Malaysia is among the world’s biggest exporters of timber, exporting to over 170 countries worldwide.
The timber industry is an important contributor to the nation’s economy. It is the third largest sector in the commodities industry after palm oil and rubber.
In 2020, its export value stood at US$5.24 billion (RM22.02 billion) which represented 14.6 percent of the total contribution from the commodities sector, 2.2 percent of the country’s total merchandise export and contributed 1.6 percent to the country’s GDP.
Among its exports are wooden furniture, plywood, sawntimber, builders’ joinery and carpentry (BJC), fibreboard, mouldings, logs, particleboard, and veneer.
The industry also provides employment to about 140,000 workers.
Founding Of MTC
Given the importance of the industry, there is a need to ensure its growth and sustainability. For this very purpose, the Malaysian Timber Council (MTC) was established in January 1992 on the initiative of the timber industry.
MTC is governed by a Board of Trustees, whose members are appointed by the Minister of Plantation Industries and Commodities.
The vision of the council is to be the lead organisation that develops the Malaysian timber industry into a world leader in the manufacture and trade of timber products.
Its mission: to ensure the sustainability of the Malaysian timber industry by improving its competitiveness, enhancing market access and creating trade opportunities.
“Our products are highly regarded in the market due to greater supply reliability and superior quality as well as availability of sustainable and certified timber products,” said Muhtar Suhaili, CEO of MTC.
Mr Suhaili was appointed as CEO in November 2020. Before joining MTC, he has served in Perodua Auto Corporation and Shell Malaysia. He was also the chairman of Malaysian Palm Oil Certification Council (MPOCC).
“A total of 29 projects were approved in 2020 with investments of US$180.6 million in the wood and wood products industry, increasing by 7.2 percent from US$168.4 million invested in 2019,” Mr Suhaili shared. “Domestic investments accounted for US$63.6 million (35%), while foreign direct investment (FDI) amounted to US$117.0 million (65%) in 2020.”
Globalisation has changed the landscape for the industry and created many more trade flows. As a result, competition is growing. In Southeast Asia alone, Malaysia has to contend with countries like Indonesia and Vietnam for a share of the export market.
However, Mr Suhaili is unfazed by the challenge.
“Malaysian timber-based manufacturers have the capacity and capability to produce products from the conceptualisation and design stages to manufacturing them while complying with international standards. This explains why Malaysia is one of the world’s biggest exporters for timber products,” he said.
“Apart from the intrinsic beauty of Malaysian timber and timber products, Malaysia is also home to over thousands of timber species and these timbers have been utilised in various structural and interior applications, most notably for luxury resorts and private dream homes. The multitude of colours and grains available represents an artist’s palette, enabling an endless expression of creativity for architects and interior designers.”
With over 1,900 active mills, Malaysia can offer a wide range of timber products, such as sawntimber, panel products (such as plywood, medium density fibreboard (MDF), particleboard, laminated veneer lumber (LVL) and chipboard), mouldings, joinery products (such as decking, wooden flooring, doors, staircases, lamscant, window frames, picture frames), and wooded furniture (indoor, office and outdoor).
The timber industry in Malaysia is actively progressing towards creating higher value-added products such as mouldings, joinery products and wooden furniture for more revenue with the incorporation of automation and mechanisation. These products are mostly exported to developed countries such as the US and Europe.
Timbers for panel products such as plywood, fibreboard and particleboard will also have a greater degree of recovery rate. There will be no room for wastage as the residues will be used for woodchips and sawdust to manufacture high energy dense wood fuel such as wood pellets. These products are mostly exported to Japan, the US, and South Korea.
On top of product offerings, Malaysia has also executed a number of trade agreements to ensure seamless trade flows to many destinations.
Malaysia signed the Regional Comprehensive Economic Partnership (RCEP) in November 2020, which is a free trade agreement in the Asia Pacific region, to strengthen regional economic resilience without unnecessary barriers to trade or disruption to global supply chain.
It was the largest FTA ever with its signatories to include Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam, Australia, China, Japan, New Zealand, and South Korea.
Other than that, Malaysia has bilateral and multilateral FTAs with various countries such as Japan, South Korea, Australia, New Zealand, Pakistan, India, China, and Chile.
The present US government may consider re-joining a number of international agreements, one of which is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Through CPTPP, Malaysia could better access the markets in the Americas.
Evolving With Times
“The striking feature of Malaysia’s timber industry is its ability to evolve and transform itself in tune with the changing market needs and trends,” Mr Suhaili said. “The well-endowed resource-based and sound policy framework through the Industrial Master Plan facilitates this. As one of the leading exporters of tropical and sustainable timber products, Malaysia would continue to focus on increasing efficiency and productivity to improve competitiveness in the international market.”
He added that “accelerating into e-commerce platforms is currently a strategic priority for the timber industry to improve market access and business profitability.”
In order to maintain its competitive edge, Malaysia’s timber industry have to overcome major challenges, including the supply of raw materials, technological advancements, product innovation and design, as well as labour issues.
