POTENTIAL EFFECT OF INTERNATIONAL PHYTOSANITARY STANDARDS ON Use of WOOD PACKAGING MATERIAL

Transcription

1 POTENTIAL EFFECT OF INTERNATIONAL PHYTOSANITARY STANDARDS ON Use of WOOD PACKAGING MATERIAL Timothy M. Smith 1 ; Mike Reichenbach 2 ; Sergio A. Molina Murillo 3 ; Robert Smith Folwell Ave; St Paul, MN USA. Assistant Proffesor, Marketing, Interim Director, FPMDI. Department of Bio-based Products, Unversity of Minnesota, timsmith@umn.edu University Rd. Cloquet, MN 55720, USA. Extension Educator/Associate ProfessorCloquet Forestry Center, University of Minnesota, reich027@umn.edu Folwell Ave; St Paul, MN USA. PhD Student, Associate Researcher, FPMDI. Department of Bio-based Products, Unversity of Minnesota, sergiomolina@umn.edu 4 Mail Code 0503, 1650 Ramble Road, Blacksburg, VA Associate Professor, Virginia Tech, Brooks Forest Products Center rsmith4@vt.edu Keywords: pallets, wood, phytosanitary, packaging, exports, pest. This research was supported by founds provided by the US Department of Agriculture, Forest Service, Wood Education and Resource Center and the Limestone Bluffs RC&D, Inc. ABSTRACT The implementation of ISPM 15 Guidelines for Regulating Wood Packaging Material (WPM) in International Trade may create challenges and impacts that include increased pallet prices, reduced use of low quality hardwood lumber, and substitution of solid wood packaging by other materials. Many of these impacts will be driven by packaging buyers and not by the WPM manufacturers with repercussions affecting the hardwood lumber industry, private woodland owners, and forest-based communities A survey of 1200 exporting companies was conducted. Results indicate that between 60 and 70 million wooden pallets are used in exportation by U.S. companies. Pallet strength and price are the most important attributes associated with pallets used for export. These respondents do not anticipate the new treatment standards to result in increased purchasing of substitute materials. As more buyers become aware of the standards, such buying behavior should be monitored. While, results represent user attitudes prior to the implementation of new standards, respondents to the survey do not appear predisposed to the purchase of substitute materials.

2 INTRODUCTION To reduce the spread of pests, on March 15, 2002, the Interim Commission on Phytosanitary Measures, the governing body of the International Plant Protection Convention (IPPC), developed an international standard for phytosanitary measures called Guidelines for Regulating Wood Packaging Material in International Trade (ISPM 15). Implementation was suspended until mid 2003 because copyright issues with the wood packaging mark, however these standards are expected to be implemented by the 128 countries over the next several years. Implementation of the standards in the U.S. is set to begin on September 16, 2005, and the EU announced implementation for March These standards have been speculated to negatively impact the U.S. wood pallet industry as manufactures increase prices to offset increased wood treatment costs. Resulting demand shifts stand to impact not only pallet manufactures, but larger lumber and stumpage markets as well. The pallet industry uses approximately 4.5 billion board feet of hardwood lumber and 1.8 billion board feet of softwood lumber for the production of 400 to 500 million solid wood pallets annually (North Carolina DNR 2003; Bush and Araman 1997; USDA APHIS 2003). In order to gain a better understanding of packaging buyers needs and attitudes, we conducted a survey with the following objectives: (1) Gain insight into the role of wooden pallets in the international supply chain (i.e., the amount of WPM used for export); (2) explore competition from alternative materials (e.g., plastic/metal) and channels (e.g., pallet management and/or leasing companies) potentially benefiting from ISPM 15; and (3) better understand customer requirements of WPM and the impact of the ISPM 15 in their future business strategy. Solid Wood Packaging and Treatment Requirements Many countries have agreed through these standards to require all solid wood packaging used in export to be subject to treatment. The standard affects only non-manufactured wood pallets or packaging. It does not affect pallets or crates made entirely of manufactured wood products, such as plywood, composite, waferboards, oriented strand boards Under the standard, all wood packaging, both coniferous and non-coniferous must be either heat treated or fumigated with methyl bromide. For heat treatment, wood packaging material must be heated so that the internal temperature of the largest piece of wood reach and retain a temperature of 56 C for a minimum of 30 minutes. For fumigation the wood packaging material must be fumigated with methyl bromide according to a treatment schedule published in the IPPC standards. To show that the packaging has been treated it must be stamped on at least two sides with a certification stamp (Fig.1).

