 million units in 1996 to
just 1.23 million units in 2000 (the outlook for 2001 is approximately 1.1
million units). Not surprisingly, the
decline in the number of housing starts has adversely effected US wood product
exports to Japan. Exports of primary wood products declined 53% and secondary
wood products declined 46% from 1996 to 1999.
The impact of the Asian recession and the decline in the number of
housing starts has been compounded by the surprising strength of the yen and
the relative weakness of the Canadian dollar and the Euro. The strong US dollar
compared to the weak yen and Euro has reduced the competitiveness of US wood
products in Japan and European exports of softwood lumber to Japan have
increased dramatically, largely at the expense of US and Canadian hemlock
exports. From 1989-2000, the US share
of Japan's softwood lumber market declined from 48.3% to 5.6% and the Canadian
share decreased from 50.9% to 43.9%. At
the same time, the European market share increased from 0% to 25.1%.
Residential Housing Types
One way that
residential housing can be classified is by occupancy type: single-family
detached versus multiple-family collective housing residences (including
apartments (mansions, or
condominiums) (JETRO 1996a). In 1999,
multi-family homes made up the majority of total housing starts at 50.7%, down
from 53.6% in 1998. Despite this drop,
there is a clear trend towards multi-family residences in densely populated
urban areas. In Tokyo for example,
65.3% of all residences are multi-family.
Throughout all of Japan however, multi-family units comprise only 41.8%
of new construction.
Housing starts can
also be segmented by the type of structural material used (e.g., wood, steel,
or reinforced concrete). Wood has
always been an important part of the Japanese culture and trees were thought to
be the places where the native gods first descended to earth. As a result, wood has traditionally had
strong religious meaning and most temples and shrines are built using wood. The Japanese people are deeply drawn to the
aesthetic beauty, strength, and aroma of wood, and Japanese consumers place a
high value on using wood in their homes.
A survey conducted by the Japanese Prime Minister’s Office showed that,
if given a choice, nearly 80% of Japanese homeowners would prefer to live in a
wood house (Coaldrake 1990).
Residential
construction was dominated by wooden housing well into the mid-1970s,
accounting for almost two-thirds of all housing in 1976 (Figure 16). However, continued growth in multi-family
housing and prefabricated single-family housing has contributed to the
declining share of wooden housing. In 2000 wooden housing represented just over
45% of all housing starts in Japan.
There are three main types of wooden housing built in Japan: traditional
Japanese post-and-beam houses, 2x4 (both Japanese-style and North
American-style), and prefabricated houses.
The 2x4 housing industry has grown within the wooden house segment
(JETRO 1996a; Japan Lumber Journal 1998a). Japanese houses are typically
replaced every 20-25 years and most new homes are built on sites where the
previous home has been demolished (Eastin 1994). Given the poor quality of most of the older post-war housing, it
is generally considered more cost-effective and efficient to demolish older
homes rather than repair or remodel them (Eastin 1994).
Figure
16. Wooden housing starts as a
percentage of total housing starts, 1965-2000.
Financing for new houses is
another way that government and industry associations have segmented the
residential housing industry (Japan Lumber Journal 1998a). The two sources of construction financing
are private and public. Just over 55%
of new homes were financed through public sources in 1999. The remaining homes
are financed through public mortgage lenders, in particular the Government Home
Loan Corporation (GHLC), which provided 37.5% of all mortgage funding in
1999. The GHLC was established by the
government in 1950 to provide low interest mortgages to middle-class homebuyers
(JETRO 1995). The interest rate for
GHLC mortgage loans is well below market interest rates and in April 2001 the
GHLC interest rate was 2.55% (Japan Lumber Journal 2001). The GHLC has strict rules regarding
eligibility criteria for potential borrowers and house size. In 1993, it raised the income ceiling for
eligible borrowers to Ą13.225 million to allow a larger proportion of the
population to qualify for GHLC mortgage loans.
