The Teak Lumber Company

The Myanmar teak trade is structured into teak logs, conversions and semi-finished and finished products. It operates through a buyer and seller system and the seller uses the services of a trusted agent; the agents role and duties are described, including up to the payment arrangement. Importers buy “blind” with wholesale purchases, or sales are made to “direct buyers” who may be speculators. In the European Union, 75% of teak goes to boat building (an essential end use outlet); 15% to prestigious homes and office blocks and the balance to flooring and odd furniture. Sales are of detailed specifications to small traders, boat builders, contractors, flooring plants and furniture manufacturers. A wide stock range must be maintained, boards, small and large scantling and the famous decking. The emphasis must be on the best quality. In view of high world demand, the Myanmar Timber Enterprise (MTE) must step up production but MTE must have access to quality logs. Regional sawmill competition for logs causes difficulty in supply, and this will increase demand on Myanmar production.

Availability of a range of sizes is essential. It is considered that long term “buyers” should have preference in supplies. In the future some teak will come from plantations outside of the region, considered of lower quality and perhaps without the appropriate conversion technology, though this is expected to change. It is most important that environmental concerns be addressed because by the year 2000 certification of forest origin will be required. The structure of the teak (Tectona grandis) trade may vary slightly from country to country but in general this structure is defined by the characteristics of the principal supplier of products, products themselves (in this case they are teak logs, conversions, semi and finished products), and traders. The trade has two principals: the “seller” and the “buyer” at all levels. A trader plays double functions as a buyer and a seller. A trader decides in which market he would like to buy and sell his goods.The teak trade is international by its nature, thus traders are also international. Such a trader usually need to have a specialized representation (agent) at the buying and selling (= trading) points. In the teak trade, it is essential for traders (as buyers) to have a reliable local agent familiar with the intricacies and particularities of the teak market that is very fluid nowadays. The traded products arrive at the final consumer market through this mechanism.A trader (= a buyer) and its agent have to work closely together to realize the maximum potential of the supplier. A strategic marketing plan is, therefore, developed between them. It is essential for a successful business that this representative can earn a trust with the supplier through the years working relationship.

 

ROLES OF AGENT IN TEAK TRADE AND MARKETING

The position of an agent is not without difficulties. The agent has a primary responsibility for satisfying the supplier principal (the Myanmar Timber Enterprise under the Ministry of Forestry) and the trader (= the buyer). He needs to get the best prices and look after his principals’ interest, and at the same time to support the buyers so they will continue to pay the best prices to the supplier. Diplomacy is an essential tool of the agent’s trade.In our case, the agent has the following roles:

    * Obtaining the maximum potential value for the principal’s production.
    * Promoting the principal in the market place.
    * Ensuring the principal’s penetration into the market.
    * Keeping the principal updated with market information.
    * Ensuring that goods sold goes to reliable buyers; the agent should not sell to Tom, Dick and Harry as this will cause a depreciation of the product sold into his market. These reliable buyers are classified as reliable ethically business-wise, and certainly also credit wise.
    * Absorbing a heavy workload by coordinating the business at his end including finding fair solutions to the satisfaction of all parties to any problems that might occur.
    * Last but not least the Agent is responsible for payments to be made to the seller. In some countries, such as Myanmar, these payments are made through Letters of Credit (L/C). Where our market is concerned, 90% of our business is done on the basis of Cash Against Documents (CAD).

FEATURES IN MYANMAR TEAK TRADE

Briefly and simply our marketing trade views follow. In the Netherlands, 75% of teak wood goes into our world famous boat building industry; 15% into the house building construction sector - prestigious private homes and office blocks - and the balance into some flooring and odd furniture - odd because the teak wood garden furniture boom was missed by our local manufacturers. The bulk of this furniture is manufactured in Indonesia, Thailand and a growing percentage in Myanmar.For those not familiar with the trade I need to add that in whatever way a buyer pays, he buys prior to having seen the goods, though the unique tendering Myanmar teak log sales system is an exception. In general the buyer pays “blind”. He cannot inspect the goods prior to loading therefore pays in full trust. One should never forget that a serious long term marketing concept also serves as a protection to those who have invested in the goods sold by the seller. This certainly applies with teak wood.Does all the trade go through agents? No, it does not and I will limit my comment to the practice here in Myanmar. Over the years we have seen a development where some buyers are classified as “direct buyers”. On the log tendering system this is understood; also on logs, and typically on veneers, individual interpretations of the perceived value to a particular buyer demands personal inspection. Some people do question the fact that anyone can put in a bid. This means the logs can become the property of traders who purely speculate, and who do not contribute within the earlier mentioned marketing plan.With regard to conversions I have always objected to the so-called “direct buyers”. The key to proper marketing at our end, particularly on a highly valuable product like teak conversions, is to avoid false competition and at the same time, treasure a balanced situation between the various buyers. If a country only knows one particular teak specialist then I understand the idea that, that particular company could become a “direct buyer”. The further comments relate to conversions.Each and every teak conversion buyer is investing a vast capital in his stock position; this applies particularly in teak due to: the price set system, the complicated supply line and the wide variation of sizes required to serve his many customers. In my country, and I know this applies to several countries, we see teak wood importers are highly specialized. If a particular importer loses a customer to “direct buying” the importer serving the total market would obviously stock less and the mass market of small customers, so vital to the trade, would suffer.Our importers service their market by selling on a day to day basis on very detailed specifications to small traders, boat builders, flooring plants and furniture manufacturers. Saying this you will all realize that having these many applications, the stocks have to consist of all sizes; boards, planks, small and heavy scantlings and not to forget the famous decking sizes. All of these, but only in the very best quality. We do not have a market for secondary grade teak wood. If we did, Europe would not be buying in Southeast Asia.I think that all the European buyers are fully aware that we ask for the best quality and a large variation of sizes - causing difficulty to the mills if they do not obtain quality logs. On the other hand by buying a wide range of sizes and paying the price for it, the maximum output is obtained by the Myanmar Timber Enterprise (MTE). We, importers and customers appreciate the loyal service we have received over the many years (our company, MTI) and the former STB and now MTE have always seen the great importance of maintaining a flow of conversions to northern&southern Europe, as we buy without fail. It is important that MTE maintains this position.

