Carter Holt constrains timber in favour of its own outlets

by | Oct 21, 2022

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Suppliers ITM and Mitre 10 said they are being squeezed by the timber company as Carter Holt Harvey allocates structural timber to its own retail outlets by preference.

Newsroom reports that due to the frustration of the past year’s supply crisis, builders have gone to alternative suppliers or directly imported products they need from overseas which leaves independent retailers vulnerable.

Last year Cart Holt Harvey halted structural timber supply to some of its domestic customers while maintaining supply to its subsidiary Carters, Fletcher’s Building’s PlaceMakers and the Chinese export market. Under fire from Prime Minister Jacinda Ardern, it promised the shortage of timber would be resolved within six months.

However, in a submission to a Commerce Commission inquiry into the dominance of a few big suppliers, ITM revealed that has now dragged out for 18 months.

ITM Chief Executive, Darrin Hughes, said, “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 of 91 independent building supplies stores operating under one umbrella, while Mitre 10 is also a cooperative with more than 350 stores nationwide.

Mitre 10 Genera Counsel, Grant Fraser, told the Commerce Commission hearing that 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,” he said.

The transcripts of the Commission’s hearing have now been published, where Mr Hughes said the impact of losing access to Carter Holt Harvey’s structural timber was unlikely to be short-lived. He explained that Carter Holt Harvey does nationwide deals with high-volume customers which puts ITM at a material disadvantage in obtaining frame and truss timber.

“It is definitely a concern. 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 do not 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,” Mr Hughes said.

In a draft report, the Commerce Commission highlighted the constrained supply of structural timber.

Commissioner Dr John Small told the hearing, “We found that one of the allocation models that is 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.”

Authorities had been concerned even before the Commerce Commission began a market study into building supplies about Carter Holt giving preferential treatment to its own retailers.

New Zealand’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 $1.85 million for price-fixing in the timber market in Auckland.

Then in March last year, the Commerce Commission said it would 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.

Mr Hughes said ITM stores loyal to Carter Holt for more than 20 years were told they would lose all timber supply overnight.

“Communications were typically by phone call only, nothing was put in writing, and no negotiations were willing to be entertained by Carter Holt Harvey,” he said.'”No attempt was made, that we could see, to develop a fair allocation model. Carter Holt Harvey was then ITM’s largest supplier of structural timber, and ITM was a very significant customer. Essentially, other merchants were cut off from supply, so they could service Carters and PlaceMakers stores.”

“Anecdotal incidents took place where sales team reps (whether authorised or not) used this in local areas to disadvantage other merchant stores, telling builders that, for example, Carters had guaranteed timber supply and ITM did not, or that PlaceMakers stores can secure Gib six months ahead of competitors.”

“It was common knowledge in the industry that some Carters stores were overstocked for months in timber, essentially stockpiling, yet no supply was available to ITM and others.”

By contrast, James Hardie and Fletcher Building used their allocation models for Gib and Pink Batts to ensure there was a fair and equitable distribution across the merchants they supplied. Mr Hughes said that although they did not get enough of what they needed, they were happy to be treated fairly with strong communication as expected from a customer-supplier model.

“It is possible to infer that Carter Holt Harvey intended to improve the position of its own merchants and that of another conglomerate upon whom its merchants depend for supply of different essential products,” Mr Hughes said.

“They somehow managed to free up volume to their own entities, and only eventually made some drip-feed volumes available to others after regulatory or media scrutiny,” he concluded.

Carter Holt Harvey was an observer at the hearing; however, Newsroom reports they offered no response to repeated requests from Commissioner Dr John Small.