3 All marks should, at a minimum, include the following: IPPC symbol. The XX represents the ISO two letter country code. United States - US. The 000 is a unique number assigned by the NPPO to a producer of wood packaging material. The YY designation is the IPPC abbreviation for the treatment used. HT -- heat treatment and MB -- methyl bromide. Figure 1 - IPPC Certification Stamp National Plant Protection Organizations Each of the 128 signatory nations has a National Plant Protection Organization (NPPO) that is responsible for implementing the standards for treatment and inspecting incoming shipments. In the United States the NPPO is the USDA Animal and Plant Health Inspection Agency (APHIS). APHIS has memoranda of understanding with the American Lumber Standards Committee (ALSC) and the National Wooden Pallet and Container Association (NWPCA) to conduct the certification program. ALSC has contracts with 11 private agencies for certification and auditing of facilities engaged in the heat treatment of solid wood packaging. The National Wooden Pallet and Container Association has contracts with 3 agencies for the certification and auditing of facilities engaged in fumigation of solid wood packaging. Lists of the accrediting agencies may by found at the websites of the ALSC. and NWPCA National Plant Protection Organizations (NPPOs) have the responsibility for implementing the IPPC standards within their own countries. Therefore each country will have its own implementation dates. In the United States implementation will begin on September 16, To locate information on the dates of implementation the IPPC has a website

4 The Pallet Industry in the United States Pallets are a universal and critical part of product transportation in the United States economy. The ten most common commodities transported on wood pallets are machinery, electrical machinery, optic and medical instruments, woven apparel, knit apparel, furniture and bedding, toys and sports equipment, plastic, footwear, and leather goods (USDA APHIS 2003). Forty percent of all hardwood lumber produced in the United States is made into solid wood packaging. The pallet industry uses approximately 4.5 billion board feet of hardwood lumber and 1.8 billion board feet of softwood lumber for the production of 400 to 500 million solid wood pallets annually (North Carolina DNR 2003; Bush and Araman 1997; USDA APHIS 2003). It is estimated that approximately 171 million of these pallets are recycled or used as fuel (Hekkert, Joosten, Worrell 1998; Reddy et al. 1997). This reduces the need for the use of 2.6 billion board feet of lumber. (Scheerer, Bush and West 1996). The USDA APHIS (2003) reported that total number of pallets used in export was 10 million units or 2.5% of the total United States annual production of 400 to 500 million pallets. METHODOLOGY A mail survey was developed and administered from September to November 2003 using as reference the Tailored Design Method (Dillman, 1999). A sample of U.S. exporters was developed from the 2003 Directory of U.S. Exporters, published by Commonwealth Business Media (2002) and cross-referenced with the top 100 exporters listed by the U.S. Port Authority. The survey sample consisted of the top 600 exporters of containers (i.e., 20 feet in length) and a random sample of 600 of those remaining firms (small and medium exporters) that shipped more than 20 containers per year, resulting in a total sample of 1200 companies. Two questionnaires and a post card were mailed to all companies, phone calls were made to all non-respondents and the questionnaire was faxed to those who indicated they would respond. These various efforts resulted in a total adjusted sample frame of 770 companies, with a final adjusted response rate of 4.7 percent. Although significant results were found at 95 percent confidence level, we suggest interpreting the results with caution due to low response rate.

