PF Olsen Concludes First CFR Sale to China

On November 20th, the Silver Lake set sail from Port Chalmers with a load of PF Olsen client logs destined for China. This is the first time PF Olsen has made such a CFR sale (we usually sell the logs at the gate of the New Zealand port and let the exporters handle the shipping and export documentation).

A CFR sale stands for Cost and Freight and it involves the seller arranging shipping and selling the logs delivered to China in US$. It also involves managing the export documentation which is focussed on receiving a Letter of Credit (LC) from the purchaser's bank. This LC is a promise by the purchaser's bank to pay the log seller on presentation of compliant documentation that confirms what goods are being shipped, and how. Whilst one has to be very particular about how documentation is presented, this is a very secure method of payment. In addition to the purchaser's bank promise to pay, PF Olsen also arranges for its bank (the BNZ) to guarantee payment. 

The merchant vessel Silver Lake carrying PF Olsen's first CFR sale is alongside its birth at Port Chalmers for loading logs to China.

So why is PF Olsen going to the trouble of CFR log sales?

As part of PF Olsen's market-direct strategy, we have been reviewing our log export supply chains to ensure that we are getting the best deal for forest owners. Our trip to China in January of this year (see Wood Matters Issue 6, China Trip Report and a plethora of enquiries from China, India and Korea for logs this year has enabled us to form relationships direct with Asian log end-users.

In addition, log export options at Port Chalmers have traditionally been very limited with insufficient competition to support good prices for forest owners.

Earlier this year we formed an agreement to sub-charter shipping space from a large, national NZ forest owner and manager and gain the capability to ship logs direct to China or Korea.

The culmination is taking our market-direct strategy one step closer to the customer and making a more efficient and cost-effective supply chain.

"This is a significant milestone for PF Olsen, notes Peter Weblin, PF Olsen's Marketing Manger. "Successfully executing CFR sales is a new area for us, but critical for us to become better at understanding and managing the supply chain. Ultimately, it is the price we can get for forest owner's logs that adds to their bottom line".

"Clients should be aware that we are not necessarily rolling out CFR sales to other parts of the country", continues Weblin. "We will look at each port on a case by case basis and any changes will be based on a measurable advantage or benefit for forest owners". 

To minimise the freight rate Southern Cross Stevedores use excavators in the vessel's hold to maximise the cargo stow.

The move has definitely been a success for our Otago/Southland region, by improving export log prices. It has also meant the local PF Olsen team has had to learn about port operations such as stevedoring and marshalling, as well as developing a relationship with Port Otago for log storage and wharfage. We thank C3, Southern Cross Stevedores and Port Otago for their excellent service and making the Silver Lake consignment a success. "It's been a bit of a learning curve", admits Dave Thode, PF Olsen's Otago/Southland regional manager (left). "But we are pleased to be able to offer forest owners in this region a strong and viable log export alternative. Our first shipment has already arrived in China and been well-received".