The GHLC also increased the allowable floor space for homes it would
finance from 2,370 ft2 to 2,580 ft2. This resulted in a record 667,118 mortgages
being granted by GHLC in 1994.
Figure
17. Inventory of residential housing
stock by period of construction.
Regulatory Changes in the
Residential Construction Industry
Building Standard Law (BSL)
In May 1998 the
Building Standard Law of Japan (BSL) received its first major revision since
1950. The major revisions to the BSL
were to: (1) specify interim and final building inspections and (2) transform the BSL from a
specification-based building code to a performance-based building code. The first revision of the BSL requires that
all residential housing units receive an interim and final inspection. Further, completion of the interim
inspection is required before a building is eligible to receive its final
inspection. Since there are only
approximately 1,800 building inspectors in Japan, the BSL revisions will enable
private construction inspection firms to be established. To provide guidance to the private
inspection firms, a qualification system and standards has been established
within the revised BSL. In the future,
contractors will be allowed to obtain a construction inspection from either a
private construction inspector or an inspector from the local government
agency. Although the BSL revisions went
into effect in May 1999, given the shortage of inspectors in Japan, and the
fact that many municipalities have not yet adopted the new inspection
procedures, it is only now being phased in.
The second revision
transformed the BSL from a specification-based standard to a performance-based
standard. In the future, it is expected
that any building material that meets the performance standards can be used in
residential construction. While there
is no mention about whether there will be reciprocity on test standards, the
use of foreign test data is allowed in principle. Reciprocity would allow US firms to use the results of product
tests conducted in the US to meet the performance standards in Japan to gain acceptance
of their products. In addition, it is
unclear how this change in the BSL will impact firms that have already gained
Section 38 code approval for their products under the previous version of the
BSL, though a two-year grace period is allowed.
Housing Quality Assurance Act (HQAA)
In addition to
revising the BSL, the Housing Quality Assurance Act (HQAA) was also promulgated
to provide homebuyers with specific safeguards in resolving disputes with
building contractors. The four
objectives of the HQAA are to: (1)
improve the quality and performance of residential homes, (2) provide homebuyers with a mechanism for
resolving disputes with building contractors,
(3) establish a system of “Housing Performance Indication Standards”
against which specific houses can be compared, and (4) establish a housing completion guarantee system. The HQAA, which went into effect in April
2000, will significantly change the nature and structure of the residential
construction industry in Japan, including the specification and use of domestic
and imported wooden building materials.
A more detailed assessment of the individual components of the HQAA is
presented below.
The first objective
of the HQAA is aimed at improving the quality and performance of new homes by
requiring homebuilders to provide homebuyers with a ten-year warranty against
structural defects and low durability (e.g., water infiltration into the
structure). Under the guidelines of the
HQAA, homebuyers may make claims against homebuilders if the structural
performance or durability of a home is judged to be sub-standard relative to a
specific set of judgement criteria (which have yet to be published). These judgement criteria, which are expected
to be published soon as a set of “Judgement Standards for Defects,” will be
prescriptive in nature and likely very detailed. For example, it is expected that a floor found to have a slope
exceeding 6/1000 would require the contractor to level the floor.
There are a number of
implications associated with this first component of the HQAA that are important
to US manufacturers and exporters of wooden building materials. First, many small homebuilders will find it
difficult to provide the requisite ten-year warranty and they will be forced to
either go out of business or become subcontractors for larger, more financially
stable firms. Second, most builders
will look to use higher quality building materials. This trend is already reflected in the fact that the use of dimensionally
stable kiln-dried lumber in home construction, and the volume of new dry-kiln
capacity in Japan has increased dramatically in Japan. Similarly, the use of glulam posts and beams
has increased significantly, providing a tremendous market opportunity for
kiln-dried European lamstock. Finally,
homebuilders may look to manufacturers and exporters of wooden building
materials to provide extended warranties for their products and in essence try
to push the warranty responsibility back down the distribution channel towards
export consolidators and manufacturers.
