Pacific Forest Products

In just four years of business, entrepreneurial log exporter Pacific Forest Products Ltd has grown annual foreign exchange earnings to a projected NZ$173 million in 2006/07, adopting an aggressive policy of doing things first and doing things differently.

The Auckland company was established in 2002 by its three directors to sell logs into Asia and the Middle East. All three had extensive experience as international log traders working for companies in New Zealand and offshore.

Despite that experience, Marketing and Shipping Director Keith Smith recalls that from a standing start it was difficult to gain credibility in the marketplace and with the banks, and the directors had to use their personal collateral and houses as guarantees to secure the cash flow required to run the business.

He says the fact that the company is profitable and enjoying such outstanding export growth today is all the more pleasing, given the highly competitive nature of this industry and the highly adverse trading conditions during its first three years of business.

“With the exception of the short-lived Asian crash of the late 90s, the 2002-2005 period was the worst market conditions the log export industry has experienced, driven by the rapidly increasing New Zealand dollar and freight costs. We coped with this better than our competitors, and that’s put us in a good position to achieve real growth as the market has improved.”

Pacific Forest Products (PFP) is currently exporting around 1.2 million cubic metres of logs annually, and is aiming to more than triple both volume and value within the next five years.

Log exporting is a commodity business, and Mr Smith says it provides a perfect match with New Zealand’s domestic processing sector which concentrates on higher value log inputs.

“It’s a very dynamic market and requires an agile team to capitalise on the opportunities that such a market presents. To achieve this, we’ve built a small and extremely experienced team of 11 who collectively have over 150 years of experience in export log marketing and related business disciplines.”

To attract and retain the right people, the directors have created a fun and stimulating work environment, with a flat management structure, competitive salaries, incentives and flexible hours. In return, staff are committed to their jobs. And they’ve employed a Chinese national and Korean national to manage two of PFP’s most challenging markets, which Mr Smith says has given them a big competitive advantage.

“It’s critical export companies get appropriate staff in place. I think a lot of New Zealand exporters struggle in China for example because they don’t employ Chinese. I’ve visited China more than 70 times since 1987 and I’m still on a huge learning curve.”

He says another critical area for export companies is documentation and letters of credit to ensure they get paid correctly. “It’s a mundane job but if you get it wrong the whole house of cards comes tumbling down.”

In 2002 PFP had 48 customers in three countries; it now has about 200 customers in seven countries and is focused on growth markets in China and South East Asia.

“They are typically repeat customers that we have known for a very long time, supplying them with logs from PFP and various other companies. Business in Asia is all about personal relationships and when you leave a company it is possible for those relationships to follow. The company name is secondary – it’s all about trust.”

PFP’s aim is to understand its clients better than its competitors; to help achieve this it visits clients on average every two months, ascertaining their business requirements and the potential for future business.

The company has positioned its business with a mix of marketing logs for several large forest owners, and log trading, which Mr Smith says balances lower risk and high risk business activities. The business is also totally incentive based, not fixed fee-based, which means the more it gets for the logs the more it’s paid.

The cost of freight is PFP’s biggest cost – an estimated US$40 million in 2006. It jealously guards the details, but Mr Smith says PFP’s freight strategy is aggressive and unique, enabling it to take advantage of the opportunities in the market, and at the same time minimising its exposure to high freight rates.

“Our freight strategy works and has been a primary driver in PFP successfully expanding our business throughout difficult log trading conditions over the past four years  – an environment where we have seen a large number of company failures.”

He says when New Zealand companies are selling to countries thousands of miles away there’s inevitably an element of risk and trust involved, and one of the most important things PFP has learnt is to have backup options.

“The market might go down, there might be a strike. You’ve always got to be thinking of option b, c and d, and quite often we use them. You’ve got to be agile, and we are.”

Image: Ian Leslie, Pacific Forest Products Operations Manager checking log tallies in China.

Contact:
Keith Smith
Marketing and Shipping Director
Pacific Forest Products Ltd
Phone:    +64 9 309 0868
Email:      keiths@pfpltd.co.nz
Website:  www.pfpltd.co.nz