Difficulties begin to affect the profits of wood businesses

Hiep Long Company reduces the impact amid the inflation in the markets. Photo: N.H

Difficulties reflected in business performance

According to statistics by the General Department of Customs, Vietnam's export turnover of wood and wood products as of October 15 reached $12.8 billion, up 11% over the same period in 2021. Therefore, the wood industry has completed 77.6% of this year's export target of 16.5 billion USD and still needs another 3.7 billion USD to complete the set target.

However, the wood industry is currently facing many difficulties, especially amid the post-pandemic global economy, high inflation along with the Russia-Ukraine conflict, and unprecedented logistics costs hindering trade.

According to Mr. Nguyen Quoc Khanh, Chairman of Ho Chi Minh City Handicraft and Woodworking Association (HAWA), export turnover increased in parallel with escalating inflation greatly affected the export growth of the wood processing industry in the last months of 2022.

Inflation has not only increased in the US but also in other main markets like EU countries; along with that, the impact of the Russia-Ukraine conflict makes people in these countries tend to tighten their spending.

Therefore, the demand for non-essential goods such as wood products is unlikely to increase as strongly as before. This means that the signing and execution of orders of enterprises are also directly affected.

The financial statements for the third quarter of 2022 of a number of wood enterprises also initially showed the effects of inflation in export markets.

Specifically, at Phu Tai Joint Stock Company (PTB) - an enterprise specializing in exporting wooden furniture to the US and Europe, core pre-tax profit increased by 17% in the third quarter of 2022 compared to a low comparative base in the third quarter, when the production and supply chain of this enterprise was interrupted due to the Covid-19 pandemic.

However, compared to the second quarter of 2022, core pre-tax profit decreased by 34% even though the last 6 months are usually peak season, which resulted from the poor business results from the wooden furniture segment.

Specifically, revenue and gross profit from PTB's wooden furniture segment in the third quarter of 2022 decreased by 33% and 45% respectively compared to the second quarter of 2022. Due to the decline of the US real estate market, customers also sold out after storing too much inventory in the previous period, which dramatically impacted Vietnam's wooden furniture exports in the short term.

Similarly, at An Cuong Wood Joint Stock Company, although the revenue and profit results of the third quarter of 2022 still recorded positive growth compared to the same period last year and compared to the previous quarter, direct exports also recorded a 22% decrease compared to the second quarter of 2022 due to weak demand from the US.

What should businesses do?

Mr. Huynh Quang Thanh, General Director of Hiep Long Wood Processing Co., Ltd. said that the company's orders in the fourth quarter of 2022 decreased by about 15% year on year, which is a much lower reduction compared to other enterprises in the wood processing and exporting industry.

Accordingly, Hiep Long's strategy is to target medium-sized customers instead of large customers. “Any unexpected events of large customers will severely affect businesses, but the influence is lower in the medium-sized segment because if one person is affected, there are still others with good business performance,” said Mr. Thanh.

According to Mr. Thanh, in the past, overseas furniture wholesalers used to make market forecasts before importing stockpiles.

But in the current volatile situation, enterprises have brought their inventories to a very low level. Mr. Thanh also forecast that this situation will probably continue until the middle of next year. “After a period of temporary suspension of imports, the inventory of enterprises will run out and they will start buying again," Mr. Thanh said.

The Ministry of Agriculture and Rural Development revealed that the demand for wooden furniture is still very large. When orders from major markets such as the US and Europe are sharply cut, Vietnamese enterprises can exploit and expand to some markets with more stable growth.

Vietnam can tap deeper into the UK, Germany, and Norway with high average furniture consumption. Moreover, According to statistics from the International Trade Center (ITC), in the first 6 months of 2022, the import value of wooden furniture reached $530.4 million in the Norwegian and US$2.8 billion in the German market. Therefore, enterprises can capture and expand more export exploitation into these markets in order to deal with current difficulties and expand the market for future orders.

Mr. Thanh also noted that consumer tastes in other countries are also changing. Instead of using products made entirely from wood as before, consumers now prefer products with a combination of wood and other materials such as metal, knitting wire, etc. Therefore, businesses should research more to catch up with this tendency.

Meanwhile, Mr. Nguyen Hoai Bao, Vice President of Scansia Pacific Co., Ltd. said that this current quiet period is an opportunity for enterprises to restructure their production activities, invest, and upgrade technology to create a pedestal for a rebound as market demand picks up again.