The second objective
of the HQAA is to establish a mechanism for resolving disputes between
homebuyers and builders. To accomplish
this objective, the HQAA mandates the establishment of Alternative Dispute
Resolution (ADR) bodies in each prefecture in Japan. Each ADR will employ a lawyer to reconcile disagreements between
builders and their customers during the ten-year warranty period. Using the “Judgement Standards for Defects”
as a guide, the lawyer will judge the severity of the defect against the
standard to determine if a defect exceeds the allowable guidelines. If a defect is judged to be in excess of the
allowable standard, the builder will be required to correct the defect or
compensate the homeowner.
The third objective
of the HQAA is to establish a voluntary system of “Housing Performance
Indication Standards” against which the performance of individual houses can be
compared. The specific types of
performance characteristics contained in this provision of the HQAA include: (1) structural performance, (2) fire safety, (3) durability, (4) ease
of maintenance and management, (5)
energy efficiency, (6) air
quality, (7) ratio of exterior openings
to total wall area, (8) noise transmission, and (9) barrier free design.
The performance of individual houses will be judged by a “Designated
Evaluation Body” using the criteria established in the “Japanese Housing
Performance Indication Standards”.
These evaluation bodies will be responsible for approving the
architectural design of the house and they will also perform inspections of the
home during the construction process including the foundation process,
structural framing process, and interior finishing phases of the project. Houses that meet or exceed the performance indication
standards will receive certification that designates it a “Performance
Recognized House”, which will provide the builder with a way to differentiate
their home in their marketing material from those of their competitors.
Finally, the HQAA
includes a provision for a Completion Guarantee System to protect homebuyers
against default by, or the bankruptcy of, their contractor before the home is
completed. Framers of the HQAA included
this provision for two reasons. It is
typical in Japan for the homebuyer to provide financing to the contractor up
front. For example, it is not unusual
for the homebuyer to pay the contractor one-third of the price of the home
before construction begins, with an additional third due after the house has
been framed in, and the remaining funds due upon completion of the house. This system may have worked well in the past
but, given the current economic recession in Japan, a number of contractors
have recently gone bankrupt, leaving homebuyers with partially completed homes
and outstanding payments due on building materials. The aim of the Completion Guarantee System is to provide
homebuyers with a form of insurance so that, in the event their builder goes
bankrupt, funds will be available to complete the construction of their house.
Implications for material specification in residential
construction
The reduced demand
for North American softwood lumber can be partly attributed to the economic
recession in Japan, yet it is not the only, or even the most important,
factor. Perhaps a more significant
factor has been a structural change within the residential construction
industry where builders and precut housing manufacturers prefer kiln dried
softwood lumber. While the Canadian and US softwood lumber industries were slow
to recognize this shift in market preference, softwood lumber manufacturers in
Europe (particularly Finland, Sweden, and Austria) were well positioned to
capitalize on the changing market preference.
European exports of kiln-dried lumber increased from less than 5,000
cubic meters in 1993 to over 2.3 million cubic meters in 2001. In reviewing the trade data, it is apparent
that the success of European softwood lumber came largely at the expense of US,
and to some extent Canadian, unseasoned hemlock lumber. Since 1989, the US share of the Japanese
softwood lumber market has declined from 43% to 5.2% while the European market
share has increased from 0% to 32.5% and the Canadian market share has
decreased from 48.8% to 45%.
The factors that have
caused this strategic change in the residential construction industry are: 1)
the aging and declining number of carpenters in Japan and 2) an effort to
increase the quality of the new homes being built. In response to the decline in the number of carpenters in Japan,
residential contractors have substantially increased their use of precut post
and beam housing kits. In the past,
skilled carpenters cut all the joints and notches for the traditional post and
beam house on the job site. While they
frequently used green lumber to build the house, this was not too much of a
problem because the components were fit together as soon as the joints were cut
and the lengthy construction period required to build this type of house
provided an adequate period for the green lumber to air dry with minimal drying
defects. However, as the number of
skilled carpenters continued to decline, many builders began to opt for precut
house packages where the notches and joints of the structural components are
precut to very exacting tolerances in a factory. Because of the high tolerances required for the joints to fit
tightly together when the house is built, virtually all precut manufacturers
utilize kiln dried lumber to manufacture their components. In fact, a great
majority of them use kiln dried glue-laminated lumber in place of solid sawn
lumber in their manufacturing processes.
