Wool exporter Peter Morris, PJ Morris Wools, seeks prompt wool payment changes

By Mal Gill
April 27 2022 - 4:00am
Peter Morris, managing director of Western Australia's largest wool exporter, PJ Morris Wools, has called for wool broker support to extend the greasy wool prompt payment deadline by seven days and to limit national wool auction offerings to 40,000-43,000 bales a week for the rest of the season to try to avert an industry cash-flow crisis.

WESTERN Australia's biggest wool exporter Peter Morris has called for an agreed seven-day extension to prompt payment for greasy wool to help the industry manage a looming cash-flow crisis.

Mr Morris, managing director of PJ Morris Wools, said he personally felt Australia's wool industry was "at a cross roads again" as a result of commercial difficulties arising from "global disruption of shipping and logistics".

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He outlined his views on the situation facing woolgrowers, brokers, exporters and processors in a letter he sent last week - a recess week with no live wool auctions because of Easter - to a majority of wool brokers throughout Australia.

Mr Morris called on brokers collectively to consider extending the agreed prompt payment deadline for greasy wool buyers at live auctions for a further seven days for the coming 2022-23 wool season, to relieve financial pressures on exporters that threatened to restrict their ability to buy at future sales.

He suggested an extended prompt payment period could be reviewed next Easter "as the situation may have improved" by then.

Mr Morris also called on brokers for a "better spread" of weekly live auction offerings for the rest of the current season, effectively extending existing buyer demand further into the normal "May-June lull".

"It would be smart marketing of the wool clip", he said, if brokers were not putting up more than about 40,000-43,000 bales for auction nationally in any one week of the remaining season.

"This is a peculiar season and not like a normal season due to supply chain issues, so it seems this season could be extended to assist clients," Mr Morris said in his letter to brokers.

"Capacity in certain markets such as Europe and India is at full production and they can't buy more (wool).

"China is going to struggle with rolling lockdowns, you can assume, for the rest of this calendar year.

"Growers' returns has to be a priority so wool can compete with other farm produce," he argued in support of the measures he proposed.

Currently, exporters like PJ Morris Wools, have to pay for the greasy wool they buy at live wool auctions facilitated by Australian Wool Exchange (AWEX) at the Western Wool Centre (WWC) and similar selling centres in Melbourne and Sydney, by the Friday of the following week.

That effectively means WWC buyers usually only have seven or eight business days to pay for the wool they have bought, depending on whether it was bought on the first or second trading day of the previous week.

For a company like PJ Morris Wools, which regularly buys more than 1000 bales a week, that can mean a payout at this time of year in the order of $3 million by Friday of the following week.

Two months ago, in a busier time of the year, with more than 2000 bales purchased per week at higher prices by some buyers, the payout could easily exceed $7m by Friday of the following week.

Extending the prompt payment deadline by a further seven days would provide some relief for exporters whose financial resources were being stretched by various factors related to the COVID-19 global pandemic and resultant shipping and port logistics problems, Mr Morris indicated.

"Our clients are struggling with making payments, which will in turn impact exporters' ability to purchase in their normal capacity," he said.

"There will be weeks (of wool trading coming) that exporters are limited in cash due to constraints of payments from overseas.

"Normally this is not an issue."

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Exporters rely on lines of credit from banks or other lending institution to enable them to continue buying wool week after week in the intervening period until they receive payment for the wool they have previously consigned to a client.

Exporters normally send an invoice for the wool once it is loaded on a ship and they have a bill of lading to prove it is on its way to the client, but generally do not expect payment until after the wool has been delivered and inspected to confirm it complies with the specifications ordered.

Under current circumstances this means exporters can be forced to carry the cost of wool they buy for clients for a number of months after the prompt payment deadline.

Sometimes their cash-flow problems began with delays in receiving letters of credit simply because of "bank or office closures due to COVID outbreaks", Mr Morris said.

The current COVID outbreak shutting down Shanghai and surrounding area in China was also having an impact that was likely to continue well into the next wool season, he pointed out.

"Closure of Shanghai and surrounds has delayed the supply chain and raw wool has not been able to be delivered or processed," Mr Morris said.