5 RESULTS Profile of companies The survey respondents represented a wide variety of industries. These include: metal/glass/automotive (20%); agriculture (17.14%); food/grocery (17.14%); wood products (11.43%); chemicals (11.43%); clothing (5.71%); construction (5.17%); and other (11.43%). Respondents reported total value of export shipments of $1,161 for the top 600 exporters and $112.9 millions for small to medium sized exporters; and the average number of employees reported was 2,638 for the top 600 exporters, and 501 for the small and medium sized exporters. Wooden pallets and other packaging products Pallets account for nearly 80 percent of all packaging used by both small and large exporters, and on average 90% of the pallets are made of solid wood. The top 600 companies purchase, on average, 87,226 wooden pallets per year, of which 24,922 are used for exporting activities (28.6 percent). Small and medium exporters reported purchases of 31,739 pallets each year, on average, with only 11.9 percent (3,779) used for export. Only the large companies reported being engaged in leasing pallets, representing 2.3 percent of their total number of pallets used, and utilize them only in domestic shipments. Estimation of U.S. wood pallets exported Two approaches were employed to estimate of the total number of wood pallets exported by U.S. companies.. The first estimate is based on survey responses of pallet purchasing behavior, which is extrapolated to reflect total purchases of the industry (i.e., 15,465 companies in the study population). Total annual purchase of wooden pallets using this method is estimated to be million, not including military shipments (Table 1). The second method estimates wooden pallets exported by examining container shipments (TEUs) and uses the 2003 Directory of U.S. Exporters to determine the number of containers shipped. Adjusting for the percentage of containers not containing pallets, and for those pallets not made of solid wood, the estimate of total wooden pallets used for export was million. Given the convergence of these two methods, we estimate wooden pallet exports of 64 million to 71 million pallets.

6 Table 1- Estimation of U.S. total wood-pallets for exporting activities. Top 600 SMEs Total METHOD 1: Average number of pallets purchased for export 24,992 3,779 Total Small to Medium sized exporters (SMEs) 14,865 Total Wooden Pallets Exported Method 1 14,953,200 56,174,835 71,128,035 METHOD 2: Total TEUs (containers) exported 2,295,262 71,693 2,366,955 Percentage of containers with pallets TEUs (containers) containing pallets 2,056,096 55,820 2,111,916 Average number of pallets in each container Total number of pallets used in export 42,663,992 1,109,143 43,773,135 Percent of pallet purchases that are wood Total wooden pallets exported by SME sample (n=600) 964,955 Average pallets exported per SME company (n=600) 1,608 Total Small to Medium sized exporters (SMEs) 14,865 Total Wooden Pallets Exported Method 2 39,677,513 23,906,754 63,584,267 Pallet characteristics and Purchaser preferences Respondents were asked to rate the importance of eighteen attributes of pallets (Table 2). Statistically (p-value=0.05), strength of pallet was considered the most important attribute influencing purchase decisions, followed by pallet price, treatment to meet IPPC standards, and pallet material. Those considered least important, were ability to lease, ability to re-use, fire resistance, maintenance, and nestability for compact storage. Respondents were also asked to rate the performance of wood pallets, in an export environment, on the same eighteen attributes. Strength, price and overall value were perceived significantly positive (p-value= 0.05) along with the height of the pallet, its style, and weight. Respondents indicated that wood pallets were not well suited for the following attributes: nestability, resistant to fire, and the ability to lease.

7 Table 2- Importance and performance of export pallet attributes. Importance Performance of Wood Pallets N Mean 1 s.d. Sig. 2 N Mean 3 s.d. Sig. 4 Strength Price Treated to meet IPPC Pallet Material Style Pallet Height Free of Government regulations Pallet eight Impact of pallets on the environment Stackability Payment terms Moisture Resistant Recyclability Nestable for compact storage Maintenance Fire Resistant Reuse Ability to lease Overall Value Respondents were asked to rate the importance of all attributes of pallets in a 1 to 7-point scale, where 1 equals Not important at all and 7 equals Very important. 2 All attributes with p-values of 0.05 or less, received a score significantly different than the neutral value of 4, in the 1 to 7-point importance scale, using one sample t-test. 3 Respondents were asked to rate the performance of wooden pallets in all attributes in a 1 to 5-point scale, where 1 equals Poor performance and 7 equals Excellent performance. 4 All attributes with p-values of 0.05 or less, received a score significantly different than the neutral value of 3, in the 1 to 5-point performance scale, using one sample t-test.