In 2001, the number of precut wood frame houses built in Japan exceeded
250,000.
As the demand for
kiln dried glue-laminated lumber by precut housing manufacturers increased, the
Japanese glue-laminated lumber industry struggled to increase their production
capacity. Recognizing an opportunity to quickly penetrate the Japanese market,
European softwood lumber exporters were quick to supply kiln-dried lamstock to
Japanese glue laminated lumber manufacturers.
By providing a high quality, competitively priced product, the Europeans
have rapidly increased their share of the Japanese softwood lumber market. In fact, as the increasing production
capacity of the glue laminated lumber industry began to exceed the demand for
glue-laminated lumber from the precut housing industry, glue-laminated lumber
producers began to promote their products to traditional post and beam builders
as a dimensionally stable substitute for green lumber.
Not only have the
Europeans been willing to provide the Japanese with kiln-dried lumber, but
there is a widespread perception in Japan that the quality of European
whitewood lamstock is superior to North American hemlock and SPF lumber. Furthermore, Europeans suppliers have been
much more willing to meet the specific needs of their Japanese customers than
the Americans or even the Canadians.
For example, a number of Japanese lumber importers have said that their
European suppliers are willing to provide full shipments of specific length
lumber while their Canadian suppliers often require them to purchase a mix of
lengths rather than the specific length they are looking for. Perhaps this difference between the
Europeans and Canadians can be attributed to the fact that European lumber
manufacturers export to a broad range of markets, all of which have different
product specifications. Thus they have learned to be responsive to each
customers’ product requirements and they have learned how to incorporate a
broad mix of products into their manufacturing process. This is a lesson that
North American lumber exporters are going to have to adopt if they expect to
remain competitive in the Japanese market.
The effort to
increase the use of glue-laminated lumber in traditional post and beam housing
was greatly advanced when the Japanese government began a campaign to increase
the quality of new residential houses being built. The government’s campaign to
increase the quality of new homes in Japan culminated in the adoption of the
Housing Quality Assurance Law (HQAL) in April 2000. Since the HQAL was adopted industry observers expect the demand
for green softwood lumber will continue to decline as builders increasingly
substitute kiln dried lumber for unseasoned lumber.
As North American manufacturers
and exporters of wood products struggle
to adjust to changes in the competitive environment in Japan, they are
confronted with two regulatory changes that directly affect the types of
softwood lumber used in the Japanese residential construction industry. The
revised Building Standard Law of Japan and the newly implemented Housing
Quality Assurance Law will significantly impact the structure of the
residential construction industry in Japan, the mix of products that builders
will specify, and the range of services that they will request from suppliers
in the future.
Japanese Imports of Logs and
Lumber
Softwood log imports
into Japan have been generally declining since the mid 1980s, although log
imports have exhibited a significant decline in the wake of the 1997-98 Asian
crisis (Figure 18). This decline
reflects the consolidation within the sawmill sector which has seen the number
of sawmills in Japan shrink from 16,811 in 1990 to just 11,663 in 2000. Since most of these sawmills process a combination
of domestic and imported sawlogs, the consolidation within the sawmill sector
has an adverse impact on softwood log imports.
As a result, softwood log imports have plummeted over 50% since 1996,
dropping from 16.1 million cubic meters in 1996 to 10.6 million cubic meters in
2001.
As illustrated in
Figure 19, the US has absorbed virtually all of the decline in softwood log
imports, with log imports declining from 11.9 million cubic meters in 1990 to
just 3.3 million cubic meters in 2001.