“The continuity of timber raw material supply is fundamental to the development of the industry. Plantation forests have been established to help alleviate the pressure on our natural forests in creating consistent supply of raw materials for the timber industry,” said Mr Suhaili
More than 126,000 hectares of forest plantations have been established under the Forest Plantation Development Programme which is managed by the Forest Plantation Development (FPD), a subsidiary of the Malaysian Timber Industry Board (MTIB).
The government has also allocated a US$118.8 million revolving fund for the Forest Plantation Development Loan programme under Budget 2021 to provide an alternative source of raw material supply for the timber industry.
“The development and promotion of value-added products with original design concepts are also crucial. There is a need for the manufacturers to progress towards becoming Original Design Manufacturers and Original Brand Manufacturers to be more competitive,” Mr Suhaili said. “The industry must embrace automation and mechanisation to improve production efficiency in line with the IR4.0.”
There is a need to also strengthen the competency and knowledge of the local workers in the timber industry to facilitate the adoption of cutting-edge technologies which will improve productivity and reduce the high dependency on unskilled foreign workers.
MTC has rolled out several initiatives through its 5-Year Plan (2019-2023) to help the industry address these challenges. The 5-Year Plan comes with 4 Key Thrusts and 14 Focus Areas as follows:
Industry Development & Empowerment
•Raw Material Augmentation
•Automation & Digitalisation
•Database & Information Management
•Digital Marketing & Communication
•Market Penetration & Promotion
•Public Perception Management
•Cross Industry Alliances
New programmes have also been formulated and existing ones were further enhanced for the betterment of the timber sector. Among them are:
•Import Assistance Programme (IAP) which helps with the augmentation of raw materials to produce value-added products.
•Financial Incentive for Purchase of Machinery (FIPM) which encourages the timber-based manufacturers to automate and adopt the latest technology.
•Design Incubator Programme which is a collaboration between Malaysian timber and furniture manufacturers with designers/architects for the development of Malaysian-made high-value branded products with design concepts.
•Young Entrepreneur Society (YES) is a programme designed to prepare both Founder and Successor in the timber industry in transitioning the leadership in their organisation.
•Smart Manufacturing Consulting, a programme focusing on assisting companies in implementing automation and digitalisation based on their priorities, processes, and workforce.
•Engineer Placement and Internship in Industry Programme (EPIP) is a programme designed to increase the pool of knowledge talent in the timber industry especially on engineering and manufacturing processes.
Various dialogues and B2B sessions are also conducted regularly with foreign counterparts via online on probable business opportunities.
“We also participate in international trade exhibitions and missions both physical and virtually with our industry members,” Mr Suhaili said. “In elevating Malaysian brands, MTC would also have programmes to assist in industry branding.”
Impact Of Covid-19
The Covid-19 pandemic shook the timber market and brought on some significant challenges, including disruptions in the supply chain, slowing of global and domestic demand, cashflow management, increase in freight charges, increase in raw material cost, inability to fulfil orders, sustaining workforce, over reliance on foreign workers due to lack of automation, and losing business to competitors.
“The global consumption of timber dipped due to lockdowns all over the world,” he said. “While there were shrinking demands for non-residential products for office, recreation, restaurant, public buildings, there was an increase in demand for residential products due to the pandemic which resulted in people working from home which led to a spike in demand for furniture such as couches, dining tables along with work-desk and ergonomic chairs in bulk as well as DIY products for renovation. There was also and still is an increasing demand for multifunctional and customised furniture.”
Demand for Malaysia’s wooden furniture grew tremendously in the US. Export of wooden furniture to the US has grown by 57.9 percent (US$1.6 billion) in 2020 compared to 2019.
“In response to the restrictions in forest harvesting in Malaysia, the timber processing sector would also have to adapt,” he said. “We observed that Malaysia’s total import of logs has also increased by 61.54 percent in 2020, with most of the gain from Australia (US$25.6 million; +92.7%) and Papua New Guinea (US$7.4 million; +468.2%) to be used for value-added manufacturing.”
As economy recovers globally, there will be a significant risk to the supply and demand of timber globally. Major importers in need for timber supplies would have to pay a higher price due to the lack of supply.
The shortages of containers globally have caused shipping charges to increase, some by more than 500 percent. This, as well as shortage of raw material supply, have negatively affected the timber product manufacturing segments in Malaysia, with all except wooden furniture registering a negative growth in export in 2020.
•Plywood: US$677.5 million; -17.6 percent
•Sawntimber: US$571.7 million; -29.9 percent
•BJC: US$232.2 million; -7.2 percent
•Fibreboard: US$173.3 million; -32.4 percent
•Mouldings: US$164.3 million; -22 percent
•Logs: US$121.8 million; -33.6 percent
•Veneer: US$22.5 million; -45.7 percent
•Wooden frame: US$22 million; -28.4 percent
“Demand of residential products will remain high in the short- and medium-term, while the demand for office products will be stagnant until next year,” he said. “Another interesting market segment to watch closely is F&B (restaurant, bar, entertainment outlet, etc.). Once the pandemic is under control, these businesses will reopen; while people may develop a habit of online shopping, eating-out is irreplaceable.”
