The economic impact of the coronavirus pandemic and the measures adopted to try and slow its spread are having a huge impact. The following survey tries to clarify the consequences of the coronavirus crisis on the Indonesian timber industry.
1. Are mills still operating?
Most wood industries are still operating, but they unfortunately are decreasing production. Some factory operations will continue for the next few months since Indonesia has implemented a semi-lockdown in Jakarta beginning 10 April to be followed by a lockdown in West and East Java in the near future.
Another cause of lower production is the postponement of orders by importers in the European Union, America and parts of Asia. However, Indonesia’s wood product exports for the first quarter 2020 have not been seriously affected by the pandemic. The types of products that experienced a decline in exports were HS 470329 (Wood pulp; chemical wood pulp) and HS 442199 (Wood; not of bamboo).
2. Have workers been laid off?
Partly, a sort of an interim lay off. Some companies apply a shift-based work to minimise the production cost. (HIMKI indicated that lay offs total 280,000).
3. Are laid off workers receiving payments?
They are being paid but not full payment (based on agreement). Some companies still pay workers with full wages, but the production target is decreased.
4. Are companies already receiving government support?
Not yet, the government is still assessing data from impacted companies and workers affected by lay offs.
Some associations propose government support such as relaxation/reduction of PPH tax for the companies, reduced regulation of import and subsidy for 180,000 workers monthly wages.
5. Have orders been cancelled?
Orders from the international buyers, especially the countries badly affected by the pandemic, have been postponed. However, countries less affected continue to place orders, although the export process at the port is slightly hampered due to restrictions on working hours and the implementation of the shift work system. This will get worse for the next few months due to strict business and social interaction restrictions.
6. Estimated % change in shipments since Jan 2020 to: China, EU, US, Others
The exact figure cannot be obtained yet but exports to China are moving but exports to Europe in countries such as Italy stopped in February/March
7. Are mill stock levels increasing?
Stocks of finished materials are accumulating because the goods that are ready to be sent do not get loaded. Estimated rise in stocks 70%.
8. How much time would be required to ramp up production to pre-crisis levels?
Maybe more than 1 year provided the government gives full support and provides incentives for industries related to reduction of taxation and bank interest rates. For the Plywood industries, it depends on market conditions, if export destinations have reopened their markets the industry will be ready to supply soon.
For wood working companies, If the government provides assistance to the industry in the form of tax breaks, simplification of export regulations, funding assistance for co-affected workers the time needed to recover the company’s economic conditions will be fast.
9. What will be the main challenges in ramping up production?
The main challenges for increasing the value of wood production are: There is a decline in European and American market demand, while customers continue to demand delivery of goods on time when the government implements a lock down policy.
The government needs to eliminate the technical verification policy (LS) to reduce bureaucracy. Company cash flow is disrupted and the government has not yet implemented a policy of reducing/relaxing the export and import taxes. Procurement of imported raw materials is disrupted so relaxation of import licenses is needed.
10. Are containers still being loaded at the port?
Last month, when the lockdown was less effective containers were still there for the destinations not affected by the pandemic. But problems arose with trucking to a port because forwarders were operating reduced shifts.
11. Are containers readily available?
As of April there were reports of a shortage of containers but few were being stuffed as importers requested delayed shipment.
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