In contrast, softwood log imports from New Zealand, Canada, and Russia
increased modestly over the same period.
The net impact of these trends has been to see the US share of the
softwood log market in Japan cut in half from over 60% in 1990 to less than 30%
in 2001 (Figure 20).
A similar trend has
occurred with respect to Japanese imports of Alaska yellow cedar logs (Figure
21). The US, with a market share of
over 95%, exported almost 170,000 cubic meters of yellow cedar logs in 1990. However, exports had dropped to just over
50,000 cubic meters by 2001. In
contrast, Canadian exports of yellow cedar logs to Japan have increased to over
18,000 cubic meters. Since the Asian
crisis, total imports of yellow cedar logs have increased
Figure
18. Japanese imports of softwood logs
and lumber, 1977-2001.
Figure
19. Japanese imports of softwood logs,
1985-2001.
Figure
20. Market share trends for softwood
logs imported into Japan, 1985-2001.
Figure
21. N. American exports of Alaskan
yellow and western red cedar logs to Japan, 1991-2001.
Figure
22. Japanese imports of softwood
lumber, 1985-2001.
slightly from
approximately 67,000 cubic meters in 1999 to 73,000 cubic meters in 2001.
In contrast, Japanese
softwood lumber imports continued increasing up to the Asian crisis (Figure
18). Since 1998, softwood lumber
imports have recovered somewhat although the decline in housing starts since
1996 has weakened the overall demand for softwood lumber. The decline in the Japanese market for
imported softwood lumber has affected the major supply regions in different
ways (Figure 22). For example, the
strong dollar during the 1990s placed US exporters at a competitive
disadvantage just as Japanese importers began to exhibit price sensitivity for
the first time since the early 1970s (Figure 23). As a result, Japanese imports of US softwood lumber plunged from
3.5 million cubic meters in 1989 to just under 350,000 cubic meters in 1998. With Japanese imports continuing to grow
over this period, Canadian exports increased by 50% to reach almost 6 million
cubic meters in 1997and European suppliers, who only entered the Japanese
market in 1993, saw their exports exceed 2 million cubic meters by 1997 (Figure
22).
Following the Asian
crisis, Japanese softwood lumber imports plummeted from almost 11 million cubic
meters in 1997 to under 7 million cubic meters in 1998. While total imports increased to about 8
million cubic meters in 2001, both US and Canadian exports have continued to
decline. To a large degree, North
American softwood lumber has been displaced by lower priced lumber from Europe
and Russia (Figure 22). The structural
changes in the Japanese market have resulted in the US share of softwood lumber
imports plunging from over 40% in 1989 to less than 5% in 2001 while the
European market share exceeds 30% since their entrance into Japan in 1993.
Figure
23. Relative exchange rates between US
dollar and selected currencies, 1990-2002.
Figure
24. Market share trends for softwood
lumber imported into Japan, 1985-2001.
Figure
25. N. American exports of Alaskan
yellow and western red cedar lumber to Japan, 1991-2001.
While the US is the primary supplier of yellow and red
cedar logs into Japan, Canada supplies the vast majority of yellow and red
cedar lumber (Figure 25). Japanese
total imports of yellow cedar lumber have increased since 1997. This trend has been attributed to the
influence of the HQAA and builders preference for more durable species in
ground sill and exterior applications.
However, as is clearly shown in Figure 25 and Table 5, virtually all
yellow cedar lumber is supplied by Canada.
Yellow cedar imports by Japan can be broken down into two categories:
lumber less than 160mm thick and lumber over 160mm thick. Yellow cedar lumber
over 160mm thick is generally comprised of cants and flitches that are
subsequently resawn into smaller sizes in Japan. Imports of this larger dimension yellow cedar lumber have
declined by over 50% since 1999, Figure 25.
In contrast, imports of yellow cedar lumber less than 160mm thick have
increased since 1999. Lumber in this
category includes green, rough sawn lumber that is used by shoji manufacturers
and as lamstock by glulam beam manufacturers.
