We are 45 days away from the implementation of the announced Russian log Export Tax, an 80% duty that was to be levied on every log shippped out of Russia after January 1, 2009.  The concept was to keep logs, a natural  raw material resource, at home to help build Russia's own finished furniture and flooring industries.  Until now this natural resource was being shipped out of the country, mainly to China, as fast as the loggers could cut.

Enter the global economy and all of a sudden Russia is seeing a major decline in the value of the logs and orders from other countries wanting the material.  Russian log prices hit their all time high in the 4th quarter of 2007 as manufacturers clambered to build inventories before the new taxes started to go into effect.  Since then the decrease in global demand and the threat of the 80% duty have combined to decrease demand and prices to their lowest point in years.  The hoped for development of Russian wood manufacturing industry has been slow and is not ready to use those logs that are available.

Good news?  The Russian government has agreed to delay the Export Tax for at least nine to twelve months.  This leaves the world's largest exporter of logs, still available to supply logs without a restrictive export duty.  But, be careful what you wish for....  With the threat of the Russina duty looming, most countries have found new resources for their log supplies.  Scandanavia has replaced Russia with other Baltic Sea countries who are anxious to export.  So now Russia is left with the decreased demand they had hoped for but it is combined with low prices on exported product, fewer potential customers and a domestic manufacturering industry that is not yet ready to take advantage of their governments grand plan. 

Bottom line, Don't fool with Mother Nature or a Free Market Economy. 

I have heard too many people say that the "Wall Street Bailout" is simply going to put money into the pockets of already overpaid Wall Street execs.  Believe me that the problem is much more global than that.  Unfortunately our media is not giving us much information about this side of the crisis.

Investments in Lehman from banks and governments around the world has created a crisis worldwide.  China, where the banks are still government controlled has lost over $300 million on their investments in the failed company.  India, representing 1.3 billion people, has lost over $400 million although since this was from private companies rather than government owned, it may have less impact on the world.  Japan, the largest supporter of the US economically has lost $1.6 Billion.

Russia has fallen victim to their own actions but it has been exacerbated by our financial crisis.  Following Russia's invasion in Georgia, billions of dollars investing in that booming economy started being withdrawn in favor of more secure markets.  The US financial crisis piggybacked on this trend and sent the entire Russian stock market into chaos.  The Russian stock market was forced to close last week following the announcement of our crisis.  It reopened last Friday but after a few hours, they were forced to close again.

Last night the President of the US used grim language to drive home the seriousness of the situation.  Jobs in the US, loans for homes and other projects are all at risk.  If we don't solve this problem domestically, it will affect us here at home but it will also kill the global economy we live in today.  This is serious although I have confidence that, now recognizing the problem, we will find a solution quickly.

Too often we are so consumed by what is happening in the USA, we miss changes in the global market that impact us here.  An example is the implementation of an 80% export duty that the Russian government has levied on logs leaving the country.  Since they were the largest exporter of logs in the world, this will have an impact on lumber prices globally.  The purpose of the duty is to entice Russians to develop a value added wood industry for export rather than just ship out raw material.  Don't be surprised if in 5 years the best value wood flooring isn't coming from Russia.

Last month, India and a group of Asian countries including China signed a free trade agreement similar to the North American Free Trade Agreement or the European Economic Union.  This agreement was 5 years in the making and provides for duty free trade between countries and dispute resolution mechanisms.

The Olympics were spectacular and I would not want to be the next city to host these games.  While China performed superbly, their shining moment does not cover up some basic problems in their economy and society.  With over 20% of the world's population, they have only 7% of the world's water.  Many of the old government owned businesses have been turned over to entrepreneurs who are ill equipped to manage profitable businesses.  The assets are carried on the state bank's books at full value; loan defaults are not recognized because state businesses are often sold for a dollar a year plus a balloon at the end of 20 years for the remainder of the value.

An global agricultural agreement promoted by the World Trade Organization fell apart last month when the USA and India objected to the way government subsidies to farmers and crops were being treated differently between countries. 

How will all of this affect you?  Ripple affects will impact businesses here in the USA over the next five years.  Whether it is a company in China that can no longer pay their bills, a new wood floor from Russia, higher food and biofuel costs due to the international agricultural market, global changes will impact your business.  Keeping informed now will help prepare for the future.

During the last two decades, no product has impacted our industry as much as laminate flooring and no industry has been impacted by flooring as much as laminate.  I just returned from speaking at the TAPPI conference, an organization that represents the manufacturers of paper and core materials used in the manufacture of laminate.  Flooring represents a small but growing percentage of that industry whose primary customers are furniture and wall panel manufacturers as well as automotive dashboards, etc.

Laminate flooring manufacturers have continually improved their product to the point that it looks nothing like the first generation product.  That said, there are even more changes in the labs that will make tomorrow's laminate even more attractive and better performing.  Innovations like 3-diminsional printing, formaldehyde free, direct printing, fiberglass reinforced tops for stronger surfacesm, polypropylene films for water resistance, etc., were dreams that are now becoming reality.  Flooring has been both a driver and a beneficiary of many of these improvements.  End result is that laminate flooring continues to improve to meet the needs of a broader range of end use markets. 

No pun intended but it looks like laminate flooring has only scratched the surface of its flooring opportunity.

Russia is the world's largest exporter of softwood and hardwood logs.  Their largest customers for those logs are China, Japan and Finland.  That's right, most of that wood flooring from China is really made from Russian logs, but that is about to change.

Concerned that their natural resources were being depleted so quickly that they might not be able to keep up with their own domestic needs, Russia recently implemented a 25% Export Tax on all logs leaving Russia.  A pretty big number but that tax will rise to 80% on January 1, 2009, less than 5 months from now.

How will this impact the USA and the wood flooring industry?  By removing the largest exporter of wood from the market, the global supply of logs will shrink by 50 million cubic meters.  A shrinking supply means higher raw material costs for those importing logs to make furniture, flooring and plywood.  Just when you thought wood flooring prices were stabilizing, they are probably go higher.

The converse is good news for the timber industry since it will make their standing inventory worth more.  Species like red oak that are indigenous to North America will be more price competitive than ever.

Just one more example of how we are all living in a new global market.

Someone recently took out a mortgage on their house so they could purchase a full tank of gas.  Would you expect that family to drive to a speciatly store for their floor covering needs?  Time and gas have become precious commodities that will be conserved without compelling reasons to act otherwise.  That is our challenge.

Todd Hale, Sr. V.P. of Consumer and Shopper Insights at The Nielson Company, stresses that "competition for shopper attention is fierce.  Success will come to retailers who define themselves by who they sell to and how they sell them, not by what they sell... manufacturers by who they sell to and the issues they solve for their consumers and retail partners."  The traditional retail channel paradyme is shifting and the cost of gasoline has fueled the fire.  Retail floor covering dealers need to understand what it takes to bring customers into their stores rather than where they may prefer to shop.

How are specialty retailers doing?  A big chunk of our business has already been lost to Home Depot et al.  The floor care business has been lost to the local supermarket. We are losing the battle and the trend that Mr. Hale identifies means it could get worse.  Our industry is being challenged and we must evolve into the store of choice for what the consumer wants, or should want, to buy.  We have a great industry and perform an important function of helping the consumer invest in floors that are right for them.  Education and differentiation are key to satisfied customers. We have to sell them how they want, where they want and what they need.  This is the time for creativity, thinking outside the box, re-inventing ourselves to address what the consumer wants.