On its part, MTC embarked on several initiatives to push for quick adoption of digitalisation and digitisation through these efforts below:
•The Digital Marketing Entrepreneurship Programme, a programme to provide training and coaching to the Malaysian timber companies that have interest to complement their current marketing activities on digital platforms.
•TimbeReality, a programme to promote Malaysian timber products on a dedicated VR platform, by enhancing the viewing experience of potential buyers about Malaysian timber and furniture products.
•Series of webinars on digital marketing
“The industry had to be quick in digital solutions, tools, and services,” he said. “The pandemic also taught businesses an important lesson, especially in areas related to automation and mechanisation as well as adoption of digital economy.”
Exporters also realised the significance of online platforms to engage with potential/prospective buyers. Timber companies were also taking small bookings seriously. Efficient logistics were also an issue as well-coordinated and streamlined clearing and forwarding at seaports strengthened business activities.
More than just an economic pillar, the timber industry also plays a key role toward sustainability.
Malaysia has stayed committed to keeping its promise made to maintain at least half of its total land area under forest cover at the Rio Earth Summit in 1992.
Today, 55.3 percent of the country’s land area remains under forest cover. A significant achievement in this aspect is the government’s ban on the conversion of forest reserve areas for commodity cultivation purposes.
The country is also a signatory to several significant multilateral environmental agreements ranging from climate change to safeguarding biodiversity, including endangered species, wetlands, and forests.
“Having practiced sustainable forest management for more than a century via various timber and forestry agencies, Malaysia has not had to make major adjustments to its forest management practices to comply with international trade regulations such as the US’ Lacey Act, Australia’s Illegal Logging Prohibition Act and the European Union’s Timber Regulation, among others, which share the critical position that only legally harvested timber can be imported into these countries,” Mr Suhaili said.
“The importance of the timber industry is not only limited to the output of the manufacturing sector, but also towards the environmental excellence in the form of sustainable consumption and production,” he emphasised.
“Timber as a raw material is a natural solution towards carbon sequestration, in which, carbon dioxide (CO2) is absorbed and locked by trees as they grow.”
According to him, timber is by far the ‘greenest’ and only renewable building material.
“New trees can be planted to replace those that were harvested, thus ensuring a perpetual supply of timber. Moreover, the planting and harvesting of trees contribute positively to the health of the environment through the cycle of ‘absorb-and-lock’ of CO2 in the atmosphere,” he said.
He pointed out that timber is a fully recyclable building material and requires a fraction of the energy needed to produce concrete or steel.
“When a building is demolished or renovated, the recovered timber can be used in another project. The recovered timber can be resized and reshaped to cater to other uses,” Mr Suhaili said.
With the world heading towards a sustainable future, in line with the United Nations Sustainable Development Goals (SDGs) by 2030, the timber industry will have a positive role to play in assisting Malaysia to reduce its emission and promote the use of timber products made from renewable and sustainable raw material.
“The government has ensured that timber and other strategic commodity industries in the country practise only the best sustainable approach so that it will not harm the nation's forest reserves,” he said. “Under the Ministry of Plantation Industries and Commodities Blueprint Plan for 2021 until 2030, sustainability was the number one priority for the country in the next 10 years, thus ensuring the economic importance of this sector.”
Mr Suhaili is well aware that Malaysia’s timber industry has to stay relevant and continue to adapt to changing times.
“My first priority when I joined MTC was to set the direction for this organisation in line with the times. With that in mind, there were a lot of thoughts on what the Must-Wins should be as the basis towards achieving our Vision and Mission,” he said.
In the end, he defined seven Must-Wins:
•Support Business Succession Programmes
•Uplift Sources of Raw Materials
•Cultivate Market Access
•Champion Design and Branding Programmes
•Enhance Business Process Automation
•Spur Sustainable Green Initiatives
•Strengthen Relationship with Stakeholders
“Penetrating new and emerging markets is also important while maintaining the relationship with the current traditional markets,” he added. “Continuous promotion of Malaysian-made timber products as the preferred choice globally with increase effort in brand awareness by active participation in international exhibitions, business missions and market visits to explore international markets through information gathering and market intelligence is MTC’s priority as well.”
Looking ahead, he said that: “Malaysian companies should continue to maintain their well-known reputation in the international markets by supplying good quality wood products with reliable services as well as having a strong commitment towards sustainable forest management practices with a credible certification scheme to provide assurance to buyers that the timber products they buy come from sustainably managed forests.”
“Companies in Malaysia and Southeast Asia will have to optimise whatever raw materials that are produced by using them in a more efficient manner. Technologies, such as improved machinery will result in better economic conversion of raw materials.”