It also includes structural components for post and beam homes including
groundsills (dodai), posts (hashira), and mouldings and trim. In addition to the US and Canada, a number
of importers in Japan have reported that that yellow cedar lumber is beginning
to arrive from Taiwan. They noted that
Taiwanese sawmills were beginning to compete against Japanese sawmills for
yellow cedar logs from Alaska and that Taiwanese were able to pay higher prices
for yellow cedar logs. Taiwanese
sawmills, taking advantage of substantially lower labor costs were able to
export yellow cedar lumber to Japan at prices that were often lower than those
of US and Canadian sawmills. While the
volume of yellow cedar lumber arriving from Taiwan is still relatively small at
6,000 cubic meters, it has been increasing
steadily.
Table 5. Japanese imports of cedar lumber from Alaska, by product type,
1993-2001 (m3).
|
|
US
(Alaska)
|
|
Canada
|
|
|
1998
|
1999
|
2000
|
2001
|
|
1998
|
1999
|
2000
|
2001
|
|
Logs
|
|
|
|
|
|
|
|
|
|
|
AK
Yellow Cedar
|
(53,455)
|
(49,604)
|
(63,963)
|
(37,531)
|
|
16,552
|
6,042
|
18,511
|
25,200
|
|
W.
Red Cedar
|
(29,615)
|
(20,160)
|
(29,611)
|
(14,886)
|
|
49
|
3,918
|
7,669
|
5,836
|
|
Lumber
|
|
|
|
|
|
|
|
|
|
|
AK
Yellow Cedar
|
|
|
|
|
|
|
|
|
|
|
Baby
Squares
|
38 (0)
|
97 (0)
|
586 (0)
|
--
|
|
20,213
|
25,862
|
30,713
|
12,930
|
|
Squares
|
--
|
--
|
--
|
--
|
|
6,851
|
6,294
|
5,629
|
5,633
|
|
Waney
|
--
|
--
|
--
|
--
|
|
7,184
|
634
|
--
|
--
|
|
Dimension
Lumber
|
--
|
--
|
--
|
--
|
|
--
|
24
|
--
|
--
|
|
Resaw
|
48 (0)
|
--
|
--
|
--
|
|
1,220
|
2,752
|
40
|
--
|
|
Other
|
931 (0)
|
800 (0)
|
--
|
78 (0)
|
|
192,234
|
178,430
|
224,496
|
220,142
|
|
SubTotal
|
1,017 (0)
|
897 (0)
|
586 (0)
|
78 (0)
|
|
227,702
|
213,996
|
260,878
|
238,705
|
|
W. Red Cedar
|
|
|
|
|
|
|
|
|
|
|
Baby
Squares
|
--
|
--
|
--
|
--
|
|
1,401
|
1,391
|
690
|
430
|
|
Squares
|
--
|
395 (0)
|
--
|
--
|
|
11,036
|
7,287
|
4,771
|
6,961
|
|
Waney
|
--
|
--
|
--
|
--
|
|
--
|
--
|
6
|
--
|
|
Dimension
Lumber
|
83 (0)
|
55 (0)
|
123 (0)
|
--
|
|
3,185
|
3,712
|
4,010
|
2,757
|
|
Resaw
|
--
|
--
|
--
|
--
|
|
1,717
|
1,655
|
1,486
|
910
|
|
Other
|
211 (0)
|
85 (0)
|
73 (0)
|
17 (0)
|
|
36,910
|
40,221
|
43,381
|
34,053
|
|
SubTotal
|
294 (0)
|
535 (0)
|
196 (0)
|
17 (0)
|
|
54,249
|
54,266
|
54,344
|
45,111
|
Opportunities for Alaskan Cedar
Products in Japan
The use of Alaskan
yellow cedar and western red cedar has a long tradition in Japan. Historically these species were initially
used within the temple industry where their durability and high quality were
highly prized. Following World War II
the combination of increasing housing starts and reduced domestic timber supply
created an opportunity for these species within the shoji industry. Red and yellow cedar lumber is used to
manufacture a wide variety of shoji products (including shoji screens,
millwork, trim, and wide ceiling boards) that are used in the traditional
tatami room. (The tatami room may be where the family
gathers, or it may serve as a bedroom at night. A tatami room is sparsely furnished, creating a sense of
spaciousness and simplicity in a land where space is bought at a premium.) These
end-uses generally required high quality lumber produced from the heartwood of
large diameter, old growth logs. While
the prices for this high quality lumber were quite good, sawmills were left
scrambling to identify markets for the lower quality lumber and lumber with
sapwood or included pith. These
challenges have deterred some manufacturers from participating in the Japanese
market. In addition, North American
producers have generally responded to the Japanese market opportunity
differently. This section will evaluate
the market opportunities for Alaskan yellow cedar and western red cedar in
Japan and discuss strategies for competing in niche markets.
