Hanoi (VNS/VNA) - While many products exported to the UKenjoyed strong increases thanks to the UK-Vietnam Free Trade Agreement(UKVFTA), Vietnam’s timber industry is facing difficulties in expanding in thismarket, requiring manufacturers and exporters to change their businessstrategies.

In fact, Vietnam’s wood industry is seeing declining salesoverseas.

The export value in July was estimated at 1.41 billion USD, down5.5% against June and 1.6% year-on-year, according to a report of the GeneralDepartment of Forestry under the Ministry of Agriculture and Rural Development(MARD).

This was the second month that the export of wood and timberproducts decelerated.

Earlier, figures from the General Department of Customs showed theexport turnover of wood and wood products reached 1.4 billion USD in June, downnearly 11% year-on-year. Ending July, wood and wood products were exported torake in 10.4 billion USD, up just 1.3% year-on-year.

Declining export orders

According to market insiders, the wood industry will face a bigchallenge due to a decrease in export orders in the latter half of this year.

A quick survey on 52 timber businesses conducted by the VietnamTimber and Forest Products Association (Vifores) in collaboration with ForestTrends showed that most companies witnessed decreasing revenues in the US, EUand UK markets.

Thirty-three out of 45 firms exporting to the US said theirrevenues decreased by nearly 40% compared to the first months of this year. Asimilar trend is seen in the EU and the UK with two-thirds of the surveyedenterprises reporting revenue drops of over 41%.

Moreover, about 71% of businesses said that orders will continueto decrease towards the end of the year. Under the current market situation, 44%of businesses expected their revenues will fall by about 44% for the wholeyear.

According to Vifores Chairman Do Xuan Lap, Vietnam's wood industryis integrating deeply with international markets so high inflation andtightening credit policies in response to rising inflation in major markets isdriving down demand for non-essential products including wood and woodproducts.

“High inflation in major markets such as the US, EU and UK ishaving a direct negative impact on the production and business activities ofwood processing enterprises. They are currently facing many difficulties interms of capital, labour costs and input materials,” Lap said at the industrymeeting last week.

New opportunities in the UK

Wood and timber product export to the UK still enjoyed an increaseof 14% to 72 million USD in the first three months of 2022 but sales to thismarket are also declining as consumers are tightening their spending.

The June export value declined 38% year-on-year to 16.3 million USDand in the first half, the reduction rate was 7.7% at 135.5 million USD, datafrom Vietnam's customs agency showed.

Like other parts of the world, inflation in the UK hit a 40-yearhigh of 9.4% in June as food and energy prices continued to soar, worsening thecountry’s historic cost-of-living crisis. The Bank of England has implementedfive consecutive 25 basis point rate hikes to cool high inflation and isconsidering a 50 basis point hike at its August policy meeting.

According to David Hopkins, chief executive of Timber DevelopmentUK which represents all timber importers and suppliers in the country, the UK’simport of wood and wood products used to rise in the first quarter as merchantsstart to rebuild stocks after the winter and tend to slow down at the end ofthe year due to cold weather and holiday seasons.

The UK’s economy is now coping with high inflation, high interestrates and big logistics challenges due to Brexit and the Russia-Ukraine conflictwhich is pushing up the freight cost.

So far, Vietnam’s predominant timber export to the UK is furniturebut Hopkins sees another opportunity for Vietnamese exporters in niche areassuch as plywood.

Hopkins said there was huge price inflation in timber products,but noted the demand for this commodity is still strong, especially in thesector that is expected to grow such as the construction of warehouses andlightweight industrial buildings.

“There are big opportunities for plywood from Vietnam,” Hopkinssaid, noting there are not a lot of the Vietnamese products being used there,but if the construction sector can maintain positive growth, there's alwaysdemand for timber products, and “that's a good opportunity for Vietnameseexporters”.

For furniture products, Hopkins said demand is expected to declinein the next two years after a boom in housing repair and maintenance during thepandemic before it can bounce back. This trend will likely happen in the US andthe EU which are also suffering from high costs of living.

The bilateral trade between Vietnam and the UK is increasingthanks to the UKVFTA, especially tariffs on wood and timber products will beeliminated within five years (raw wood currently has a tax rate of 2-10%).

However, to compete and expand sales in the UK, Hopkins suggestedVietnamese manufacturers and exporters invest in marketing and promotion toenhance awareness among UK consumers about Vietnamese products.

The concepts of legality and sustainability are important forconsumers in the UK and are backed up by legislation.

"The fact that buying goods from Vietnam has a very low riskof illegality is a really positive story," he said, emphasising thatpromoting this concept is very important not only in the UK but to other customersof Vietnam around the world./.