8 Impact of the international standards on packaging users Importance: these attributes were analyzed statistically to determine any significant differences from the average value. For those attributes with statistical significance, strength of pallet was considered the most important, followed by pallet price, treated to IPPC standards, and pallet material. Those considered least important, statistically, were ability to lease, followed by re-use (life cycle), fire resistance, maintenance, and nestable for compact storage. Performance: The seventeen attributes were also analyzed to determine respondent perceptions about wood pallet performance (from poor to excellent ). Statistical significance showed that strength, price, height, style, and weight were perceived positively. Statistically significant negative perceptions of pallets included nestability for compact storage, fire resistance, and ability to lease. Perceptions: Statements regarding the possible impact of the new IPPC standards were also rated by respondents in this study. Respondents held no significant opinion of six of the ten statements (mean values not significantly different from the neutral value of 4 on a 1 to 7-agrement scale, at the 95 percent confidence level). Of the ten statements rated by respondents, only four were statistically significant and were rated as NOT resulting in: The purchase of more non-wood pallets. Seeking out new non-wood suppliers. Leasing more packaging materials. Investigating the use of non-wood pallets. DISCUSSION Export packaging customers, as evidenced by the low response rate to the survey and comments received, are not nearly as aware of the IPPC standard as are the WPM manufacturers. The situation provides pallet manufacturers with an opportunity to satisfy packaging customers needs and to maintain market share. If pallet manufacturers cannot satisfy their customers, they may begin to lose market share from competing packaging products. Fortunately, the survey results strongly indicate that exporters are not currently inclined to change packaging material. One of the strongest reasons remains the low cost of solid wood to alternative materials. Further, exporters are not currently inclined to move to leasing and reuse of packaging materials. However, it is important to recognize that an inability on the part of WPM manufacturers to satisfy exporters can have a significant impact, given that between 60 and 70 million pallets (15% of the U.S. pallet production) are used in exportation activities by American companies.

9 We believe that the low response rate to the survey is the result of a lack of awareness of the standards by WPM buyers; and the fact that these are low-involvement purchases. It would be premature to conclude that the attitudes reflected in this study will remain constant as WPM buyers awareness of the standards increase. However, previous wood packaging phytosanitary measures, as those adopted by China in 1998 and EU in 2001 have not created a significant shift to other packaging materials. This study provides a useful snapshot of pallet buyer attitudes prior to the widespread adoption of wooden packaging treatment standards; further research is necessary to monitor the effects of these standards as global implementation continues. Finally, it would be premature to conclude that these circumstances will remain true as packaging customers lack knowledge of the IPPC standard and have not been required to implement the standard. It is likely that solid wood packaging will remain in use and shifts to alternatives, if any, will be slow, particularly if the following conditions are met: 1) solid wood packaging continues to the low cost alternative, and 2) packaging manufacturers continue to assist exporters overcome the confusion regarding treatment regulations. As packaging customers become more knowledgeable about the IPPC regulations, purchasing behavior may change. Therefore, it is important for WPM manufacturers to continually engage customers and be proactive in assisting customers in avoiding frustrated shipments as a means of maintaining their customer base. LITERATURE CITED Bush, R. and Araman, P Use of New Wood materials for Pallet Containers is Stagnant to Declining, Pallet Enterprise, September 1997, pp Commonwealth Business Media The Directory of United States Exporters. East Windsor, NJ. (609) Dillman, D Mail and internet surveys: The tailored design method. New York, NY, John Wiley & Sons, Inc. North Carolina DNR Wood: Wooden Pallets commodity profile 1998 market assessment. North Carolina Department of Environmental and Natural Resources, Division of Pollution Prevention and Environmental Assistance. Consulted 08/13/ USDA APHIS Regulatory Impact Analysis of the Proposed Rule to Adopt the International Standard on Wood Packing Material in International Trade. Docket No Revised April 21, USDA Animal and Plant Health Inspection Service. Policy Analysis and Development, Policy and Program Development.