As many of you know, Forest2Market recently started operating in Europe and western Russia. We have named the new product the Baltic Rim/Russia Timber Price Index, which basically covers Scandinavia, the Baltic States, Poland and western Russia. On a recent trip to western Russia, I visited with some of the new customers, as well as potential customers of the benchmark service, and of course learned some very interesting things about the regional market.
The last week of February, I toured Karelia Oblast. Our home base was Petrozavodsk, which is the capital city of the Republic of Karelia, Russia—an area that stretches along the western shore of Lake Onega for some 27 kilometers. Petrozavodsk is very pleasant town with a population of about 250,000, and our hotel was situated right on Lake Onega. As a point of reference, Lake Onega is a large lake of US Great Lake scale; it is only diminutive to its neighbor lake to the west called Lake Lagoda.
Everyone in this business knows that a substantial amount of wood fiber moves from western Russia to Finland via truck and/or a combination of truck and rail. I was eager to talk about this trade with our new and prospective customers, and was hopeful to understand these supply chains a bit better.
Then on an early afternoon walk one day, I encountered a log vessel firmly entrenched in the ice of Lake Onega. This vessel was at port and not stranded—or at least not stranded at sea.
Luckily, the gentleman I was meeting the next day was a large leaseholder of Russian timber, and I aimed to ask him about the vessel. Even more fortuitously, during our meeting I learned that the vessel was actually one that he used to move low-grade pulpwood to customers in Sweden, which is some 1600 km away.
This particular leaseholder has a port loading facility on the east side of Lake Onega where wood is trucked from up to 250 km away and loaded on the aforementioned log vessel for the journey across Lake Onega. The vessel then passes through a series of canals and channels to Lake Lagoda, through yet another series of canals and channels past Saint Petersburg port before hitting the Baltic Sea, where it sails unimpeded before finally reaching a port in southeastern Sweden.
This whole experience—the visit to Russia and the involvement of starting the Baltic Rim/Russia Timber Price Index has really opened my eyes to the extent to which the industry goes, and can go, to transport wood long distances, as well as the effect that exchange rates have on these wood flows. The US dollar to Ruble exchange rate at the time of my visit was about 80 to 1. The last time I visited Russia—about 10 years ago, it was roughly 16 to 1.
Obviously, at this exchange rate and with the Russian economy stumbling, there is great incentive to export anything of any value. As the world gets smaller and governments and economies grow larger (and fail on larger scales), we will continue to see these wild fluctuations in exchange rates. These vast swings will open up market opportunities that are simply unimaginable now.
Finding those opportunities will be a challenge for all of us in the forest products industry moving forward, which is one of the reasons Forest2Market started the Baltic Rim Index as a complement to our North American and Latin American Indexes. It will provide clear and transparent market data to our global customers regardless of the market conditions, currency fluctuations or political climate.