CHANGING TRADING PATTERNS

Past

I can well remember the time the trade had an option between Burmese, Indonesian and Thai teak. Was there at the time any preference? What played an important role?

Our boat building industry has throughout this century insisted (if available) on the superior teak wood from either Myanmar or Thailand. This applied mainly to the decking application. The experience has been that the teak from these resources splinters less than the Indonesian material. The rich oil content was, and still is, favoured. In all other applications, like door manufacture, furniture, flooring and the earlier mentioned projects, these were not criteria.

But the supply dried up. Thailand imposed their export ban in 1978/79. Indonesia decided to use their teak wood for their own industries. Locally in Myanmar, a large production capacity existed, logs and conversions remained available. Both have been serving the world market, so that their supply has become in short. It may be observed that with the relatively low price for conversions in comparison with log values there has been a temptation to overly concentrate on log export.

Concurrently, outside mills in Hong Kong, Singapore, Bangkok and other places have done well by accepting special orders from traders the world over, usually for quick supply. A large percentage of these orders I would classify as “back to back” orders. As our company is an official representative for the MTE we have always been given the so called first option to contract over here. The “projects” however stipulate a guaranteed delivery time and were forced to be covered outside Myanmar. As a consequence, Myanmar missed out on this valuable high priced business.

Present

The situation in Indonesia has not changed. High quality teak conversions are obtained from Thailand, generally processed to semi finished products. From Hong Kong and Singapore a supply of rough sawn material still exists. However, with the substantial increases in log prices, it is recently seen that mills outside Myanmar operating on the tender log supply have difficulties with production. Often production cannot be run continuously; they have difficulty in making quotations, other than calculated on ready stock, or on shipments in three months.

In my opinion this means more and more people will turn to Myanmar for supply. It is therefore generally hoped that MTE will be able to step up production to feed this demand. It is also to be hoped under the circumstances “odd” new buyers are not fed with contracts. Those who have supported this market so long should obtain first, second and third option!! Here I come to a crucial point; many industries as I mentioned earlier, demand nothing but the best teak wood; the applications simply require the very best; the volume we require in the highest quality cannot be the obstacle, nor the variation in sizes we require - if the mills obtain a supply of the appropriate logs.

If the supply is not continued, buyers will be forced to go elsewhere. The question is “Where can they go?”

Future

Teak has been planted in many other regions of the world: east and west Africa and all over Latin America. Teak flourishes on many continents, but are we talking about the same valuable Tectona grandis as we know it for southeast Asia? In the EEC, plantation teak outside southeast Asia has been officially classified as not having the same durability as the “original” teak wood and are given Durability Class 2 and 3 as against Class 1 from southeast Asia.

But, does this make this other teak wood so much less valuable? Many manufacturers have experienced that teak wood from other countries does not have the same properties as the teak they have been used to. I have seen some of this material but cannot speak from wide personal experience. The main differences are: fast grown so coarse/soft textured; wide sapwood; knotty; considerably less oily texture. So, if the MTE keeps supplying high quality and large sizes and decking, we will be fortunate as our boat builders will not be able to use this plantation wood.

However, mills produce much more in a lower quality and need to sell this. I have observed with concern that those countries requiring small scantlings for furniture manufacture are testing all these other sources. They do experience problems as apparently these other countries do not yet have the expertise how to treat a teak tree and turn it into stable wood. It is a matter of time and the proper way to process these logs will be found and they then will successfully market their conversions. There is wide opinion that this teak wood can be used for many purposes where small and short specifications can be applied.

Crystal balling into the future I foresee that it will be our function more than ever before, to define the differences and the different properties and values. When these other available resources come on stream they will set a ceiling to the world price level for the sizes they can produce. It would be wise not to wait and see when that will happen. Those buying furniture sizes are all on the move to see where they can obtain lower prices and regular supply. It would also be wise to try and make a distinction between the various market requirements. Yes, for the specifications we require in our market the Netherlands, we can afford higher prices as our applications are so very special.

ENVIRONMENTAL CONCERNS

There is a concerned environmental movement in the world with emphasis on forest conservation and its management. The world is looking into each others gardens with genuine concern. This is not only directed to rain forests, all forests are examined. Without any doubt the year 2000 will entail some sort of certification required by many consumer countries. Our government is well ahead in entering a joint exercise with Indonesia, Malaysia, Gabon and Cameroon in Africa.

I personally value the world’s genuine concern of the forests; after all I am allowed to trade in wood, only if my children and theirs can do the same. When making a brief observation with a group of experts on the well being of Myanmar forestry in 1992 we made one suggestion to the Minister of Forestry: “Let the world see”. I was thrilled to hear that within that particular week back in 1992 decisions were made and steps were to be undertaken. The ITTO is a non-political body and has open doors in consumer countries and is an excellent way to expose yourself to the world. Also this Seminar is another step.

CONCLUSIONS

1. Stability in price and availability is essential for future consumption. This applies in particular to general and non special sizes.

2. It should be emphasized that the world now has different qualities of teak wood.

3. All forest production should be integrated with concerns of the environmental movement; the teak tree deserves this.