Vietnamese wood and wooden furniture enterprises are currently facing difficulties from the cancellation of orders by customers, because of inflation in countries such as the US and the EU and the sharp increase in input material costs.
In fact, Vietnam’s wood industry is seeing declining sales overseas. The export value in July was estimated at US$1.41 billion, down 5.5% against June and down 1.6% year-on-year according to a report of the General Department of Forestry under the Ministry of Agriculture and Rural Development (MARD). This was the second month that the export of wood and timber products decelerated.
Earlier, figures from the General Department of Customs showed exports of wood and wood products in June were down nearly 11% year-on-year. Through the first seven months of the year, wood and wood product exports were $10.4bn, up just 1% year-on-year.
According to market insiders, the wood industry will face a big challenge due to a decline in export orders in the latter half of this year.
A quick survey of 52 timber businesses conducted by the Vietnam Timber and Forest Products Association (VIFORES) in collaboration with Forest Trends showed that most companies witnessed decreasing revenues in the US, EU and UK markets.
Thirty-three out of 45 firms exporting to the US said their revenues decreased by nearly 40% compared to the first months of this year. A similar trend is seen in the EU and the UK, with two-thirds of the surveyed enterprises reporting revenue drops of over 41%.
Moreover, about 71% of businesses said that orders will continue to drop towards the end of the year. Under the current market situation, 44% of businesses expect revenue will fall by over 40% for the whole year.
Phùng Quốc Mẫn, general director of Bảo Hưng Wooden Furniture Export Company, said the number of orders cancelled in July was more than 30%. In response to the decline in purchasing power in the EU and the US markets, business is looking to boost furniture exports to Japan and South Korea where inflation has had less of an impact than in other countries.
There are also a few businesses that have turned to the domestic market to maintain production, according to Mẫn. Vietnam’s wood industry is integrated with international markets so high inflation and tightening credit policies in major markets is driving down demand for non-essential products including wood and wood products.
High inflation in major markets such as the US, EU and UK is having a direct negative impact on the production and business activities of wood processing enterprises. They are currently facing many difficulties in terms of capital, labour costs and input materials.
Switching or finding new markets is not easy, but this helps wood and wooden furniture manufacturers to minimise losses when a series of orders are delayed, reduced, or even canceled by international partners, Mẫn said.
In addition, to reduce the import price of raw materials to increase competitiveness, experts said wood businesses should diversify their supply of timber, reduce the proportion of imports from tropical countries and increase the proportion from low-risk sources.
Vietnam has become the world’s sixth largest exporter of wood and wood products, the second largest in Asia and biggest in the South East Asia and this has attracted scrutiny from major trading partners.
Besides sourcing locally, Vietnam also imports timber raw material from tropical countries. The volume of tropical wood imported annually is around 1.5 million cubic metres or 30% of total imports, mostly from Africa.
According to the General Department of Customs, despite the impact of the COVID-19 pandemic, exports of wood and wood products grew by 18% last year to $14.12bn. Vietnam is targeting $20bn in total timber exports by 2025, an increase of more than $9bn compared to now.
The value of timber and wood products for domestic consumption will reach $5bn in 2025 and over $6bn in 2030.
The industry aims to have more than 80% of wood processing and preservation establishments equipped with advanced technology and all timber and wood products for export and domestic consumption aims to be made from verified legal raw material.
By 2030, the domestic wood processing industry will become an important economic sector and develop a reputable brand for Vietnamese wood products in domestic and export markets.
Another task of the industry is to develop infrastructure and expand production scale. Specifically, the industry will form five forestry zones with high technology applications to attract investment from wood processing enterprises and enterprises producing auxiliary materials.
Vietnam also plans to build an international furniture exhibition centre and encourage the development of research centres to design wood products.