Assortment sale vs standing sale - advantages and disadvantages!
Author: Kristi Nigul, Published: 10/11/2022 12:00:00
A forest sale process is shorter than a forest management process, but still requires expert approach and knowledge or a trustworthy forest management company, that is taking care of the forest on behalf of the owner. Forest owners’ knowledge is different and due to that the need of help also differs. What is the difference between assortment and standing sale - what are the advantages and disadvantages of one or the other? In this article, we try to open the background of those different sale types.
The forest owner is selling the cutting right to growing forest. The cutting right is giving the right to fell the timber on a fixed area, that is defined by the valid felling permission, giving the legal right to fell the trees. For this type of sale, the cubic metre outcome is not relevant, because price is agreed based on the valid felling permission and the area. This is a quite common sales type among private forest owners, usually at auctions (auction platforms or targeted offers). Owner gets money after signing the contract with the buyer, before the cutting works start and the timber is realised.
When choosing standing sale, the owner has multiple options. It can be done by using the auction platforms (organiser will take a percentage from the sale) or use targeted offering, where the forest owner sends the information to the relevant buyers and organises himself all the documentations and surveillance.
Pros of this sale:
- Fast - money transferred to owner’s account after signing the contract with the buyer
- Weather is not a limiting factor
- Prices are based on current market situation
Cons of this sale:
- Surveillance - the forest owner has to do that on his own: quality of the fellings; is the material kept in the indicated area?; is the work done correctly, not damaging live trees etc. This type of agreement does not mean that the buyer will do the fellings straight away - it can take up to several years until the area is felled (due to market situations, weather etc.)
Sales type - where the price is based on the exact cubic metre outcome. In the same way as for standing sale, cuttings are done based on the valid felling permission. The difference is that with this sale the actual income will be clear at the end, when the material is cut, transported to buyer’s location and measured by the buyer. Payment is based on actual assortment of cubic metres. In general, it can be said that this type of sale requires more knowledge, preferably longer co-operation contracts and skilled/trustworthy sub-contractors. Therefore, assortment sale is more common among bigger forest companies. Everything starts in the forest with the harvester operator’s skilful decisions. If the decision is wrong due to his incompetence - client loses money. Other aspect is having good knowledge of the market situations - where, when and what assortments to sale, finding the most cost-effective market for the different assortments (not all assortments are sold to one place). Long term experiences are definitely giving the advantages here. Sub-contractors (whom to trust), longer co-operation agreements and bigger amount of the assortments, are giving more flexibility for negotiations.
When choosing assortment sale, in general, forest owners can earn more money. At the same time, they have to take into account some of the disadvantages that this type of sale could have:
- Felling period can take several months (due to the market, weather, finding contractors etc.)
- Prices can be changed during the felling process - forest owner could earn less money or more money, it depends on the prices achievable when the material is cut and transported to the buyer
- Requires more work - organising all the logistical works, starting in the forest and on to the way to the buyer’s market place
At this point, if the forest owner himself does not have enough skills or time to organise all the needed works, then he could consider using professional forest management companies - like HD Forest. They will carry out all the logistics and sell the material on behalf of the forest owner. All HD Forest processes are transparent to the forest owner. The forest owner could monitor the entire process via smart logistical tools, to which HD Forest can give the access.