Residential Construction
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 extensive coverage within the Japanese media and, while it
is primarily attributed to off-gassing of VOCs 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 discontinue their use of pressure
treated wood.
The combination of
these two factors provides US, and particularly Alaskan, sawmills with a unique
opportunity to increase the demand for yellow cedar lumber in both the post and
beam as well as the 2x4 segments in the home building industry. However, capitalizing on this opportunity
requires that US manufacturers understand the specific needs and technical requirements
of residential builders in both of these housing segments. In particular, lumber manufacturers must
recognize that unique product specifications required in both the post and beam
and the 2x4 segments of the industry and be willing to supply lumber products
that meet Japanese builders needs and specifications.
The Post and Beam Market Segment
Builders use of
individual species for specific end-uses have changed substantially since 1998,
Table 6. For example, the use of
hemlock dodai dropped from 72% to 36% from 1998-2001 while yellow cedar use
jumped from 11.2% to 23.1 percent over this period. Similarly, the use of glue laminated lumber for dodai increased
from 0.2% to 15.9%. It is estimated
that about 40-50% of the glulam dodai utilize yellow cedar lamina with the
remainder being split between hemlock, radiate pine, and European red
pine. A recent survey of precut post
and beam manufacturers found that yellow cedar lumber was used for 22.9% of
solid sawn dodai, 7.2% of glulam dodai, 1.6% of kudabashira (3 meter wall
posts) and 1.6% of toshibashira (6 meter wall posts), Table 7. The location of these structural components
are illustrated in Figure 26 while the technical specifications and approximate
volume used per home are provided in Table 8.
Table 6. Changing
ground sill (dodai) material use within the post and beam industry.
|
Product
|
Species
|
2001
|
2000
|
1999
|
1998
|
Change '01/'98
|
|
Sill
Plate
|
Hemlock
|
36.0
|
37.5
|
54.5
|
72.1
|
-50%
|
|
(Dodai)
|
Yellow cedar
|
23.1
|
17.8
|
19.5
|
11.2
|
+106%
|
|
|
Cypress
|
13.1
|
19.0
|
9.3
|
11.3
|
+16%
|
|
|
Glulam
|
15.9
|
12.9
|
6.0
|
0.2
|
+785%
|
|
|
Others
|
11.9
|
12.8
|
10.7
|
5.1
|
+133%
|
Source: Japan Lumber
Reports 2002, No. 366
Table
7 Summary of Alaskan yellow cedar use
within the Japanese pre-cutting industry, 2000.
|
|
Dodai
|
Dodai (EW)
|
Kudabashira
|
Toshibashira
|
|
% YC specified
|
22.9%
|
7.2%
|
1.6%
|
1.6%
|
|
Lumber use per home
|
0.8 m3
|
0.8 m3
|
1.2 m3
|
0.5 m3
|
|
Reported annual material use
|
43,292 m3
|
14,092 m3
|
3,044 m3
|
1,377 m3
|
|
Potential annual material use
|
140,698 m3
|
45,814 m3
|
9,893 m3
|
4,476 m3
|