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"The flow-on impact of this is that topmakers are unable to deliver on time to spinners and the spinners have the same issue delivering to the weavers.

"China is currently importing 80 per cent of Australia's wool and the Zhanjiagang area (an industrial area about 110 kilometres north west of central Shanghai on that city's outskirts, with its own container port on the Yangtze River) takes about 60pc of the imported wool.

"Comments from our contacts in China are that small to medium-size mills will come under more financial pressure from the start of May as they will not be able to repay loans on time and purchase more wool until debts are cleared," he said.

Space on vessels sailing to India was very limited and normally available six to eight weeks after booking, while "slow logistics" and congestion at some Indian ports meant further delays for wool consignments going there, Mr Morris said.

Booking container space on a ship to Europe involved a wait of six weeks to two months before loading, as well, ships sailing to Europe were "regularly delayed", he said.

Exporters out of Fremantle faced further problems, he said, with additional delays this end, before the wool was loaded.

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"(There is) massive congestion due to one wool dump and multiple vessel omissions this season which has reduced vessel slots and volume of containers being shipped," Mr Morris said.

Wool dumping involves compressing three bales together down to the size of one uncompressed bale, so theoretically three times as much wool can be squeezed into a shipping container.

Because of shipping delays and cargo backlogs, some ships scheduled to call at Eastern States' ports then sail west to Fremantle, were diverted before they came west, which created significant problems for exports out of Fremantle.

Mr Morris said inevitably, wool containers that were booked on the cancelled ship cannot all be booked on the next ship to the same destination, so the consignment has to be spread over several ships as space becomes available, which delayed delivery and subsequently payment to the exporter.

He said delays and overflowing container yards, where shipping containers are stacked before delivery to the wharf, afflicted all Australian ports.

Even though Melbourne had two wool dumps operating, he said they were both full and unable to receive wool for shipments sailing "prior to the last week of May".

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"This is the worst situation we have seen to date," Mr Morris said.

Sydney also suffered multiple shipping delays and wool exporters there were regularly unable to ship consignments for up to four weeks after paying for the wool, he said.

In support of his proposals Mr Morris argued the wool industry had previously come together when the COVID-19 pandemic first threatened its markets and its future, to make changes to ensure participants at every level were shielded as much as possible.

"Over the last two years we (wool industry) have been through continual hurdles to export wool from Australia to the world," he said.

"Wool exporters have not had an easy time and have had to manage very difficult commercial situations just to survive.

"Two years ago, almost to the month, the wool industry had an open meeting and discussion to explain the fragility of the market and demand, due to the rampant onset of COVID around the world

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"At this time offerings at auction were reduced with the support of growers, brokers, exporters and end consumers alike.

"My concerns are that over the next few weeks of volume in Melbourne in particular, the market will not be able to cope with the current logistical and cash flow situation."

WOOL AUCTIONS RETURN AFTER RECESS

LIVE wool auctions were set to resume this week after the Easter recess with the projected biggest national wool offering so far this season.

Australian Wool Exchange (AWEX) has indicated wool brokers nationally have listed a total of 52,312 bales for sale at the Western Wool Centre (WWC) and Melbourne and Sydney selling centres for week 43 of the current Australian wool selling program.

If brokers do not withdraw several thousand bales before the first auctioneer's hammer fall this week, it will also be only the third week in the current selling program where the national offering has exceeded 50,000 bales.

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The biggest national offering so far this season was 51,260 bales in the first week, back in July last year.

The next biggest was 50,120 bales in week 35 at the start of March.

The projected national offering for this week was 9001 more bales than was offered nationally a fortnight ago when the three centres last traded.

At the WWC, brokers have listed 11,297 bales to be put up for auction this week.

If the listed offering goes under the hammer, it will be the fourth biggest at the WWC so far this season.

In week 32 in early February, a total of 12,720 bales were offered at the WWC, followed by 11,421 in week one last July and 11,309 bales in week 30, late January.

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The projected WWC offering this week is 3406 bales more than was offered in week 41.

Sale days this week at the three AWEX selling centres have been pushed back a day to allow for the Anzac Day public holiday Monday.

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