Suppliers ITM and Mitre 10 say they’re being squeezed by the timber company Carter Holt Harvey allocating structural timber to its own retail outlets by preference. Source: Stuff NZ, Newsroom NZ, Timberbiz
The two independent merchant chains are caught between the big producers, which have largely addressed shortages of plasterboard, ply and steel and construction companies.
The builders have, out of frustration at the past year’s supply crisis, started going to alternative suppliers or directly importing the products they need from overseas and that’s left independent retailers vulnerable.
Last year, Carter Holt Harvey halted structural timber supply to some of its domestic customers while maintaining supply to its subsidiary Carters, to Fletcher Building’s PlaceMakers, and to the Chinese export market.
Under fire from New Zealand Prime Minister Jacinda Ardern, it promised the shortage of timber would be resolved within six months.
But, in a submission to a Commerce Commission inquiry into the dominance of a few big suppliers, ITM reveals that has now dragged out for 18 months.
Chief executive Darrin Hughes says: “ITM would ordinarily expect to have members’ combined volume as a decent negotiating lever, but for over 18 months now that foreclosure of input by Carter Holt Harvey has damaged competition by others trying to get product supply in enough volume to meeting builders’ demands.
“The last 18 months or so have provided a real-life example where our individual independent merchants faced significant difficulties and dealings with the vertically integrated players, especially in terms of supply of structural timber – an absolutely essential bedrock product in the industry.”
ITM is a nationwide chain, comprising 91 independent building supplies stores operating under a cooperative umbrella. Mitre 10 is also a cooperative, with more than 350 stores.
Mitre 10’s general counsel Grant Fraser told the Commerce Commission hearing there had been a “very similar” ordeal for Mitre 10 stores.
“Our experience was pretty similar to ITM’s in terms of the allocation models, the costs, the various suppliers or particularly those vertically integrated.”
In a hearing, the transcripts of which have now been published by the commission, Hughes said the impact of losing access to Carter Holt Harvey’s structural timber was unlikely to be short-lived. Carter Holt does nationwide deals with high-volume customers that put ITM at a material disadvantage in obtaining frame and truss timber, he explained.
“It’s definitely a concern,” he said. “There was an incident a couple of years ago where we did lose a customer and we were given price indications that suggested that it was below our cost price but, again, we don’t have any hard evidence to support that.”
“As the commission is probably aware, the number of consented homes in New Zealand remains at all time high levels, even through this predicted time of recession – just under 51,000. The capacity to build sits somewhere below 40,000, so there remains a pipeline backlog in the market. So structural timber continues to remain in short supply.
“There has been some recent evidence of minor loosening from some mills but on the whole, it remains a constrained supply product for us.”
ITM had told the commission that its outlets had difficulty getting access to structural timber, and that compromised their position in the merchant market. Carter Holt has an “allocation model” that ITM says favours the high-volume players including its own Carters stores.
The Commerce Commission, in a draft report, highlighted the constrained supply of structural timber. Commissioner Dr John Small told the hearing: “We found that one of the allocation models that’s being used, particularly the one by Carter Holt Harvey regarding structural timber, had the effect of preventing or making it more difficult for some merchant chains.”
Dr Small said the problem was not just the vertical integration of logging and milling company Carter Holt and its Carters retail outlet, because Fletchers and James Hardie also had allocation models that were competitively neutral.
Even before the Commerce Commission began its market study into building supplies, authorities had been concerned about Carter Holt giving preferential treatment to its own retailers. The country’s biggest timber supplier was investigated for this in 2007 when it purchased the TDC Mill in Northland, but no enforcement action was taken after structural timber prices dropped.
In 2014, it was fined NZ$1.85 million for price-fixing in the timber market in Auckland.
Then in March last year, the Commerce Commission promised to make enquiries into Carter Holt Harvey’s decision to halt structural timber supply to some of its customers.
Carter Holt said it had a shortage of structural timber able to be produced through its mills.
That prompted Prime Minister Ardern to say ministers were “engaged” in looking into the problem, and what the Government could do to increase processing capacity. Carter Hold promised the issue would be resolved within six months.
